Photo Credit: Don McCullough || The stock market, and even the bond market is more volatile than the economy is. This piece will explain why that is so.
The stock market, and to a lesser extent the bond market, is mystifying to most average people. Let me give you an example of this. I am the chair of my denominational pension board; after this year, I drop off the pension board. I help the pastors and staff of the RPCNA manage their retirement money. I am also an elder of my congregation in Maryland. That involves me in many aspects of my congregation, presbytery and the synod/denomination. One of the things that I work on is a small congregation in a nearby state in what is called a Temporary Governing Body.
Four elders serve on the TGB. Three are pastors, and I am the sole ruling elder. As we began our conference call on Monday evening, and we were waiting for one more to show up, I mentioned how much the market rose that day. The two pastors expressed amazement, and said, “Why did your stocks do so well?”
I told them that an effective virus for C19 had been found, which made them ask: “But why would that make the stock market go up?” I said, “The financial markets don’t react to the way the economy changed today, but they react to the way their view of the future has changed. The presence of an effective vaccine made economic participants in the market conclude that normalcy for non-tech businesses was nearer than they previously expected.”
They were surprised when I mentioned that the FANGMAN stocks had fallen on the same day. I told them, “These are the stocks that benefited from the fact that we have to work, shop, etc. over the internet. If things return to normal, they will do less well. They benefit from C19.”
And now to start an unfounded evil rumor: the FANGMAN companies conspired together to create C19. And this is not true, but I find it funny how both the far right and the far left love to distort things that may be somewhat true, and blow them up into memes that saturate an increasingly divided set of social media.
As an example, I offer this tweet:
As an aside for my readers, so that you don’t have to grab your dictionaries, fideism is is the idea the if you believe it, it is therefore true. Now, it’s a laughable concept, but in a world where scientists may have political/philosophical goals, and therefore may not be neutral, fideism is a genuine problem. People begin to distrust science because of non-neutral scientists.
Back to my main point. Markets react to how the view of the future has changed. That is a volatile thing. As such the moves will be volatile when there is a big event.
Personally, I wish the calling of the Presidential election for Biden, and the announcement of the Pfizer/Biontime vaccine had come on different days. We could have then had a better sense of what the changes were from.
My sense is that the reaction would have been greater if the calling of BIden had been delayed by a day. Yes, Trump is a lousy guy, and he harms foreign trade, but he won’t do the damage that Biden might do, unless the Wall Street Democrats intervene. They have done so before, and have kept the Democratic Party from being “as nasty as they want to be.”
This is why I am not worried much about Biden. The Wall Street Democrats control the party, not the progressives.
Ach, I keep getting lost in my train of thought. Back to the main point again: markets ask: “what’s it worth now?!” As perceptions of the future change, so does the market. When people see that things will be markedly better/worse in the future, the price will rise/fall respectively.
To that end, don’t be surprised when financial markets react quickly, and harder than you would expect. This is normal for financial markets, and you need to understand this.
The stock market often gets it wrong, especially in the short term.
The Pfizer CEO knows more about the magic vaccine than any of the entertainers on TV or internet bloggers. He just sold 60% of his holdings in the company. That is him voting with his bank account. Follow the money, not the political promises.
Alleged experts can’t decide if masks help or are a placebo. Lockdowns have been proven ineffective and cause more harm than good. CV19 is either the flu or the end of the world, depending who you ask and what politics they support. Now these experts have an expensive vaccine to sell…
Ballot stuffing and fraudulent counting might fix the election, but it won’t repair the failed political system that caused Trump to be elected in the first place. It will convince neutral observers that the USA government is just another 3rd world clown show.
No matter who is declared winner, half the country will be angry and feel disenfranchised when the actual election results are announced in December.
The media has been soiling their diapers about Trump non-stop for four years, so it doesn’t need rehashing for the umpteenth time. Suffice to say the political class really doesn’t like him.
Biden is in frail health, has dementia, and could be indicted for soliciting bribes from foreign powers only to launder the loot through his drug addicted son. Supposedly everyone is subject to the same anti-bribery laws. Biden is unlikely to serve his whole term. That leaves Harris, who convinced many Democrats to flee California. She also lost the Democrat primaries. Outside the Democrat party, Harris is less liked.
The green new deal isn’t feasible. California’s power grid can’t handle the existing load, much less a forced mass conversion to electric vehicles. Battery pollution might be ignored if done on a small scale; it will be a show stopper if EVs get mandated.
Illegal immigrants are willing to risk their lives just to escape socialism of their birth countries. US academics suffering from credentialism read about socialism in a book, raise tuition by double digits, and claim they know better. Those who can do, those who can’t teach.
Both of Monday’s media stories (vaccine and election resolution) contradicted with real life evidence. The stock market often over-reacts, especially to rumor based media stories.
Established companies priced at tens of billions of dollars should not reprice by 10% up/down in one day as happened many times this October and November — several times after the election. It indicates the market has absolutely no certainty.
So called experts should not still be debating whether masks are effective against covid — CDC and WHO and NIH continue to argue. At this point, it has become obvious to everyone outside politics that lockdowns don’t work, and yet Biden’s adviser is jealous that fauci got to panic people and wreck businesses.
Experts have turned out not to have a clue
We all need to be careful about having an elitist point of view. Foreign trade + labor market competition (sometime fancied up with “arbitrage”), are more than half of the problem with the country. Prof. Friedman’s quote about welfare state and open borders is prima facia true. Open borders include open borders to tangible capital investment outside the US borders- which add to the problem, because they bring more labor market competition within the US. In other words, foreign trade is not a goal without other consequences. The economic models for this “sacred cow truth” in economics are flawed, if not totally ridiculous, in what they ignore in their conclusions: GDP above all! Economic advancement for the labor markets are not considered by these models, so they are a woeful example of failure.
Some of our leaders understand this- mostly the ones who have been in the business world in markets for tangible assets. Financial professionals and economists appear to still be in the dark. This is VERY dangerous and harmful.
Your comment about non-neutral scientists is interesting and refreshing to hear. I personally believe today science is treated as faith based religion and this is one of the reasons for our polarized cultural climate. Scientific data is incredibly nuanced and always uncertain at some level. Scientists can be perfectly honest in their search for truth but we all swim in our own philosophical water that we hardly recognize. Answers depend on the questions asked and interpretations chosen. It becomes a faith when finally, simplified scientific stories are propagated as absolute truth. ah well
A lot of disciplines are labeled “science” now that are only loosely that. The available “scientific method” steps to climate “science” are limited, for example. A controlled experiment for most interesting variables is not possible. Therein is the opening to “bias”.
All the social “sciences” suffer from the same limitations.
An example of the “low road” taken by the economics discipline is that now there are curricula in “political economics”. This is a recipe for disaster that comes from reducing economics to just a political exercise. That is what has happened.
The academics are the source of this problem, and I believe touches on ethics. They don’t care about the low credibility because their paychecks depend on it.
Very sad.