Of Markets and Madness


I have been involved in financial markets for just about 70 years. In that time, I can honestly say I’ve never seen anything like the current disconnect between what the market says and on-the-ground present and future realities as seen today. I was pleased, therefore, to see my friend Bob Samuelson at the Washington Post add the weight of his famous brain to these puzzling  questions.

As I write this, the country has passed 135,000 Covid-19 deaths; the infection rate is skyrocketing across a vast swath of the nation; the death rate is up 50% from where it was two weeks ago — and climbing; hospitals in several states are at risk of being overwhelmed; several states have paused or reversed reopening plans; unemployment is still more than double what it was just a few short months ago; and the Dow Jones industrial average is UP more than 500 points.

To be sure, markets (despite their reputation of providing “aggregated intelligence”) have never been particularly good mirrors. They tend to accurately reflect underlying economic conditions most closely on the downside – in reaction to a burst dot-com bubble, or the failure of too-big-too-fail financial institutions, or a pandemic that cripples economic activity.

Following that traditional course, markets ‘dutifully’ collapsed in the spring. But they swiftly recovered nearly half the losses, even as (offline) economic activity remained largely stagnant. Much of that, obviously, was the result of the TRILLIONS of $$ pumped into the economy to keep businesses and consumers afloat, and the lack of good investment alternatives, given near-zero interest rates. The persisting expectation that more federal help is on the way –partly because it is an election year– is also still supporting the market.

Propped up by this flood of cash, investors apparently are looking past the 50,000+ new virus cases each day and are betting that we will get through the crisis reasonably quickly. Part of this is driven by the fact that the market today is NOT primarily driven by individual investors, but institutions – mutual funds, pension funds and insurance companies – that account for most of all stock holdings. These large institutional investors can, in most cases, afford to be wrong (and for the most part, they’re gambling with other people’s money!). Some of them may be simply playing the ups and downs within the larger arc of market movements. Others may think they are helping to prop up Trump for the election.

Whatever the reasons, the market is acting on its own, largely decoupled from what is happening in the world. It is its own master, setting its own rules and seemingly oblivious to the larger goals and interests of society.

Unfortunately, the same is true of the coronavirus, which has only one goal: self-propagation. Until the health crisis is mitigated, “recovery” is a chimera.

In this environment, the best watchword for all investors continues to be BEWARE.  


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