A Tale of Two Markets
“It was the best of times it was the worst of times”
This of course is one of the most famous first lines of any novel. Dickens was describing a particular time. As a futurist I have often used this phrase but in a slightly different way.
The best of times usually refers to the success of the old, still in place model. The worst of times is both the move away from that model and the fear of the unknown emerging new reality.
The most persistent question I have been asked since the onslaught of COVID-10 is “why is the stock market going up when economies around the world are contracting?”
The short-term answer to that is basically what the Federal Reserve has done. The day it announced the latest quantitative easing was the bottom of the market decline. Showing the financial markets that they were going to be protected on the downside from the cascade of horrible economic news sent the equity markets up.
The investment landscape was the second reason the markets are going in the opposite direction that the global economy. Interest rates are now at the lowest they have ever been in history. Those of us past the age of 65 had expected that we would be getting 3-4% if we were extremely conservative in our approach to retirement savings. There is nothing exciting about interest rates below 1%. The third reason for this chasm between soaring equity markets and the economic reality is that the dominant technology stocks – which are all doing extremely well- have a disproportionate weight in the indexes. So, the 21st century, future-facing companies such as Tesla, Alphabet, Apple and Amazon are going through the roof, while the rest of the market is lagging. Take out these stocks and the market would be essentially flat.
The fourth reason, and the focus of this column is the fact that this is a wealth inequality market in equities. Recent Gallup polling shows that the top one percent of U.S. households own 39% of equities and mutual fund shares with the top ten percent owning 83%. This leaves the remaining lower 90% with just 17% ownership in equities. This consolidation at the high end has been increasing over the past two decades. It is part of the deep problems ahead for all of us.
Anyone tying the soaring equity markets as an indicator of the overall economy is either economically ignorant or a politician running for reelection. Often one and the same.
The 30 million people who are un or under employed in the US are almost entirely in the lower 90%. The deaths from COVID-19 seem to be mostly in this part of the populace as well.
It has been often stated in the last few months that those in the upper economic echelons of our country have and are faring much better than those in the middle and below in living through the pandemic. The wealthy can afford the second home in which to self-quarantine. Working from home is predominately white- collar work. Computers and high-speed wireless are ubiquitous in the upper 20-50% but sparser in the lower 50%. The “essential workers” we have been lauding since March are probably not invested in the stock market. Those of us living in partial or full luxury places of quarantine are.
In his fabulous 2014 book “Capital in the Twenty-First Century” Thomas Piketty rocked the economic world with his deep and irrefutable thesis that capital always grows more quickly than wages and will in this century. He goes on to state that the explosion of the middle class in the three decades post-WII was therefore a historical anomaly. The collapse of the middle class that the pandemic has accelerated only makes this viewpoint more clear. We are seeing the explosion of equity capital at exactly the same time we are seeing the collapse of jobs and the explosion of bankruptcies, highest in small businesses.
The hot stock markets are now fully separated from the economic well-being of the larger economy and the economic well-being of the bottom 80%.
This points to what I have written here and elsewhere, that one of the overarching dynamics of the 2020 decade is the reinvention of capitalism, and democracy. Neither seem to be fully functioning for, of and by the people. The wealth inequality is greater than any time in our history. Whenever it is at current levels, there has been either revolution or populist uprisings. Just think back to the 2016 election. Who were the two figures who emerged that year? Bernie Sanders and Donald Trump. The first always used the word “revolution” in his speeches and the latter put forth a populist agenda that got him elected but which he ditched as soon as he won. Both spoke the right language of the wealth equality reality.
What COVID-19 has shown with trillions of dollars given to individuals and companies with the PPP and CARES programs is that we live in a plutocracy. Banks got more than $150 billion in fees, wealthy and well-off companies grabbed for as much money as they could get. Luxury purchases abound. Wealthy hedge-funds took money because they could. The part of all the outflow of government funding that clearly worked the best was the direct payments to individuals. It was that lifeline that carried the economy through the summer. The Universal Basic Income [more on this in a future column] has now been proven to be effective.
We must rethink what it means to live in a democratic, capitalistic society that is of the people, by the people and for the people. Such phrases as The Common Good, Humanity First, and the Greater Good must honored. All to be updated through the reinvention of capitalism and democracy in this decade.
The Future is Here
A thank you to all readers who have let me know how much they have enjoyed “The 2020s: The Most Disruptive Decade in History” https://the2020sdecade.com/ I view it as perhaps the most immediately helpful book I have written. Some three weeks ago I spoke about it with WUSF/NPR here [ https://wusfnews.wusf.usf.edu/show/florida-matters/2020-09-08/florida-matters-covid-is-the-bike-with-the-training-wheels-for-this-decade ]