Reaction to Economic Conspiracy Claims

Americans have been searching for answers to explain the stock market’s unusual behavior amidst the Coronavirus pandemic and the current state of civil unrest. Many media outlets claim to have the answers explaining the stock market’s uncommon uptick in these uncertain times. There have even been suggestions of behind-the-scenes activity and conspiracy.  

A local newspaper recently raised the idea of an economic conspiracy in a piece in their financial section. It was alleged that the market’s non-stop climb during a global pandemic could be a result of suspicious activity. The author implied that this upwards trend was a result of an outside entity supplementing the market in private. It was claimed that this market manipulation might be back-door money via the Fed or algos manipulation. The piece went on to proclaim that this suspicious activity is creating a dangerous market bubble, and everyone should be greatly concerned. 

My thoughts:   

My take does not even acknowledge the idea of an economic conspiracy because everything is public and out in the open. Yes, the market should not be this high based on “current” economic activity.  This can be explained by considering that the market never looks at what is happening but has an expectation of what will happen.   

Let us look at factors that the market is considering:  

• The economy can come back quickly to 80-90% of before the virus.    
• There is an expectation of a pent-up demand due to the shelter in place orders.   
• Before COVID-19 and the state of civil unrest, the savings rate was 8%.  Over the last three months, the savings rate was 20%.  People could not spend their money easily.    
• This 20% increase in savings added about 1 trillion dollars to reserves.  
• The government has thrown 3 trillion dollars at the economy through economic relief legislation.  
• Together this is 4 trillion dollars of stimulus.  This money is going to burst out somewhere.   

All of this and the Federal Reserve lowered interest rates to 0%.  This changes the math on the multiples for stocks.  Meaning, if interest rates are lower you can pay more for company earnings and this is seen through the stock market’s steady climb.   

Consequently, the rise in the market is not fake or caused by suspicious activity.  

The real questions are: How long will it last?  When will expectations change?  

I think the situation will last until there is a change in policy or a change in interest rates.  

Our current policy from all political sides is to borrow from the future to prevent the destruction of our current economy from the shutdown. Lower interest rates are currently under our control, but that will last only if someone is willing to buy our bonds.  

Finally, the market is not being controlled by a suspicious force. Yes, it may seem uncommon that the market continues to climb amidst a global pandemic and civil unrest. However, it is important to consider the expectations of the future and government policy factors affecting the market.   

W Lee Shertzer

Managing Partner