With the nation in deep crisis, stocks continued on their heedless path higher. The seemingly demented rally is demonstrating yet again that bull markets at some point decouple so completely from reality as to mock those who thrive by promoting them. By now, the spun story that investors are looking past the pandemic and focusing on renewed growth is sounding increasingly farfetched. Some economists estimate that it could take more than a decade for economic activity to return to what it was before Covid-19. We don’t need economists to prepare us for the worst, though, since we can see the truth of what they are saying all around us. Huge write-offs yet to come will dwarf the relatively paltry trillions pushed, in the name of stimulus, into economic dead zones. What the money has stimulated, mainly, is the markets, but with some big holes. For example, the collapse of just one category of financial derivatives — ETNs, or exchange trade notes — threatens investors with losses of as much as $7 trillion. It is never coming back.
$$ Trillions Are Trapped
But there will be vastly larger losses coming in real estate — in New York City, among a dozen urban centers, where hundreds of thousands of workers will not be returning to their office-tower jobs. The ripple effect from this will devastate businesses on the surrounding streets, turning Gotham itself into a gangrenous appendage of workers who needn’t ever leave their homes or travel to distant centers. Out-of-town business meetings will be moved online, causing huge swaths of the nation’s transportation infrastructure to wither. Planes, trains, buses, subways, taxi fleets, cruise ships and Uber cars will trap tens of trillions of dollars’ worth of investment capital as the cost of storing and maintaining idled resources continues to mount. Hotel rooms will grow dusty. Nearly every movie theater in America will be torn down with no obvious tenants to take their place. The death of shopping malls will add massively to the deflationary hit that sunk capital is about to take.
Do investors who have been bidding stocks back up to their pre-pandemic levels recognize any of this? Obviously not. There is no way the current, v-shaped mania can end well.