The markets are doing well for the second day because the awful jobs number on Friday has convinced traders that a huge stimulus package is coming. President-elect Obama did nothing to dispel that notion over the weekend.
How big will the infrastructure stimulus plan be? There is talk it could be as much as $130 billion. How much is that? It is roughly the cost of the entire interstate highway system from its inception.
There are three components to this that are exciting investors:
1) Highway infrastructure;
2) Make public buildings more energy efficient (replace heating systems, efficient light bulbs, etc.);
3) Modernize and upgrade school buildings.
Infrastructure. Don't kid yourself: the credit crisis has stalled a lot of projects. Is there really any "shovel-ready" projects out there? The American Association of State Highway Transportation Officers (AASHTO) says there are $64 billion in ready-to-go projects already out there (interestingly, they increased this more than three-fold from $18 billion in January to $64 billion on Friday...hmm). This is big deal for companies like Granite Construction and Vulcan Materials . Here is the press release.
Modernize and upgrade school buildings, and make public buildings more energy efficient. This would be a boon to companies like Emcor , which makes power generation systems, and HVAC (heating, ventilation and air conditioning).
This is good news, but let's get real:
1) Right now, the market seems to be pricing in the most aggressive figures, which are unlikely to happen. Granite Construction, for example, is trading at 17x forward earnings already! The stock was at $30 10 trading sessions ago...It's $48 today! Think the word is out?
2) Don't exaggerate the effects of infrastructure stimulus. According to BMO Capital, spending on public infrastructure for the past year was roughly $160 billion; spending on residential construction was $645 billion.
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