Good News: US Bank Deposits Go Up 21.3% to Hit a Record &16.2 Trillion

In the wake of the on-going pandemic and its devastating consequences in the US, there seems to be good news sweeping across the nation- bank deposits are steadily going up, and things are slowly stabilizing. Americans' total bank deposits increased to almost $16.2 trillion (a 21.3% increase compared to the previous year). Most economic analysts are upbeat the US economic metrics are finally getting positive. Is this surprising?

Think of it: In recent weeks, going up to January 2020, the numbers for building permits, existing home sales, and housing stats got more robust. In fact, the estimates for manufacturing and other services indicate an impressive expansion far above the projections by Wall Street gurus.

And the glad tidings don't end there- the overall measures of business activities drawn from different regional outposts mostly point to promising activity. The situation is far better than what many thought would be the case. Admittedly, while unemployment levels in the US are still higher than what's generally acceptable, the claims for unemployment or joblessness (submitted to government agencies) are now lower than what most analysts expected. Of course, we cannot expect the economy to come full circle just yet. Yes, we can only hope this will happen once the government cares entirely for the most vulnerable.

But the big question is: How can the government accurately target the most vulnerable and impacted people? Think of this: Almost 500,000 people lost their jobs in December 2020. At present, almost 16 million people are sustained by benefits given by the government to the unemployed. As noted, the number of those still dependent on such tickets has gone down significantly; regardless, millions of Americans will continue to rely on multiple agencies for daily survival- and this will go on for quite a while.

But- as they say, behind every cloud is a silver lining. As of January 2021, the rest of the US economy seemed to be getting more vibrant by the day. Considering that the most affected citizens have benefitted from two separate government stimulus packages worth over $3 trillion, is it surprising? As a result, many US households have witnessed a significant strengthening of their financial and economic prospects. These dynamics cannot be taken for granted. The country now enjoys hitherto unprecedented levels of low-interest rates and bond-buying worth trillions of dollars. Yes, these factors characterize a new degree of Federal Reserve monetary goosing.

Further, to return the economy back on track, there has been an unusual array of lending programs that aim to return the economy to the levels that existed before the coronavirus struck. Interestingly, the Fed is now purchasing bonds at a closer pace- approaching $1.5 trillion each year. What does this say about the ordinary American's overall economic situation? It says this: Things are getting better and becoming more promising as the days pass.

Consider the following data: Between January- February 2021, Americans' bank deposits went up to almost $16.2 trillion. This represents a 21.3% increase compared to what the situation was just a year ago. In fact, many institutions of Wall Street are witnessing unexpected record highs. Of the promising bank deposits, we have some $1.4 trillion in what is referred to as "excess savings" by BofA; these are likely to rise to $1.6 trillion as the government continues to distribute more checks from the earlier $900 billion stimulus package passed by Congress.

Further, according to the Bank of America Global Research, this is not all: There's a general surge in spending. Moreover, debit and credit card expenditures have gone up by 22% over the year (up to January 16, 2021) for low-income individuals who benefited from the last round of stimulus payments. Interestingly, according to the bank source, "most US households have more cash now than they've ever had. Yes, they're extraordinarily cash-rich." The Pantheon Macroeconomics chief economist Ian Shepherdson recently said this in a webinar session: "Thousands of US households now have a ready war chest that they're ready to spend as soon as possible. Once the Covid fear is effectively gone, we can assume more people will be ready to spend as much as they can."

According to Shepherdson, the rate of inflation is likely to accelerate. This would force the Fed to reconsider its overly-accommodative policies. Eventually, they'll be forced to tighten things much sooner than the market expected.

Is The US Government's Economic Recovery Plan "Over- Ambitious?"

Is the new US government's newly launched economic recovery plan overly-ambitious? Is it probably too big? While some experts and analysts think this is the case, others don't quite agree. For instance, Jonathan Parker, who serves as Professor of Finance at the MIT Sloan Management School, poses a pertinent question: 'What should be foremost in our minds as we define the much-touted US government's recently announced stimulus package? Are we in a situation where we need to effect an economic shutdown until we receive the eagerly-awaited coronavirus vaccines, or should we try to stimulate the national economy right away? Professor Parker is a renowned researcher and an expert in government stimulus issues for several decades. "Well," the scholar concludes, "I'm convinced and believes it's actually the former."

Speaking about the issue, Ms. Esty Dwek, who's the Natixis Investment Manager's head of global market strategies, had this to say: " We generally expect that the equity market will stumble as investors begin to face up to the possibility of higher individual and corporate tax rates that the Biden administration is likely to push through later in the year. She, however, adds that the existing necessity overrides the long-term interests. "Of course," she was quoted saying, "as you know, there's widespread worry about the impending inflation. However, I personally don't think this will happen soon."

