Governments are making it rain (money).
The global economy is grinding to a sudden halt. As billions of people self-isolate (increasingly by government order), shops, offices, restaurants, airlines, and beyond ceased operations. Companies are not only spending much less, but they’re going into survival mode.
While the bigger companies (mostly) have the cash reserves to weather the storm, many, many, many more do not. There is no definite date when this crisis will pass. Governments around the world know that the economic impact can easily be more catastrophic than the virus. Fortunately, they’re taking unprecedented action.
Over the past week (and for sure continuing into this one), parliaments and legislatures authorized massive spending bills. This spending comes in a few different forms:
- Tax cuts (so the government takes less money from purchases and salaries)
- Spending programs to support workers and companies who cannot operate right now
- Giving relief to people and companies who borrowed money (think mortgages and business loans), by either suspending repayments, or helping the borrower get a better deal.
- Providing financial markets with lots of cash to keep things moving. We call this “liquidity” in economics. If you hear someone use that term, it’s just a fancy way of saying keeping the cash flowing.
These measures are for sure not enough and there will be (much) more. However, it’s a great start.
What to keep in mind.
These sorts of actions take a bit of time for everyone to feel it. From this week, we should start seeing the first effects of this mammoth spending program. In April, we’ll feel it even more, especially as we get a better idea about our fight against the pandemic.
So what does this mean for people abroad?
As people living abroad, we fall into a bit of a grey area. Some countries decided to give their citizens money directly. However, it’s unclear if non-residents (i.e., us) qualify.
In other places, depending on how we work will determine what, if any, help we’ll get. Self-employed people are particularly vulnerable right now.
If you’re a freelancer, I definitely don’t have to tell you how forgotten you are. However, from what we’re hearing from governments, there is some relief coming for you as well. In addition to checking with any local insurance program you participate in, I also recommend reaching out to your existing clients to see how you can demonstrate your value.
You represent a double-edged sword for many of your clients. On the one hand, you’re quickly expendable when things go south. On the other, you’re also a lot cheaper than a full-time employee. Now could be an excellent time to offer some sort of additional services like auditing their website’s copy or code to show your commitment to them. In other words, work that network.
The best investors (and the ones who can sleep at night) invest within their risk tolerance. Do you know yours?
Will the roller coaster stop?
For nearly a month, the stock markets have been on a wild roller coaster ride. Actually, kind of longer than that, since roller coasters tend to start by going high up before dropping off.
In a recent webinar (keep an eye out in your inbox for our next one!), we talked about how toilet paper panic was a good comparison for what happened in the stock market.
In short, if you think you might need to get more toilet paper because you don’t know if you’ll be able to over the next week or two, that’s a rational decision. However, if everyone else also decides that it’s sensible to get toilet paper, then the aggregate act becomes irrational. And hence, that’s how you get empty shelves and panicked shoppers.
The stock market was no different, with individual investors rationally wanting to cash out. Together, that action created panic, sending market prices falling.
Ever since the markets have been up and down. The desire to either get cash or make investments are based on fear, individual decisions, and the news of the day (both virus and economic related). After weeks of this cycle, people are asking when we can get off of Mr. Stock Market’s Wild Ride®?
A lot of economists are thinking that it could happen sooner than we think.
For one, the government spending that I wrote about above already got a rounding thumbs up from investors. As that money enters the pockets of people and companies alike, a lot of the financial uncertainty will begin to disappear (at least for the time being).
Second, the global economy is settling into the next phase of the Coronavirus fight. We’re mostly settled into the reality of a lockdown. As annoying as that is, it adds a level of certainty about the economic outlook. Additionally, as we focus all of our efforts combating the outbreak, investors will begin to see the light at the end of the tunnel.
Why this matters
Volatility — which is how economists call the ups and downs of the roller coaster –makes companies and governments nervous. When the roller coaster stops or at least gets to that part towards the end where your stomach resettles, companies feel more comfortable about their operating environment.
This comfort lets them plan better, which in turn enables them to spend more. Since getting companies to open their wallet is crucial to the recovery, the faster the roller coaster re-enters the station, the better.
So what does this mean for people abroad?
If you’re a freelancer or are working in a company, you’re going to want certainty to come back to the market. Volatility is never a good indicator of uncertainty. When things get clearer, you’ll be able to get new projects or job opportunities. On that last point, it could even open the chance to move somewhere new on the planet. While that’s not always an ideal option, as an expat, you’ve got a big step ahead on everyone else.
Abroaden is a company for expats, digital nomads and other world citizens looking for low-cost and transparent financial advice and investment management.