Trump and the Democrats agree the U.S. needs to spend $2 trillion on overhauling its ailing infrastructure.
A Different Tone
U.S. President Donald Trump and Congressional Democrats from the House and Senate met earlier this week to discuss infrastructure. There has been, to date, bipartisan support for infrastructure spending but deep divisions about where to source funding and how to spend the proceeds. This week’s meeting was different, according to Senator Chuck Schumer (D), “there was goodwill at this meeting”.
The two sides discussed how much and on what spending would cover. Schumer says their agreement on a number is a very, very good sign a deal can be done with the President. At stake is up to $2 trillion in infrastructure spending covering everything from broadband to transportation, water, and power delivery.
Prior to the meeting, President Trump’s position has been that the government would spend $200 billion in an attempt to spur upwards of $800 billion in private spending. The new plan, as foreshadowed by this week’s news, is that the government would provide the lion’s share of the proposed $2 trillion total. There is a second meeting scheduled for two week’s time at which more specific details will be discussed.
This news fits right into the infrastructure/real-assets narrative. Infrastructure spending is a need worldwide that is growing annually. Larry Antonatos and the team at Brookfield’s Public Securities group described just the other day, during their quarterly Real Assets Market Update, how the infrastructure arena was well positioned for growth over the coming years. Based on their estimates global infrastructure spending is expected to top $3.7 trillion annually, 4% of global GDP, over the next several decades. Total spending will top $69 trillion by 2035, a big opportunity for the right businesses.
In the near-term, Brookfield’s asset managers are expecting to see modest global GDP growth. The U.S. will lead, the EU will lag, but growth will be broad-based. Inflation is not much of a concern now but may become one in the future. The biggest risk at this time is wages, wages are rising at a +3% annual rate, but so far offset by gains in productivity. China is expected to remain accommodative to their economy, a boon to the global economy, but recent developments point to a decreased chance of further easing.
When it comes to infrastructure Brookfield focuses on what they call “pipes and wires”, the things that transport other things around and through the economy including power, people, water, oil, and goods. A focus that puts them in a unique position relative to the $2 trillion in spending proposed by Trump and the Democrats. Brookfield’s Global Listed Infrastructure Income Fund is global in nature but focused smartly on the U.S with 56.5% of assets allocated there. On a sector basis, the Global Listed Infrastructure Income Fund has nearly 75% of its assets in pipelines, toll roads, electric production/distribution, and communications; all infrastructure projects that generate income through their use, not their intrinsic value.
The Bottom Line
The bottom line with infrastructure is the same as it has been; there is a need for infrastructure on a global scale and governments are spending money. Spending is expected to accelerate over the next decade and continue on at a high rate long into the future. This means steady, stable, inflation-adjusted returns for the companies in business sourcing materials, building, maintaining, and operating those infrastructure projects. It also means steady, stable, inflation-adjusted returns for those who invest in the infrastructure of American and the world.