Joining in this positive note, the Schwab Center Vice- President of Trading and Derivatives, Mr. Randy Frederick, notes that President Biden's stimulus plan "is directly in line with the widespread expectations of the market." "Likely," Mr. Frederick said," other packages on infrastructure and priority spending will soon follow the stimulus plan." This is excellent news to suffering sectors of the economy that have borne the coronavirus pandemic's brunt for more than a year.

Further, on the issue, it's worth noting that researchers don't quickly agree on the question of whether those who receive the government stimulus checks will actually spend it immediately. For example, the New York Federal Reserve Bank carried out a survey in December 2020, asking people what they'd do with a sudden 10% boost in income. Interestingly, just 19% of the respondents indicated that they'd either spend or donate the money. Even more interesting, the rest of the respondents said they'd either invest, pay debts or save. This means they won't spend immediately.

Yes, there seems to be a potent argument to target the lowest income segment using other methods- boosting the food stamp program and increasing unemployment benefits. "Moreover," according to another scholar, "it's advisable to provide a full credit on earned income tax. Once this is done, the stimulus payments will work best for the primary target groups." He says that stimulus payments can only boost growth if people are slow to resume spending even after the expected massive vaccination rollout.

In a recent analysis of the government stimulus program, researchers from the Brookings Institution said that the greatest boost to the gross domestic product would come from giving aid to most financially vulnerable families. On its part, the JP Morgan Chase Institute recently-in December 2020- scrutinized 1.8 million customer checking accounts. This is usually the first place where households or families receive and spend their money.

The researchers discovered that those who earned the lowest incomes showed the most significant gains in their findings. Regardless, they had the fastest depletion as well. On the other hand, the highest earners (or households that make over $68,000) tended to hold assets and build on them. This research concludes that the poorest people were likely to spend their paychecks as soon as they received them.

But what do some of the most recent statistics really say? Interestingly, The GDPNow Tracker indicates there was a 7.5% growth pace in the 4th quarter. This seems to be quite impressive. Moreover, the job situation in the US appears to improve tremendously by the day.

The verdict? Many analysts claim that recent data- like what's illustrated above- has continued to defy expectations and changed everything that seemed to be true only a few months back. So, is there a need for such a hefty cash infusion going into trillions of dollars, one year after the Coronavirus pandemic engulfed the nation?

Well, the Jury's clearly out.

Worries That Biden's $1.4 Trillion Package Might Miss The Target

In an unexpected fresh dilemma, US President Joe Biden's much-touted $1.9 trillion economic stimulus package is facing what some have called "a baptism with fire"- running against opposition despite holding promise for millions of desperate Americans battered by the deadly coronavirus effects.

Others fear that the President's well-meaning plan might end up benefitting the "wrong segment of society"- those who don't need it. This means it won't help the much-targeted group- the vulnerable. Despite this, the Biden administration is determined to keep its promise to offer $2,000 payments to vulnerable Americans,, revive a battered economy, and target low-income, unemployed people with this package.

Noting the raging questions and doubts about whether the money would go to the right people, President Biden recently said he's willing to enter a discussion with various stakeholders to ensure those who don't need it don't access the funds. On a positive note, likely, many needy American households will quickly spend the money received. This should instantly boost the economy- we can compare it to a situation where the government uses the payments to pay debts or boost savings. Of course, the latter is far worse.

According to the new administration's official proposals, the government plans to send $1,400 checks to the most vulnerable people- those who've borne the brunt of the pandemic effects for a long time. As noted, the President has already indicated he's willing to discuss eligibility issues with key officials and other parties. Comparatively, the previous round of the stimulus action in December 2020 dispatched $600 checks to those earning a maximum of $75,000- this translates to $150,000 for each of these households.

Interestingly, two studies that recently released their results suggest that the previous income threshold was probably too high to encourage the most spending (relating to the costs). This finding may be factored in against the popular idea that direct payments are primarily useful for boosting economic growth. Regardless of these factors, we should note that policymakers repeatedly advise consumers to limit the spread of the Covid-19 virus primarily by staying at home. This means that -even with direct payment to such vulnerable groups- few of the beneficiaries will readily spend on ordinary activities like traveling or going out for meals. Overall, even with the government's best efforts to reach the vulnerable, it's clear that the checks could still fail to get to many needy households.

In another survey by the US Bureau of Labor Statistics, most Americans would immediately spend their stimulus paychecks. 2/3 of those interviewed said that they'd use the money on food. What does this mean? It clearly indicates that the checks would actually reach the majority of the vulnerable people.

