Thread by @Trinhnomics

Good morning: dollar down, risk assets up on JPO whatever it takes & G7 whatever it takes statement to restore economic growth!

Asia will have a good day today as we start to pick up the dust from this coronavirus fallout, which has shut down global activities & demand, for now.

https://twitter.com/Trinhnomics/status/1242443148258725888

2trn deal details:Payments of $1,200 to adults & 500 to most children, create a 500bn lending program for companies, states, & cities, & extend 367bn to help small companies deal with payroll problems. Bolster the unemployment insurance system and pump 150bn into U.S. hospitals.

Most of the fiscal is going to Main Street while Fed support for Wall Street. Everyone is upbeat about this (well, economy needs all the cheer leading it can get):

Larry Kudlow, said "Single largest Main Street assistance program in the history of the United States"

F-bomb💥💥

Discussion is over the 500bn loan: 425bn is to go to businesses, cities & states. An additional $50bn go to passenger airlines, as well as $8bn for cargo airlines, and $17bn for firms that are deemed important to national security.

Pres Trump wants some to cruise & hotels🧐

Like TARP, this 500bn lending program will have an independent inspector general & an oversight board to scrutinize the lending decisions.

The unemployment insurance expands eligibility & offering workers an +$600 a wk for 4 months, on top of what state unemployment. Not bad!

This's massive & bigger than any stimulus so far in the world as we're combining F-bomb (roughly 10% of GDP) with also the Fed cutting rates by 150bps + unlimited QE.

No country has done as much & mostly b/c of service role in US eco (77%).

Q: What about EM? Do we have space?

Forgot to say that this F-bomb also includes also contains $130bn for hospitals and $150bn for a state & local stimulus fund.

In EM Asia, given dependency on external demand & limited space for monetary & fiscal, gov & public have been very vigilant to prevent an outbreak.

In Vietnam, an economy that has massive dependency on tourism & trade with China (intermediates & final goods), shuts its borders for Chinese tourists immediately despite WHO advise against any restrictions.

Why? B/c VN deals w/ outbreaks often (eg African swine flu for pigs)

As communicable diseases occur often & it is familiar w/ it, was willing to sacrifice growth to prevent an outbreak b/c the capacity to deal w/ a massive outbreak isn't there given it is a very poor country (public health, economy buffer at every level). Hence extremely vigilant.

The rest of Asia is the same. Taiwan & Singapore develops institutional capacity after SARS. South Korea after MERS (Korean CDC learned its lessons). But Vietnam is much poorer & so it has to contain. In 2006 - killed all chickens due to bird flu & developed a system to monitor.

After this, everyone (Europe+US) will develop this kind of vigilance & institutional capacity as this is a shock to the system & shows the importance of public health, esp containment strategies.

For poorer countries like Vietnam, just doesn't have the buffer for an outbreak.

Back to the of 6trn: 2trn is fiscal is direct assistance & 4trn via Fed injections.

For those that thing this is going to create hyperinflation, the demand shock is massive (people sitting at home feeling bearish) & so inflation would only skyrocket if supply shock more massive.

Look u have to go back to the basics of money:

a) Central banks create money supply - but it's the circulation of it or shall I say velocity of it that expands money (money multiplier - banks lend, people spend etc)
b) Fiscal deposits help w/ cashflow, which is crashing.

So?

Currently, there are 3 CONTRACTION of balance sheets:
Households - balance sheets falling most for blue collar workers as they CAN'T WORK so the $$$ they get will only substitute lost income & not entirely
Firms - earnings FALLING as households don't spend
Gov - rev falling too!

Just read your emails:

What do u see? Ads of products going on SALE because theses stores DON'T HAVE BUYERS.

That's a decline of prices. This is a collapse of activity - the stimulus is only making up a small portion of it. No pent-up demand. People won't go on a shopping spree

Even people w/ a lot of disposable income wont' go on a shopping spree, let alone those blue collar people that are going to lose their jobs.

Why? It is called self restraint. Who wants to go do conspicuous consumption now in a certain world & future likely deflationary?

Ask yourself, assuming u have wealth & not live hand to mouth:
a) Pension - 401k has fallen - so u feel POORER (negative wealth effect) as u think ur retirement less cushy so u SPEND LESS NOW
b) House - likely OK but value not going up more (negative wealth effect)
c) Job - well.

Say u somehow manage to be OK for A, B, & C but u walk around your city & read the news, what do u see?

a) Suffering of ur common man - so u feel bad
b) Suffering of some of ur friends, family, colleagues.

Do you then go on a shopping spree? Not likely & if u did u hide it.

Ordinary people's sentiment driven by what they see:

*Stock market (down = future sucks as exps of earnings DOWN)
*Outward visible signs of activities, usually restaurants, shops etc (anything that's non essential).

When both down, people WORRY. I worry when I walk around HK.

Propaganda poster from Vietnam 🇻🇳& it says:

Staying at home is loving your country 🤗!

From songs to posters, Vietnam is trying to get its citizens to help contain the coronavirus. Maybe the US can get celebs & basketball players ⛹️‍♂️ to say:

Staying at home is da bomb 👍🏻😎