| | | | | |  | | By Ben White and Aubree Eliza Weaver | Presented by |  | | Editor's Note: Morning Money is a free version of POLITICO Pro Financial Services' morning newsletter, which is delivered to our subscribers each morning at 6 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day's biggest stories. Act on the news with POLITICO Pro. PROGRAMMING NOTE: Morning Money will not publish on Monday, Feb. 15. We'll be back on our normal schedule on Tuesday, Feb. 16. | | | Markets hit peak euphoria and that could be a problem — I go slightly long here this morning on risks to the Biden economy both from potential inflation on one side and persistent Covid on the other. Gas prices are climbing. Home prices are surging. Stock markets keep hitting fresh records as chat room-driven mania draws in giddy investors. The economy and financial markets appear to be pricing themselves for perfection, betting on rapid vaccinations and a surge of consumer spending later this year that will pull the nation out of its pandemic funk. Serious risks are still percolating just below the surface: Vaccinations could take far longer than expected. New Covid strains could evade vaccines and spur new lockdowns. All of this could trigger falls in stock prices and other assets and stomp on job creation. The inflation risk — But if the dream scenario does arrive, another risk is lurking: A burst of new spending and economic growth coupled with the massive amount of fiscal stimulus in the system — possibly including nearly $2 trillion more under the White House's latest plan — could lead to a sharp spike in inflation. That would send stocks tumbling and could force the U.S. Federal Reserve to contemplate raising interest rates to cool the economy. And the bubble risk — RBAdvisors' Rich Bernstein tells me: "The Fed is providing tons of liquidity, but because banks have been hesitant to lend, the liquidity is trapped in the financial economy and bubbles are forming. Whether it's bitcoin, SPACs, Robinhood day traders, or anything similar, it's clearly not healthy capital formation." Powell sides with inflation doves — In a virtual speech to the Economic Club of New York , Powell on Wednesday said published unemployment rates during the pandemic "have dramatically understated the deterioration in the labor market." He added that the pandemic "has led to the largest 12-month decline in labor force participation since at least 1948" while hitting poorer Americans far harder than the wealthy who have mostly kept their jobs and enjoyed large stock market gains. Bottom line: Risks tilted toward not doing enough — Eric Winograd, senior economist for fixed income at investment firm Alliance Bernstein, tells me: "For the Fed, the risk of tightening policy prematurely is much greater than the cost of tightening too late … The same is true on the fiscal side. If you do too little, we risk a very weak economy. You do too much, we get an overheated economy. Oh well. We have the tools to deal with that." GOOD THURSDAY MORNING — Email me on bwhite@politico.com and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on aweaver@politico.com and follow her on Twitter @AubreeEWeaver. | | A message from Robinhood: We're witnessing something that the stock market has never quite experienced before : an industry-wide transformation driven by the intersection of technology, democracy, and finance. What follows is an entirely new era of financial participation and market dynamics. | | | | | | President Biden this morning meets with senators from both parties "on the critical need to invest in modern and sustainable American infrastructure." The Senate reconvenes at noon to continue the Trump impeachment trial after a devastating day of opening arguments from the House managers. Initial jobless claims at 8:30 a.m. are expected to dip slightly to 758K from 779K. MORE IN THE INFLATION DATA — Via Mohamed A. El-Erian on Bloomberg Opinion: "The economic and financial data so far this week have highlighted once again the enormous contrast between the reported inflation rate for goods and services and the one for asset prices. "It is part of a much bigger and consequential disconnect between the economy and financial markets, or what is commonly referred to as Main Street versus Wall Street. In the short term, it opens a bigger window for significant additional fiscal stimulus to supplement ultra-loose monetary policy and financial conditions. But it does so at the risk of amplifying the policy, financial stability and political risks that await us down the road." WHITE HOUSE LOOKS TO BIZ TO SELL STIMULUS — CNBC's Brian Schwartz: "The White House has been reaching out to executives in several industries to rally support for the Biden administration $1.9 trillion Covid-19 relief plan … In the past week, administration officials have held at least two calls with leaders from multiple business sectors, including Wall Street and tech, said these people." "Brian Deese, President Joe Biden's top economic advisor, participated in some of the calls, one of the people said. Most of the calls have been anchored by the Office of Public Engagement, which is run by former Rep. Cedric Richmond." | 
