The Stock Market is Broken – The Tesla-Apple Scenario
The Fed is promising “unlimited support” to the stock market, and traditional metrics like earnings and interest rates no longer correlate to stock performance. Witness Tesla, Apple, Zoom, Nvidia, Peloton and others.
In a facade of gains in the summer of 2020, traditional metrics appear broken. Investors — even market bulls — who are trying to figure out what will break the market’s momentum are just about at a loss for arguments.
The stock market soaring even as the economy falters has been the story of the Great Shutdown in the pandemic. Central banks have stimulated markets with liquidity to the point that a few companies are holding up the entire market. Those companies are the “story stocks” often with incredible cash flows though not all of them such as Tesla.
Despite the worsening coronavirus news — with soaring cases in many US states — the stock market has undergone a zombie distortion of higher grounds for the chosen few, and hitting records. This has also resulted in a massive wealth inequality bubble and wealth gap deficiency that shows how capitalism is no longer free-market capitalism in any sense.
Apple and Tesla have seen their stocks gain $100 billion in a single day after their stock split at the close of August, 2020. Zoom’s stock today is up 40%. Price targets are no longer correlated with earnings, and the tech heavy NASDAQ doesn’t seem to let up.
Is the stock market overheating or is this expected with liquidity from the Fed? Don’t fight the Fed? More than 40% of the U.S. GDP is simply the Fed printing cash.
Tesla is doing a $5 Billion offering but its stock has barely moved. The VIX at 26 remains relatively high, as not is as rosy as it seems. The VIX rose to 82, shockingly, in mid March, 2020. In normal times of financial stability it’s around 14.
VIX is the ticker symbol and the popular name for the Chicago Board Options Exchange’s CBOE Volatility Index, a popular measure of the stock market’s expectation of volatility.
With a huge number of Millennials inheriting money from their parents and a significant rise in Robinhood traders, how many $Billions have been displaced into the tech sector in 2020 into such stocks as Apple, Tesla, Amazon and Microsoft? It’s unbalanced the entire stock market in a single wave of bubbly enthusiasm of unlimited Fed support, low interest rates and liquidity pumped markets. This of course as corporate debt is dangerously high.
The Stock Market is Now Entirely Disconnected from the Real Economy
Stocks are not the economy, but they are not not the economy either. Stock market denial of the small business apocalypse means digital transformation to E-commerce has been accelerated about 5 years into the future in a few months, allowing Amazon and such companies to wipe out the little guys in Capitalism.
The central bank has created a winner-takes-all capitalism by supporting the stock market in 2020 and the economic wealth grabs forming will never go away but accelerate the already pervasive trends of massive wealth inequality of the 21st century.
When a few winners in the markets exceed all expectation and go up nearly every day, you really have the conditions of a market bubble. There’s little news about it because it’s such common knowledge as to be just the new normal. With unemployment still high, the stock market has become the last resort for many young people.
When your system’s collapse in a health emergency impacts young people the most, new investors are further distorting the markets in a skewed and distorted environment where “story” stocks like Tesla and Apple perform the best.
What if the stock market’s expectation of a V-shaped recovery is wrong? Millions of investors in Tesla, Apple and other surging stocks will lose money when the bubble crashes. The stock market is fostering a false-positive of how the world recovers from the pandemic. A double dip economy is the most likely scenario, and that’s not one that favors the distortions created by the Fed in the stock market in 2020.
America has never seen the kind of wealth inequality the stock market bubble of 2020 has created, and it’s only going to get worse. The elite have essentially benefited from the suffering of the many during the great economic shutdown of 2020: those with capital were able to buy in March and in the great surge of the Spring-Summer months of 2020. Cash is not king in 2020. Apple and Tesla are.
The Problem of Stock Market Favorites and Printing Unlimited Money
Apple’s pivot to services is impressive and Tesla’s popularity is enchanting, but not to the degree we have seen. Millions of new investors on Robinhood are good, but what happens when they all are gamified investors and not really looking at fundamentals, interest rates and over investing in tech profitability? The Tech sector becomes overbought, until it breaks the markets.
The pre-election jitters and the simultaneous post stock-split crunch of Apple and Tesla will likely bring the stock market back down to earth in October, 2020. Remember to blame Tesla for me. Blame the Fed’s “unlimited support” for the rich as the economic reality falters for the majority of consumers, workers and people. The end of 2020 is going to be volatile since the illusion of economic recovery is speculative at best.
Tesla, Apple, Amazon, Zoom and Nvidia aren’t reflective of the real economy. The pandemic bubble is very real in 2020 as stock market fundamentals have broken down. The Fed has hacked the stock markets for the rich. Sooner or later there will be a reckoning. Monetary and fiscal policy have created a manipulated stock market, with central banks spending and printing money until inflation and secular turning points destroy the bubble.
Bad things happen when printed money replaces real money and stock market fundamentals are replaced by popularity contests. The great shutdown has created an experimental economy that is itself incredibly volatile. Global GDP suffers in the 2020 to 2023 period, creating unemployment and debt the likes of which will define the young people of today and their generation.