And that’s not good
By most historical standards, pandemics or major global crises, except for war, are not good for the economy. Many people wondered why the stock market kept rising as most countries began to shut down for Covid-19 regulations. No matter what seemed to happen, the stock market, after an initial decline, still ended 2020 up for most indexes. Why is this?
Markets Are Irrational
My main contention with the current state of the market is that traders are not trading rationally on fundamentals (like earnings, value, and growth); instead, they are trading merely on the “story” of the stock. The prime example of this is Tesla. The reality is that Tesla is a boutique carmaker that barely clears 100,000 units per year. Their product has major problems, including a faulty autopilot, poor fit and finish, and poor reliability. For a major automaker like GM or Ford, this would be a stock price death sentence. However, because the story of Tesla is about the future of the electric car and the potential to move transportation away from fossil fuels, the stock market price for shares of the company remains high. This is not rational behavior.
Another example of irrational markets is what is happening around the bond markets these days. Commercial real estate bonds should have already fallen significantly, but…
