Penny stocks going 5x, bankrupt companies pumping 700% – why is the share market acting like crypto in 2017?

For the better part of two months now, bitcoin has been stalled. At the start of May, a few days before the halving, we pumped into the US$9000 range and have, barring the occasional fake out, stayed there. It’s been like watching two tennis players hitting a ball back and forth, both of them doing their absolute best to let the other player win. You get the feeling that when it does break it’s going to be an era-defining moment, but in the meantime I’ve seen episodes of Great British Railway Journeys with more verve and excitement to them.

Meanwhile, in the traditional markets, things have been, how do you say, effin’ ridonkulous. After shedding a third of their value in March, the US stock market is hovering back near all-time highs. In the case of the tech-focussed Nasdaq index, the all-time high has already been cleared. Destitute companies like Carnival Cruises and American Airlines have been posting 30% gains in a single day. At one point, literally bankrupt car hire company Hertz went from 80c to $5.50 – a gain of 700%.

Yet by every other metric America (and the rest of the world economy) is thoroughly screwed. So why has the share market shrugged off the apocalypse with such disdainful ease?

Three-card Monte

So, there are a few things going on here. The first is temporal, the second novel, the third structural. And yes, I am quite pleased with that summary.

First up: this ain’t over by a long shot. After the first, giant sell-off of The Great Depression, the market rallied 50% before continuing on its merry way into the basement. There are a couple of reasons why this time might be different – the present rally has been stronger and it could be easier for the economy to recover from the coronavirus than initially feared – but the point remains that these are early days and talk of a permanent recovery are premature.

Second is what’s being called the Robinhood effect – basically, a whole bunch of bored, newly unemployed young people at home getting into day trading thanks to stock trading app, Robinhood. And all power to them: they’ve made traditional money managers look like absolute patsies over the last few months. But if history is anything to go by – I’m looking at you Dot Com Bubble – when retail investors start thinking they can print money by randomly picking a three letter code and throwing money at it, it’s a pretty good sign you’re ready for a correction.

Show me the money

And finally, well, how good are these results? I mean, really. Because when you look at them real close, they lose a bit of their sheen.

Basically, it all depends on what you’re measuring the price against. Sure, you can measure it against the greenback, but so far this year the amount of US currency in circulation has gone up by around 20% thanks to the Federal Reserve’s policy of throwing money at a problem until it disappears. While inflation isn’t a 1:1 game, the US dollar is still worth significantly less than it was in January.

Measure it against the price of gold and the picture isn’t quite so rosy – by this metric, the S&P 500 has been in a bear market since 2018 AKA when people first started saying “I think the stock market may be a wee bit overvalued”. Measure it against bitcoin and, well, the last decade has been an absolute disaster. And while it’s pretty hard to buy your groceries with either gold or bitcoin right now, it’s a reminder that value is always relative and that inflation matters – to all of us.

Now come on, bitcoin. Make a goddamn decision already.

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