As cities burn and statues topple, the Nasdaq races to all-time highs. As unemployment explodes to levels not seen since the 1930s, gambling on dicey stocks soars. As private property becomes less secure, titles to property are bid higher. As businesses struggle to reopen, it’s business as usual for the great bull market in financial assets.
If
the statisticians at the CDC are to be believed, 0.01% of the U.S.
civilian labor force has died of the coronavirus in 2020. For a risk that
compares to driving an automobile, much of the population was scared out of
their wits and a third of the economy put on life support.
The
Big Lie
Official
narratives have proven far more contagious (and lethal) this year than any
virus, and the supporting lies keep getting bigger. Upon arrival of an
unknown health risk in late February, the authorities promoted a top-down
one-size-fits-all solution of universal isolation. The centralization of
knowledge was assumed and market solutions not even considered. As
“non-essential” businesses were shut down, corporate debt markets locked up and
stocks lost one-third of their value. To deal with the economic mess,
only top-down government solutions saw the light of day, this time at a price
tag of over $5 trillion in borrowed and printed money (with plenty more on the way).
With
the death of George Floyd on May 25, caught on video for the world to see, the
narrative shifted overnight from gray lives matter and “shelter in place” to
“black lives matter” and protest in public. Never mind that Floyd had
enough fentanyl in his body to kill him and that
the officers on the scene may have acted to save him. The mainstream media
went into overdrive, promoting the well-rehearsed narrative of systemic
racism. Keep in mind, 30% of the top 30 highest-paying celebrity endorsements last year went to blacks
(even though they account for 13% of the population). Consumers generally
don’t buy products endorsed by people they hate.
Swing,
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The third act in this play,
reopening the economy, was met with fearmongering over spiking cases, despite
evidence that this was due largely to increased testing and inflated by false
positives. (Apparently crowds looting and setting cars on fire were not a
factor.) Meanwhile, the weekly death rate has dropped 60% from its peak
in April. (Over the past week, there were 7,200 official deaths vs.
250,000 recoveries.)
All three deceptions are
wrapped in the biggest of lies, that government has a magic printing press that
will suspend the laws of economics and make it all go away.
Day
trading madness
As it turns out, a fair
amount of the stimulus money found its way into the financial markets.
Evidently, the government’s economic advisors failed to consider the
possibility that shutting down casinos while ordering people to remain home and
mailing them $1,200 checks might give the green light to pile into the only
casino still open: the stock market.
August 15, 2020
Speculation
took off, especially among younger investors. Robinhood, favored by
millennials, added 3 million accounts in the first quarter alone.
(Charles Schwab has 14 million accounts in total.)
According to CNBC,
Robinhood traders lived up to
their outlaw name during the coronavirus market downturn. The young investors
booked profits — trading stocks with some of the best returns in the past two
months — while other Wall Street veterans were left scratching their heads.
Tempting the investment gods,
CNBC flattered youth and mocked experience:
Young investors… appeared to
have a prescient understanding of the market, unlike the billionaire hedge
fund managers who said stocks would retest their lows. Longtime investor
Stanley Druckenmiller — who misjudged equities’ comeback —
said Monday that the market’s strong performance over the last three
weeks has “humbled” him and that he underestimated the power of the Federal
Reserve. Even legendary investor Warren Buffett sold his stake in
airlines during the pandemic.
In the Twittersphere, the day
trading parade is led by Dave Portnoy with 1.6 million followers:
I
play the stock market like I play Monopoly. If I land on it, I’m buying
it. I don’t care if it’s Baltic, I don’t care if it’s Park Ave…
When I land on “Pass Go,” I try to buy Go. When I land in jail, I’m like,
can I buy jail?… I just buy, buy, buy. That’s how I do stock market,
that’s how I play Monopoly.
It’s
hard not to laugh, but also to know what passes for parody and actual
investment advice these days. Davey Day Trader, #DDTG, was recently
invited to spend 20 minutes interviewing President Trump at the White
House as both celebrated buying the dip in March. You can’t make this up.
How
to wreck an economy
2020 has been a textbook
example of how to inflict maximum economic damage. Let’s review:
1)The media incites a panic
over a severe novel case of the flu. Have state governors use this as a
pretext to shut down a third of the economy.
2) With the social fabric
frayed, the media segues to racial protests. Allow bad apples to destroy
property and have the police stand down while the mob takes over.
3) Pass trillions in money
printing and stimulus, preventing the market from adjusting to rapidly changing
events. Incentivize unemployment by paying people an extra $600 a week to
sit at home and day trade.
4) Unwittingly turn
speculators loose, sending false signals to economic actors.
5) After you’ve crippled many
small businesses with #1-4, regulate them to death, adding costs they can’t
afford and inconveniences their customers don’t want.
Déjà
vu all over again
Anyone who experienced the
tech bubble of the late 1990s must be feeling a profound sense of déjà
vu. The internet was a paradigm shift creating a New Economy in which
enlightened central bankers would prevent any serious downturn. Silicon
Valley was booming. Wall Street was cranking out hot IPOs (initial public
offerings) and repackaging companies by adding “.com” to the name in order to
keep up with seemingly insatiable demand from the public.
The prevailing mood among
investors was that making money was easy. Youth was elevated and wisdom
discarded. Profits didn’t matter. What mattered was “first mover
advantage” and “eyeballs.” Those who were too old to grasp the new rules
just didn’t “get it.” They were stuck in the Old Economy.
February 22, 1999
I
remember when the late Ed Bradley of 60 Minutes did
a story about the dot-com mania. The young entrepreneurs he interviewed
had a religious zeal, like they had been chosen for a higher calling. One
even had the audacity to tell Bradley he was a dinosaur and that his job was
targeted for extinction.
Andrew
AzizBest Price: $8.92Buy New $12.91(as
of 04:16 EDT - Details)
It is hard to escape the
parallels with today’s mania for technology stocks, venture capital, day
trading, hot IPOs and youthful exuberance. There are two critical
differences: the backdrop for the 2000 vintage was a booming economy and the
dollar amounts were much lower. In 2000, Microsoft, GE and Cisco Systems
broke the $500 billion barrier for market capitalization. On August 13,
Apple hit $2 trillion.
Perhaps
it is a rite of passage that every generation must take part in some sort of
speculative madness. Today’s millennials seem ideologically wired to
believe in the upward slope of technological progress, conflate virtue signaling with investing,
underestimate the economic damage from trillions of dollars of stimulus, and
place their unswerving faith in the Fed.
Tesla
has become the poster child of the millennial bubble, p.c. bubble, EV bubble
and VC bubble. Its stock commands a market value of $412 billion, more
than BMW, Daimler, Volkswagen, Toyota and General Motors combined.
Believe it or not, some traders are actually confusing Tesla (symbol “TSLA”) with
micro-cap Tiziana Life Sciences (symbol “TLSA”).
Of course, amateur hour at
the casino has a silver lining. Experienced poker players salivate when
the patsies show up.
(This
article was excerpted from the latest issue of The
Coffee Can Portfolio.)
Kevin Duffy [send him mail] co-founder, Bearing Asset
Management and editor of The Coffee Can Portfolio and Notable
and Quotable blog.
https://www.lewrockwell.com/2020/08/kevin-duffy/the-robinhood-rally-2/