The Endless Stimulus Program – A New Injection of Free Money
In today’s Money Morning… JobKeeper out – Small Business Loan Guarantee in… as an investor this is something you should definitely watch out for…prerogative of growth … and more …
Pack your bags, ScoMo pays for your next national vacation!
Well, half the price of the plane ticket, at least …
This is the latest federal stimulus package to boost our economy. This time with a clear focus on our battered tourism industry.
As of April 1, some 800,000 tickets will be subsidized by the government. Giving Australians (who are quite quick) a chance to enjoy a discounted vacation.
News that was very well received by travel stocks yesterday.
More importantly, it proved that Morrison and his group were not done with handouts yet.
The clear intention of this plan is to ease the transition between the end of JobKeeper (March 28) and the return of international travel. A possibility which, according to Qantas boss Alan Joyce, is on track for October.
Personally, I think that can be optimistic. Because while the vaccine rollout may continue, convincing people that it is safe to travel can be a more difficult hurdle.
We will have to wait and see.
Like I said, the real story here is the new injection of free money. A story that goes far beyond half-price plane tickets …
JobKeeper out – SME loan guarantee in
The much bigger news to come out of yesterday’s takeover announcement is the updated SME loan guarantee scheme. A program that, like JobKeeper, was first launched around this time last year.
This was a fairly straightforward program, which would see the government share some of the risk of new loans to small and medium-sized businesses. One way to encourage lenders, including big banks, to be more lenient in the allocation of liquidity.
However, the first and second iterations of this policy did not quite hit the mark. Paralyzed by eligibility restrictions and the reluctance of lenders to take the risk.
Since yesterday, however, Morrison has improved conditions even further. With some big changes that will likely see this program become the “new” JobKeeper for small businesses.
In particular, the 50/50 split of the guarantee between the government and the banks has been increased to 80/20. This means that the lenders themselves take much less risk.
On top of that, the maximum level of revenue for eligibility has increased from $ 50 million to $ 250 million. Making it much more accessible for a range of businesses.
In addition, the duration of loans has been doubled from five to ten years. As well as the possibility of a 24-month “reimbursement leave”. And perhaps more importantly, will allow qualifying businesses to use the program to refinance existing loans.
Needless to say, these are huge changes for the policy. Changes that banks have welcomed with open arms.
And given the fact that only $ 2 billion was paid out of the $ 40 billion allocated, this program should inject a lot money in the economy.
Like I said, it will probably become the new JobKeeper.
So, as an investor, this is something you should definitely watch out for. Especially if you are interested in small cap stocks.
Growth prerogative
As we have seen over the past week, growth stocks have lost value. Frightened by rising bond yields and fears of inflation.
As I said yesterday, these fears seem a bit premature and unwarranted. Central bankers, like our own Philip Lowe, don’t seem to care about the risk of inflation. All they want is growth, and soon.
With this latest stimulus plan, it is clear that the government is of the same state of mind. Looking to continue the good times with more money for more businesses. Which, politically, makes perfect sense.
ScoMo and his party are re-elected next year. This means that as a party that presents itself as good economic managers, they need the economy to run at full speed.
Think about it. If we are approaching full employment in the next 12 months, then Morrison will be running for a second term. Few will vote against the Prime Minister who changed our fortunes in the midst of our first recession in 30 years.
This is why I think the market may have been a little too zealous in its recent massive sell-off. Punishing growth stocks for what seemed like the right reasons, but it might not go as planned.
We are in the midst of a perfect environment for growth. Historically low interest rates, new and improved support for small businesses, and a prerogative to grow are all ideal for small caps. Especially when the central bank and the government need a booming economy to justify their own jobs.
This may not make sense, or even make sense, in terms of typical market motivations. But it seems likely.
And for that reason, I think now, when many stocks are battered, this is the perfect buying opportunity.
One day, all of this lax monetary and fiscal policy could have dire consequences. But that day is not today.
The never-ending relaunch will continue. Whether we like it or not.
Greetings,
Ryan Clarkson-Ledward,
Editor, Morning money
Ryan is also the editor of Australian small cap investigator, a stock newsletter that tracks promising small-cap stocks. For more information on how to subscribe and see what Ryan is saying to subscribers right now, Click here.