This is now being called a full-blown mania, an expression you don’t usually hear in the price-hungry market. Even the highly cynical short sellers have been getting the wrong end of these prices. This idyllic everything-is-fabulous market is the result of Federal stimuli, the prospect of the vaccine ending the pandemic, and, to some extent, itchy investors and funds. Weird booms in prices, like ETF ARKK’s staggering almost vertical rise to 10 times its values are playing havoc with indices.
This also comes at a time when the rich are doing very well indeed, thanks for asking. Asset values have entered a realm of smugness rarely seen in United States market history.
This isn’t quite as whacko as it sounds. Zero interest rates have given the rich access to very cheap money. They could refinance anything and everything, and make money, and that’s what’s happening. This has been going on since 2001, but the pandemic has added fuel to the values.
(It’s no accident the rich got a lot richer in that timeframe. If you’re borrowing at 1% and lending at 5%+, how do you not make money? This is one of the reasons interest rates have remained so low for so long. It’s also one of the main reasons house prices and similar assets got more expensive. The higher prices were more accessible at lower rates.)
Is this market good or bad? Both, actually
This is a far from simple situation. The new big money coming in IS “spurring investment”. The bad side is all too familiar:
• The market has a bad habit of following itself around, investing in itself at whatever price, rather than looking for new assets. This is the (groan) “overbuy and oversell” thing, which routinely makes and loses a lot of money and doesn’t really do much but tread liquidity.
• A lot of capital value doesn’t do much at all. It’s accumulated, it makes some money, but it doesn’t get out into the economy directly. This is somewhere between prudent asset management and stagnation, but that money sits tight. (To be fair, for many private investors, that’s not such a bad idea and pretty reliably maintains wealth, if not making as much.)
• The hysterical, all-hype part of the market does mislead investors, intentionally and indirectly through price moves. Everything is the greatest thing since sliced bread, ALL the time. This rather obscene 5 second attention span approach to investment is one of the key players in big losses. So in a surging market, someone’s going to be left high and dry, for sure.
The potentially good side of this market is much underrated, largely because it’s a type of investment most people don’t really know much about:
• The pandemic has created a unique business environment which could benefit new businesses and investors. People are (naturally) trying new ways of making money. They need to be capital efficient. They know that. They know it all too well. A certain percentage of these new businesses are viable. They don’t need a lot of money, but they do need capital input.
• Seed capital isn’t even peanuts; it’s often much less. It’s a very low-risk investment environment, when it’s managed properly. A modest, even trivial, investment could give access to any number of Next Pretty Large Things.
• The other unique environment at this time is America’s extremely unusual level of stagnant mediocrity in progressing new things. The geriatric, babbling Old Economy is on its last legs, in fact last toenail clippings. Drivel has replaced reliable visions. Everything from materials to energy is changing, very fast. Raising up a whole new economy from the filthy ashes is possible, but it takes capital investment to do it. Why not now, when the risks are low, and there’s plenty of possible upside?
There’s a huge irony here. The good side is the long-forgotten ideal of capitalism; forging the future to the benefit of all. Actual progress, not just “good numbers”. Forget Ayn Rand and the Apologists; this is what it can do when it knows what it’s doing and why it’s doing it. The question is, will it? Let’s just hope someone figures it out.
