• About
  • BeyondOverton Travel
    • Silk Road (1): If Turkey is in crisis, it’s not obvious visiting it
    • Silk Road (2): Could beautiful nature and ancient history create a false sense of entitlement?
    • Silk Road (3): Fast Car
    • Silk Road (4):We took a bus ride to Iran
    • Silk Road (5): Border bothers
    • Silk Road (6): Chevrolet Land
    • Silk Road (7): Free-roaming camels and wild horses
    • Silk Road (8): China West to East
    • Silk Road (9): I have not told half of what I saw
  • BLOG
  • g88kboy Travel
    • On the Silk Road
    • Bulgaria : The Chicken crossed the Road
    • Turkey : The Country, not the Bird
    • Georgia on my Mind
    • Armenian Ayran
    • Iran – The Curious Land
    • An American in Azerbaijan
    • Uzbekistan: Golden Teeth and Neon Signs
    • Kazakhstan: Thirty Sweating Seniors
    • China Part One – Pandas Are Extinct
    • China Part Two: My TED Talk (Deep Analysis)
    • Phillipines – They Relax, I (pretend toπŸ˜‰) Study
    • Singapore: flashing trees and a torrent of tears
    • Malaysia: That ain’t no croc, it’s a log
    • Brunei: The Instinctive Fight for Superior Domination
    • Phillipines: Hello Friend Again
  • Outside the window
    • Bulgaria
    • Turkey
    • Georgia
    • Armenia
    • Iran
    • Azerbaijan
    • Uzbekistan
    • Kazakhstan

BeyondOverton

~ let's move this window

BeyondOverton

Monthly Archives: October 2020

This new fiscal stimulus should offer more support for US stocks

01 Thursday Oct 2020

Posted by beyondoverton in Equity

≈ Leave a comment

Tags

fiscal policy

Details are slowing coming out of a possible agreement on a new fiscal stimulus. It is a smaller package, but, nevertheless, if it passes, is still substantial as it pertains to direct household (HH) assistance which is what matters to the stock market. The UI benefits + the direct government transfers in the previous package covered more than 200% of the lost income from unemployment during March-September. As a result, total HHs savings rose by about $1.4Tn in that period. A chunk of that money went into financial assets, including stocks, judging from anecdotal evidence and data from retail brokerage accounts.

Most of the extra UI benefits have now stopped and the government transfers are smaller. However, they are still able to cover lost income from unemployment even as of September. Without a new deal, though, that won’t be possible in October, which means that HHs might have to tap into their savings to supplement their income. Which might mean, they have to sell stocks. 

Reality, though, is that the majority of that $1.4 of extra savings, up to now, was skewed to the people who do not live pay-check to pay-check and, therefore, going forward, 1) most US HHs would be in big trouble to cover expenses without a new stimulus deal,  and 2) there might not be a substantial flow of equities selling pressure from reduced savings even if there were no new deal.

So, that is why a new fiscal stimulus is likely coming, despite, seemingly, no need for it, given elevated HHs savings. In fact, the amount of HH savings is slowly turning into a similarly giant money cemetery as that is what the excess reserves at the Fed are: money which does not enter the ‘real economy’, rather it might remain stuck, ‘forever’, in financial assets. 

So, even with the reduced UI payments ($400 vs $600) and reduced direct transfers ($1000 vs $1200), the money should be more than enough to cover the lost income from unemployment. A rough calculation from the article above shows that UI benefits + direct government transfers would amount to $500-600Bn for September – December. The previous package came to a combined $800Bn for April – August (see here).

Which means there will be even more money going into savings and thus financial assets. With monetary policy on autopilot until 2023, all marginal financial liquidity, ironically enough, courtesy of the extremely skewed income distribution in the US, is now solely determined by fiscal. From a pure flow perspective, in the short term, stocks should like this status quo (economy/employment weaker) more than a rebound in economic activity.

Longer term, post the election and into 2021, a Democratic sweep might increase the risk of higher corporate taxes/regulations which will eventually weigh on corporate cash flows. But it might also increase the likelihood of future, and more generous, stimulus packages, and even perhaps, eventually, a UBI.

Trade accordingly.

Subscribe

  • Entries (RSS)
  • Comments (RSS)

Archives

  • January 2023
  • December 2022
  • November 2022
  • August 2022
  • February 2022
  • April 2021
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • May 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • June 2018
  • May 2018
  • March 2018
  • February 2018
  • January 2018
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017

Categories

  • AI
  • Asset Allocation
  • blockchain
  • China
  • De-urbanization
  • Debt
  • Decentralization
  • EM
  • Energy
  • Equity
  • FX
  • g88kboy
  • Monetary Policy
  • Politics
  • Questions
  • Quotes
  • The last man standing will laugh
  • Travel
  • UBI
  • Uncategorized
  • VR

Meta

  • Register
  • Log in

Blog at WordPress.com.

  • Follow Following
    • BeyondOverton
    • Join 73 other followers
    • Already have a WordPress.com account? Log in now.
    • BeyondOverton
    • Customize
    • Follow Following
    • Sign up
    • Log in
    • Report this content
    • View site in Reader
    • Manage subscriptions
    • Collapse this bar