Matthew: Hello everyone, and welcome once again to our weekly podcast Under the Macroscope with the Chief Strategist in the U.K. office of Skybound Capital, Jabir Sardharwalla, in which we take a look at some of the news items that are affecting global markets and macro conditions around the globe over the past week. Inevitably, we will have a brief discussion about that interview involving Oprah Winfrey and Harry and Megan, but perhaps from a perspective that you wouldn’t really expect. We’re going to see how it reflects how various people consume media these days and form opinions. First of all, to the U.S., we go and the biggest news of the week undoubtedly, the announcement and confirmation of the U.S. stimulus package, which was signed into law by President Joe Biden. Jabir, your thoughts on that and perhaps more pertinently, the effect that the stimulus package will have not only in the U.S. but globally.
Jabir: Hi Matt. It is big news. The first thing to say I think is congratulations to Joe Biden for getting this through. I mean, I think a lot more resistance was expected. I certainly expected it. I thought he’d have a tougher time with the Republican Senators, but he has managed to get this through with relative ease. However, the amount of editing that took place in the final stages was really quite small. It was to do with income brackets and who qualified for some of those benefits. Otherwise, everything about the stimulus bill is intact. Well done to him on that.
The second point is that it’s an entire $1.9 trillion. People were saying that there’ll be some compromise, and we’ll probably settle around $1.4–1.5, but it’s the total $1.9 trillion.
As for the implications, this is huge. This is equivalent to 9% of U.S. GDP. It isn’t easy to fathom just what this means. There are many different components to it, but arguably the most important is the portion of the direct payments, which totals $400 billion of that package. That involves the next round of payments of $1,400. That goes directly to households. Obviously, it depends on your income bracket, but it’s going to hit most households very comfortably. Imagine $1,400 going into your pocket, and you’re at liberty to spend or save. A lot of them have been saving. Just think of the impact that this has at a time when their vaccination program is going incredibly well. They’re now looking at having pretty much everyone vaccinated by May. That’s been boosted and aided by the other vaccine supplies coming onboard. There’s been a lot of cooperation and collaboration between the big makers. Suddenly now you’ve got this big stimulus round coming through, which replaces and tops up the last one that we had in December. In addition, it comprises other things, $350 billion worth of support to state and local governments, $56 billion to childcare, $170 billion to schools. These are big figures. Unemployment insurance receives $163 billion, public health $109 billion. Small businesses aid, and that’s an important one, it’s relatively speaking only $48 billion, but considering the portion of the economy that SME, Small to Medium Size Enterprises make up, that’s a big boost. It almost has a multiplier effect in its own right. Housing assistance of $45 billion.
Last but not least, food aid, $12 billion. We often forget the level of sort of borderline poverty that does exist in America. That’s a significant step too.
Also, just try to think about what implications that has. You’ve heard me rant on about yields and inflation in the past. I think what we’ve seen so far in terms of yields is just the tip of the iceberg. Things have gone a little bit quiet at the moment on the yields front, but they remain elevated, even though they’ve pulled back a bit. I think, wait until the easing starts, and suddenly you have the handouts coming through. That’s going to be the next big lift to the economy.
Matthew: Jabir, it may be an unfair question, but in your opinion, how much time does this buy?
Jabir: That’s a very interesting question because this is linked to almost a multiplier effect. It’s a very relevant question. It’s also relevant in another respect: people I think rather mistakenly focus on things like unemployment. If we assume that we want to return to pre-Covid levels, you will have to get something between 10–12 million people back into work. My view, and I don’t think I’m over-optimistic about this, is that in an extremely flexible economy, like the U.S., the labour market is also very, very flexible. To me, it’s an upside to play for. Therefore I think it’s pretty feasible by the end of this year; we could see levels returning. Unemployment right now is just over 6%. If we want to bring that down to just over 4%, which is where it was pre-Covid, I think that’s very doable because it’s a service-based economy. I think the bulk of it can be done by the end of this year. We may marginally have to go into the start of next year, Q1, but I think the bulk of it can be done this year.
Matthew: Interesting stimulus package announced in the U.S. If we go from west radically to the east, another fascinating bit of stimulus provided by another government in Australia. We saw the announcement of a government subsidy for domestic flights to restimulate domestic tourism in Australia.
Jabir: Actually, I think it’s a great move. It’s a great move. It’s debatable who this benefits the most. We know that various national carriers have had their issues, and they have needed financial assistance. That’s for sure. I don’t have a problem with that. I think the second most important thing to a countries flag is its national carrier. It is their symbol. But when you look at this, the Australian government will subsidize 800,000 domestic flights between the 1st of April and the 31st of July; it’s going to cost them about $1.2 billion. In the grand scheme of things, I think what that can achieve for the economy is massive. Tourism is worth over $60 billion. That’s how big that industry is. It employs about 5% of the nation’s workforce. It’s an important thing to do. It’s also a service-based economy, so they have to do this. The government will pay 50% of the cost of flying to 13 different destinations within Australia. It’s also expected to provide financial assistance to the likes of Qantas and Virgin between the 1st of April and the 31st of October. 31st of October is when they expect international flights to be resumed. It could be resumed even sooner if they get the Covid passport issue sorted up.
Bearing all of that in mind, I think it’s a price worth paying. We had something similar in a different sector, which was the eat out to help out, which was very successful here. The cost of that was like a drop in the ocean compared to furlough. But it was a big boost to the point that many restaurants were fully booked. As soon as it ended, they were empty again. I think this is one of many initiatives that you’re going to start to see across different countries to stimulate the whole revival.
Matthew: Interesting one to keep an eye on. I think South African listeners to the pod would argue that support for a national airline is appropriate up to a point, Jabir.
Jabir: I understand. I’m not going to get into the political ramifications of that one.
Matthew: Best you don’t. Just to finish off. I mentioned that interview between Oprah Winfrey and Megan Markle, Prince Harry. The responses have been extraordinary in both directions, and without getting into the detail of the interview, what it really does for me Jabir is to show how polarizing a lot of the mainstream media can be at the moment, and in many ways, a reflection of the political climate in the world. There seems to be a diversion from the centre in both directions, and opinion in several mainstream media houses very much swayed in one direction or the other. So that proposes challenges of where do you find a balanced view. What’s yours?
Jabir: I think you’re quite right. You can stretch that to other parts of the different sectors, basically. When I’m looking for reports, when I’m looking at commentary and research it’s no different there. You can easily fall into the biases of different reporters and different journalists. What I try and do, as a discipline, is to try and find an opposing view to something that I’ve come to settle on, to test the thesis.
I think what that interview highlighted is just how easy it is to go with the sway. That, for me, is a big, big concern. I don’t think people today really look to try and form their own opinion. I think they are too content just to become influenced by what’s being said by others, and that’s a real shame. The challenge today, and it’s perhaps the reason why people call it contrarian, is to find a balanced view and then you end up expressing your own. It is a very big problem today. It’s a really big problem. I struggle with it, but I always try to find an opposing view to test the thesis.
Matthew: That’s why I generally come to you for a balanced view.
Jabir: Thank you.
Matthew: As always appreciate your thoughts, your views. Jabir produces his week in review which comes out every Monday and alongside the publication of Under the Macroscope, which I mentioned is available at Skybound Capital’s website, www.skyboundcapital.com, on Apple, Spotify, and Google podcast platform for Android. So some interesting topics once again to keep an eye on in the coming weeks and months. Until next time goodbye.