One of the central parts of President-elect Donald Trump’s economic plan is his call for $1 trillion in infrastructure spending over the next 10 years. Investors have taken that massive infrastructure spending plan as spectacular news for infrastructure stocks, which have surged in 2016.
Unfortunately, Axiom analyst Gordon Johnson believes investors are being too optimistic about the prospects of Trump’s plan. In fact, Johnson pointed out that Trump’s plan is nearly identical to the Transportation Infrastructure Finance and Innovation Act (TIFIA) that has been in place since 1998.
Not A New Idea, Or Plan
“Under Trump’s current plan, which will rely on 83 percent funding from private debt investors — who require a return in excess of their cost of capital (5–6 percent on 30yr paper) — the equity market is assuming 100 percent of the funding will be extended, while the TIFIA program currently in place, which offers investors ~80 percent in gov’t handouts, is only generating ~24 percent investor interest? We think the market is wrong, and thus model a conservative $200 billion in stimulus extended from Trump’s current plan,” Johnson explained.
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