Alex Brandon/AP Photo | HEDGE FUND EXECS TO TESTIFY AT WATERS' GAMESTOP HEARING — Our Zachary Warmbrodt: "Two hedge fund CEOs at the center of the controversy over the GameStop stock trading frenzy are expected to testify next week at a House hearing on the rollercoaster market moves, raising the stakes for Wall Street in the probe. "Citadel CEO Ken Griffin and Melvin Capital CEO Gabriel Plotkin are among the high-profile witnesses expected to appear at the Feb. 18 House Financial Services Committee hearing led by Chair Maxine Waters (D-Calif.), sources familiar with the matter said." SMALL BIZ FACES DELAYS ON PPP — Also via Zach: "Tens of thousands of small businesses have faced delays in receiving emergency payroll support loans that Congress authorized in December, sparking an uproar that has forced the agency responsible for distributing the funds to quickly find a solution. "The Small Business Administration, which acknowledges the delays were caused by efforts to ratchet up anti-fraud measures that the Paycheck Protection Program lacked when it was first launched last year, revealed plans Wednesday to speed up the process and keep the government-guaranteed loans flowing." | | | | TUNE IN TO GLOBAL TRANSLATIONS: Our Global Translations podcast, presented by Citi, examines the long-term costs of the short-term thinking that drives many political and business decisions. The world has long been beset by big problems that defy political boundaries, and these issues have exploded over the past year amid a global pandemic. This podcast helps to identify and understand the impediments to smart policymaking. Subscribe and start listening today. | | | | | | | | STOCKS END MIXED AFTER DAY OF WAVERING — AP's Ken Sweet, Damian J. Troise and Alex Veiga: "Major U.S. stock indexes ended another up-and-down day of trading more or less where they started out, although a small gain nudged the Dow Jones Industrial Average to another record high. "The S&P 500 ended down less than 0.1 percent, while the Nasdaq gave back 0.3 percent. Treasury yields fell after a government report showed that inflation remained tame last month. That's encouraging for investors because it suggests the U.S. economy will be able to receive more stimulus without overheating." THE SPAC BOOM, VISUALIZED — WSJ's Elliot Bentley: "SPACs are raising more money and outnumbering traditional IPOs, a review of Dealogic data shows. These 'special-purpose acquisition companies' have raised $38.3 billion since the start of 2021, compared with $19.8 billion by traditional IPOs. "Some high-profile SPACs, such as those that later merged with Nikola and Virgin Galactic, don't appear below because the blank-check companies involved went public before 2019." | | | |   | | | | | | BIDEN'S OMB NOMINEE GRILLED DURING HEARING — Reuters' Patricia Zengerla and Andrea Shalal: "Neera Tanden, President Joe Biden's nominee to head the U.S. Office of Management and Budget, was skewered from both the right and left at a second confirmation hearing on Wednesday. "Senate Budget Committee Chairman Bernie Sanders questioned Tanden closely about millions of dollars in donations to the Center for American Progress, where she is chief executive. 'CAP has received money from some of the most powerful special interests in our country,' said the liberal senator, an independent who caucuses with Democrats." AMERICA WENT ON A BORRWING BINGE, BUT BANKS WERE LEFT OUT — WSJ's Ben Eisen: "Last year was a banner one for debt, but it didn't look that way for America's big banks. Large U.S. lenders saw their loan books shrink in 2020 for the first time in more than a decade, according to an analysis of Federal Reserve data by Jason Goldberg, a banking analyst at Barclays. The 0.5 percent drop was just the second decline in 28 years." POWELL URGES 'SOCIETY-WIDE' PUSH TO DELIVER FULL EMPLOYMENT — Bloomberg's Craig Torres: "Federal Reserve Chair Jerome Powell said the U.S. job market remains a long way from a full recovery and called on both lawmakers and the private sector to support workers. "'We are still very far from a strong labor market whose benefits are broadly shared,' Powell said Wednesday in a speech to the Economic Club of New York, noting that employment last month was nearly 10 million below February 2020 levels. 'Achieving and sustaining maximum employment will require more than supportive monetary policy.'" | | | | TRACK THE FIRST 100 DAYS OF THE BIDEN ADMINISTRATION: President Biden's cabinet is getting confirmed, bringing change to agencies and departments across the Executive Branch. From the West Wing to Foggy Bottom, track the first 100 days of the Biden administration with Transition Playbook, our scoop-filled newsletter that chronicles the policies, people, and emerging power centers of the new administration. Subscribe today. | | | | | FIGHT OVER A BANK REGULATOR IS ABOUT OBAMA'S LEGACY — WSJ's Greg Ip: "Joe Biden, who sought the Democratic presidential nomination as keeper of Barack Obama's legacy, is now surrounded by Democratic activists deeply ambivalent about that legacy. Affordable Care Act? Left the insurance companies in charge. "The $831 billion American Recovery and Reinvestment stimulus bill from 2009? Too small and too timid. The Dodd-Frank financial overhaul? Not tough enough on big banks. The progressive message to Mr. Biden: Don't make that mistake again." JANE FRASER HAS TO FIX CITIGROUP. IT'LL BE A TOUGH JOB. — NYT's Emily Flitter: "On Jane Fraser's desk at Citigroup's downtown Manhattan headquarters sits a map of Puerto Rico made from trees downed by Hurricane Maria, which devastated the island in 2017. For Ms. Fraser, the incoming chief executive of Citi, the memento is a reminder of her mission: to restore order in the midst of chaos. "When Maria hit Puerto Rico, downing power lines and flooding the territory, Citi's San Juan branch was forced to close. As head of the bank's Latin America business, Ms. Fraser oversaw efforts to provide bank employees with generators, solar cellphone chargers, portable septic systems, water and other basic necessities at lightning speed, allowing them to reopen the branch a week after the storm." | | A message from Robinhood: We built Robinhood for the millions of people left behind by our financial system. We'll continue to stand right beside our customers as we break down barriers and expand access to the entire financial industry. And with a new generation of investors at the helm, the future looks a little brighter. | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
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