Claudia Sahm, who is a Federal Reserve expert economist on the impact of stimulus payments, said this: "One major issue regarding the matter of narrowing the paychecks is this: the government simply doesn't have all the relevant information. Think of people who lost their jobs only recently. Think of others who had a massive pay cut just the other day. Incredibly, such people may not qualify for the stimulus paychecks. Why? Their situation changed too recently. They are, therefore, unlikely to reach the crucial eligibility threshold. In a nutshell, they won't qualify."

It doesn't end there- you might find that some relatively higher-earning individuals may (ironically) be saving in a limited way, practically living from hand to mouth. Hence, while many beneficiaries may use the money to pay debts instead of saving, the overall effect is that they'll be in a better financial situation than before. This is what economists call "financial resilience." During crisis moments, this is quite important to the dynamics of the broader economy.

Parting shot? Do you seek the biggest bang for your buck? Give the money to those who have the lowest balance in their bank account. Unfortunately, according to Mr. Sahm, the federal government has no such information regarding the potential beneficiaries. Instead, the expert vouches for one-time paychecks, and automatic stimulus payments that he says are way more beneficial. He also warns that the possible fixation with targeting the "right people" might end up denying the same target group of the much-needed resources.

Wall Street Celebrates Biden's $1.9 Trillion Stimulus Package But Fears

Things are now crystal clear- it's not all cheers for US President Joe Biden's newly launched historic $ 1.9 trillion coronavirus stimulus package; indeed, many describe this as "the investor's- double-edged sword" with many unintended implications. Of course, the new President's widely hailed economic stimulus plan- post the Trump administration – holds the potential to boost economic revival. But, as noted, most analysts are anxious about just how the nation will pay for this unusual package.

Ironically, the Wall Street gurus eagerly anticipated the new President's stimulus bold plan. No wonder, in the weeks after the Democrats seized control of the US Senate in early January, pundits noted that news about the much-anticipated stimulus package was directly instrumental in lifting the broad S& P index by almost 3%. Yes, this was widely hailed as positive- and most welcome- news.

But the unexpected was yet ahead- For starters, Bond yields are known to move inversely to prices. Hence-unsurprisingly- the impending moves - would be characterized by a significant slide in Treasuries. Why, pundits well understood that the only way the government could raise such funds was through creating more debts. Of course, such a move would push the crucial yields of benchmark 10-year notes to the highest levels. In turn, this would nudge the borrowing costs higher throughout the economic spectrum.

Soon, some industry insiders felt free to predict the apparent trends. For instance, Jeff Buchbinder, who is the LPL Financials' equity strategist, had this to say: "At the moment, the markets are generally celebrating the expected stimulus. Most analysts consider this a sure bet and a strong bridge leading to a fully reopened national economy. Regardless, there's a sobering chance that- on the other side- the markets should prepare to pay for this. How? "Simple: in terms of tax hikes that might cap equity valuations or much higher interest rates," he said.

Not surprisingly, already some investors are getting anxious about stock evaluations. Yes, many worry that- in the coming year- the earnings must be particularly strong; this is the only way to justify the hefty multiples. Significantly, the S& P 500 is already at about 22.3 times the forward earnings estimates. According to data from FactSet, this is nearly equal to the March 2000 all-time high of 24.4.

Interestingly, in December 2020, even before the new admiration had taken over, the S& P had dipped by almost 0.4%. By the beginning of January 2021, this went up by about 1.1%. We must also note that the year's rally was primarily characterized by cyclic stocks that typically benefit from stimulus package dynamics. Obviously, this includes banks- significantly, the banks have been up by more than 10% for the year, down to our times.

In the meantime, over the same time, the technology sector- which is among last year's winners- is down by almost 1%. There's no doubt that rising yields are now threatening to weigh heavily on longer-duration cash flow companies, including growth shares and tech.

Furthermore, pundits note that President Biden's bold economic stimulus plan- anchored on a courageous rescue package- is coming at a moment when companies and investors are forced to go back to the drawing board regarding their estimates on the projected time for the end of the pandemic. It's also coming when the US- like other leading nations- is slowly rolling out the Covid-19 vaccination program.

According to the US Labor Department, In January 2021, the initial unemployment rose considerably to 965,000. This is the highest level since August 2020. It's also-clearly- above the 795,000 figure earlier quoted by leading economists who spoke to Reuters. And in December 2020- for the first time in 8 months- the rate of job losses fell slightly, giving a ray of hope to many.

Regardless, as noted, rising bond yields are-in the meantime- raising anxiety about a looming inflation post the projected economic recovery schedule. Despite this, the US Federal Reserve Chairman, Mr. Jerome Powell, recently said that he doesn't expect the Central bank to commence the trimming of the monthly bond purchases "prematurely." Instead, Mr. Jerome said: "We should begin talking about the exit now- this is the right time."