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Bomb doors open

18 March 2020

Helicopter money is now here but I can not imagine that Ben Bernanke thought it would be under this viral onslaught. Trump and Treasury Secretary Mnuchin explained at the 17 March press conference that a tremendous fiscal easing was coming to America, “the likes of which have never been seen before”. While not surprisingly this is actually untrue – the post global financial crisis (GFC) fiscal splurge was actually bigger – it is providing a welcome relief finally from a press conference.

The helicopter drop of USD 1000+ a month (to presumably anyone out of work, rather than the millionaire donors to the Republican Party) equates to USD 250 billion in April and possibly extended into May along with other measures, such as delaying tax payments, could mean USD 1.2 trillion is injected into the economy in very short order.

At nearly 5% of US GDP, this is a sizable response, reflective of the grave times we are now in, although we would exercise one small note of caution – it still needs to get through Congress. The inflationary effect, further down the line of this ‘air drop’ is being reflected in bond prices – down a lot, with the 10-year treasury over the 1% yield threshold again. Equity markets, on the other hand, are staging a partial relief comeback from the last few days’ trading. Trading is difficult when policy makers panic into action, which they now thankfully seem to be doing. The markets are said to stop panicking when policy makers panic – let us just hope this is the case, but it would be a brave investor that goes all in at this stage. We are only a few weeks into the pandemic and China took eight weeks to see active cases start to decline. Buyer beware.

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