COVID, Stimulus and an Economic Sugar High
By David Grana
October 22, 2020
In what was a much calmer debate, President Trump and Democratic nominee Joe Biden were able to deliver much clearer messages about their plans for the next four years versus their previous sparring match. The much criticized format, which involved providing the moderator with more control over the debaters' microphones was surprisingly of great benefit for viewers. There was occasional sparring, but nothing on the level of the previous encounter late last month.
We’ll leave the political networks to debate the topics of laptops, emails and alleged bribery, instead focusing on the issues that could have a major impact on the economy and real estate. It is no secret that Nevada is among a handful of states that is enjoying an influx of new residents who are fleeing high income tax regimes, which face the risk of surging even higher under a proposed Biden-Harris administration. On the West Coast, it’s been Californians who have flocked to the Silver State, as well as to Texas, Utah and even Idaho. Meanwhile, the East Coast has seen a surge of migration from states such as New York and New Jersey and into Florida.
The success of these migrants, as well as any future migrants, is going to depend a lot on the differing policies between the two candidates over COVID-19. President Trump is insistent on opening up the economy and living with the virus, while Biden hinted at further shutdowns and a mandatory mask mandate. While Northern Nevada’s unemployment situation is on the mend, Southern Nevada’s is going to take a longer time to come back, in large part because of the strict measures that Las Vegas has had to endure. A Federal mandate (which may not necessarily be legal) could greatly stall the progress already made in our current economic recovery. The latest new and existing jobless claims have decreased for yet another week, showing what could be a very resilient economy, or it could be signaling that people have simply stopped filing. Regardless, going on numbers alone, these promising signs could face major headwinds under a more strict set of proposed rules. Many of our major casinos recently announced the return of entertainment beginning in November. Reversing such a decision could be too much for the resorts and gaming industry to handle, given the heavy losses that they have already incurred.
The second economic issue that took center-stage is that of a proposed stimulus package, which is still under negotiations but has met much resistance, particularly from House Speaker Nancy Pelosi. Debate moderator Kristen Welker pressed Biden as to why he had not been able to convince his party to simply get it done, but he simply passed the blame onto his former-colleagues on the other side of the aisle. Trump has insisted that he wanted the next stimulus to be a rather large one, but Pelosi and Senate Majority Leader Mitch McConnell have not been able to break their impasse.
House Speaker Pelosi (L) and Senate Majority Leader McConnell (R) have been at an impasse when it comes to another round of stimulus.
This, along with the issue of how to handle the pandemic have, in tandem, been the two biggest issues at the top of peoples’ minds, mainly because the decisions that are made on each of them affect our economic growth and whether or not we’re able to put food on our tables.
The next stimulus package (or lack thereof) has been a major issue driving many financial decisions and even taking the stock market on a wild roller coaster ride. I asked New Jersey-based Retirement Advisor Elliott Kreppel of Kreppel Tax Advisory why the stimulus has had such a stronghold on the market. He explained, “The stock market seems to be insistent on a stimulus package because investors want some form of assurance. They want to feel confident and hopeful. The market does not like uncertainty and, in my opinion, passing a stimulus package will provide an underlying feeling of confidence and strength which will resonate with investors.”
But what about the previous stimulus packages that were passed and distributed across the country, including PPP loans, Pandemic Unemployment Assistance and even the $1200 stimulus check that was sent out some six months ago?
New Jersey-based Retirement Advisor Elliott Kreppel.
Surely, that must have contributed to the economic recovery that we’ve seen, especially in the red hot housing market in states such as Nevada, Texas and Florida. According to Las Vegas-based real estate expert Pam Junge of the Junge Group Brokered by eXp, “The short term effects of the federal stimulus on the real estate market have been overall effective. Supplementing payroll (i.e. employment) and allowing mortgage payment deferment, along with distributing stimulus checks has consumers on a sugar high.”
If these stimulus packages have been so effective, one would imagine that throwing more money at the problem would be ideal. However, Junge sees it differently. “ Unfortunately, it's a short term bandaid for a long term problem. Main Street has been shut down too long and according to a recent survey by Alignable, who recently polled over 6,300 local businesses, 60% of them are still suffering and 63% would apply for additional relief funding if made available. The long term problem is consumer confidence and a vaccine. Another round of stimulus may inject another hit of sugar in the veins of the consumer, but it, too, will invariably run out long before the economy can recover as a whole.”
Las Vegas-based real estate expert Pam Junge of The Junge Group Brokered by eXp.
Kreppel concurs with Junge, expressing that, “The economy does not need a second stimulus package. US debt will increase and the stimulus funds will not be used for what they were originally intended for.” He further added, “I believe it also creates an environment of entitlement and does not motivate people to actively look for work. I’m not opposed to a stimulus however, if it can somehow be monitored by some sort of strict measures, I would be more inclined to possibly reconsider my viewpoint.”
Junge also feels that the real estate world has passed the point of no return. Commercial landlords had amassed massive amounts of debt even before the pandemic. Eviction moratoriums in both the commercial and residential space haven’t exactly helped, and the expiry dates on loan deferments and forbearances may leave many borrowers in a precarious spot very soon.
Going on the basis of tonight’s debate, if both Trump and Biden are wrong about another stimulus package, what exactly is the solution?
Kreppel believes, “The solution may really come down to finding a vaccine. The culprit is COVID-19 and that’s the issue that has to be figured out. I believe it has to run its course, although we can be active and not passive, but we can’t force a stimulus solution if it’s clearly not there. I think that once the COVID issue is solved, the economy will find itself and get back on track.”
Kreppel and Junge are not alone in their opinion on what can bring the economy back in a healthy way. Hopefully, Congress takes opinions such as these onboard before giving us all another economic sugar high.
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