The Never-Ending Stimulus Package – Fresh Injection of Free Cash

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In today’s Money Morning…JobKeeper out — SME Loan Guarantee in…as an investor, this is something that you should definitely be keeping an eye on…growth prerogative…and more…

Pack your bags, ScoMo is paying for your next domestic holiday!

Well, half of the cost of the plane ticket, at least…

It’s the latest federal stimulus package to boost our economy. This time with a clear focus on our battered tourism industry.

So, as of 1 April, some 800,000 tickets will be subsidised by the government. Giving Aussies (who are quick enough) a chance to snap up a discounted holiday.

News that was very well received by travel stocks yesterday.

More importantly though, it proved that Morrison and his party aren’t done with handouts just yet.

The clear intention of this plan is to smooth the transition between the end of JobKeeper (28 March) and the return of international travel. A possibility that Qantas boss, Alan Joyce, says is on track for October.

Personally, I think that may be optimistic. Because while the rollout of the vaccine may continue, convincing people it is safe to travel may be a tougher hurdle.

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We will have to wait and see.

Like I said though, the real story here is the fresh injection of free cash. A story that goes way beyond half-price airfares…

JobKeeper out — SME Loan Guarantee in

The much bigger news to come out of yesterday’s recovery announcement is the update to the SME Loan Guarantee Scheme. A program that, like JobKeeper, was first rolled out around this time last year.

It was a fairly simple package, one that would see the government share some of the risk of new loans to small- and medium-sized businesses. A means to prompt lenders, including the big banks, to be more lenient in allocating cash.

However, the first and second iterations of this policy didn’t quite hit the mark. Hamstrung by eligibility restrictions and an unwillingness from lenders to take on the risk.

As of yesterday, though, Morrison has improved the terms once more. With some big changes that will likely see this scheme become the ‘new’ JobKeeper for smaller businesses.

Most notably, the 50/50 split of the guarantee between the government and banks has been upped to an 80/20 split. Meaning the lenders themselves are taking on far less risk.

On top of that, the maximum level of turnover for eligibility has been raised from $50 million to $250 million. Making it far more accessible for a range of businesses.

Furthermore, loan terms have been doubled from five years to 10. As well as the possibility for a 24-month ‘repayment holiday’. And perhaps most importantly of all, will allow eligible businesses to use the scheme to refinance existing loans.

Needless to say, these are some huge changes for the policy. Changes that the banks have welcomed with open arms.

And considering the fact that only $2 billion has been paid out of an allocated $40 billion — this scheme should inject a lot of cash into the economy.

Like I said, it will likely become the new JobKeeper.

So, as an investor, this is something that you should definitely be keeping an eye on. Especially if you have any interest in small-cap stocks.

Growth prerogative

As we’ve seen in the past week or so, growth stocks have taken a backseat to value. Spooked by rising bond yields and fears of inflation.

Like I said yesterday though, these fears seem a tad premature and unwarranted. Central bankers, like our own Philip Lowe, don’t seem to care about inflationary risk. All they want to see is growth, and soon.

With this latest stimulus package, it is clear that the government is of the same mindset. Looking to keep the good times rolling with more cash for more businesses. Which, politically, makes perfect sense.

ScoMo and his party are up for re-election next year. Meaning that, as the party that brands itself as sound economic managers, they need the economy to be firing on all cylinders.

Just think about it. If we get close to full employment within the next 12 months, then Morrison will be a shoo-in for a second term. Few people will vote against the PM who turned around our fortunes amidst our first recession in 30 years.

That’s why I think the market may have been a bit overzealous in its recent sell-off. Punishing growth stocks for what seemed like the right reasons, but it may not pan out as expected.

We’re in the midst of a perfect environment for growth. Historically low interest rates, new and improved handouts for small businesses, and a prerogative for growth are all ideal for small-caps. Especially when both the central bank and the government need a booming economy to justify their own jobs.

It may not be sensible, or even logical, in terms of typical market motivations. But it is looking likely to happen.

And for that reason, I think now — when a lot of stocks are taking a beating — is the perfect buying opportunity.

One day all this loose monetary and fiscal policy may take a toll. But that day is not today.

The never-ending stimulus will continue. Whether we like it or not.


Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.

About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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