In today’s Money Morning…priced in, or priced out?…more money, more assistance, more gains…repackaged or rebranded under new and more confusing schemes…and more…
Just three more days before it all comes to an end…
Yup, Sunday is when the government’s long-running stimulus bonanza (JobKeeper) comes to an end. A pivotal moment that’ll be like pushing a baby bird out of the nest for the first time.
Will the economy manage to fly on its own, or will it enter a free fall?
The answer very much depends on who you ask. But one way or another, we’re all going to find out in the weeks and months ahead.
So, for investors, there are a few major considerations to deliberate.
Today and tomorrow may be your last chance to get out of some riskier stocks. Or perhaps even your last chance to get out of the market as a whole if you’re worried about a fall on Monday.
After all, if Treasury forecasts are to be believed, Monday could see the start of up to 150,000 job purges.
And if that is the case, you can bet the market isn’t going to respond kindly.
Priced in, or priced out?
If you haven’t already heard, Treasury secretary Dr Steven Kennedy has some qualms about the state of our economy. Agreeing that it is headed in the right direction, but still has some challenges to overcome.
One of the biggest is of course the end of JobKeeper.
As he told a Senate hearing yesterday:
‘We believe that in the order of 100,000 to 150,000 JobKeeper recipients may lose employment at the completion of the program, though there is a wide band of uncertainty around this estimate.’
In other words, prepare for some bad news on the unemployment front for the short term. As well as the likelihood of a number of businesses closing down for good.
As cold as my assessment may be here, the reality is that this was always going to happen.
Like any stimulus program, it must come to an end eventually. And when it inevitably does, not every business will survive. That’s just the nature of the business cycle.
It may not be what many want to hear or is necessarily fair, but it’s just the way it is.
For that reason, I expect any job losses or business closures will likely be isolated to certain sectors. With tourism, arts, entertainment, and other recreational services the most at risk.
I would certainly be wary of any investments within or related to these industries.
But I wouldn’t urge you to sell right away either.
See, for the most part, I expect the ASX has already priced in a lot of the JobKeeper uncertainty. The past month of sideways trading is somewhat indicative of that, in my view. As investors have tussled with broader uncertainties around the state of the global economy.
So, while we may see a slight reaction on Monday, don’t expect some giant crash. It will take weeks and months to truly assess what the end of this stimulus will mean for many businesses.
More importantly, I think this inevitable pressure on the economy will spur further stimulus. Just like I discussed in my last article on this topic two weeks ago. You can check that out for yourself, right here.
Because if this government wants any hope of re-election right now, it needs a strong economy.
More money, more assistance, more gains
As I’ve already discussed in that last article, the third iteration of the SME Loan Guarantee can’t be underestimated. A program that could end up just becoming the new iteration of JobKeeper. Albeit with a focus on smaller businesses.
In fact, this small business focus is something that is clearly on a lot of minds right now.
Take this quote from Small Business and Family Enterprise Ombudsman Bruce Bilson’s recent press release:
‘The Australian Small Business and Family Enterprise Ombudsman Bruce Billson has backed the RBA’s plea to banks to treat small businesses differently to consumers when considering loan applications.
‘Mr Billson welcomed further scrutiny of small business access to finance pledged by RBA Assistant Governor Chris Kent in today’s address to the Australian Finance Industry Association.
“The RBA has noted it expects business failures to rise as government support measures are phased out. This highlights the critical need for small businesses to have greater access to finance, to provide the cash flow necessary to get through the coming months.”’
So, while it may just be a ‘plea’ for now, it would not surprise me to see the RBA take more direct action.
Especially with the government’s recent amendments to the National Consumer Credit Protection Bill. Reforms that are aimed at making it far easier for individuals and small businesses to get loans, which in turn should boost the economy.
In this regard, the government is trying to wean us all off their debt and push it back onto the banks. Granted, there is still a lot of taxpayer dollars floating around compared to our pre-COVID era.
For investors, this is perhaps the biggest takeaway of all.
Because while JobKeeper may be on its last legs, stimulus certainly isn’t. It is simply being repackaged or rebranded under new and more confusing schemes.
And while one day someone will have to pay for all of it, right now it is corporate Australia that will likely reap the benefits. Which is precisely why I’m not too worried about what may or may not happen on Monday.
Who knows what might actually occur though?
Because if one thing is for certain, it is that rationality has not been a strong point for stocks recently.
Just something to consider as the countdown for JobKeeper enters its final hours.
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.