GIULIETTA TALEVI: Did Covid even happen?
The pandemic has brought about a huge increase in unemployment figures, but the financial market is behaving as if the coronavirus does not exist
Which organisation cares about Covid? Not the stock market, that’s for sure.
Incredibly, US markets are almost back to where they began the year.
On Monday America’s S&P 500 closed at 3232.39 – higher than its January start. Since then there has been a slight pullback, but it’s almost as if Covid never happened. Certainly, for those whose wealth is tied up in stocks and share options, Covid-19 has been a mere blip on a relentless rise to riches.
If you sit atop life’s great earnings pyramid, as the CEO of US firm Dick’s Sporting Goods does, Covid has been something of a financial boon.
The Financial Times’s Fan Fei and Andrew Edgecliffe-Johnson write in this piece: “When the chief executive of Dick’s Sporting Goods said in March that he would temporarily relinquish his $1.1m salary, Edward Stack became one of hundreds of US executives to signal they would share the pain the coronavirus shutdown was inflicting on employees. But the announcement, which came shortly before the sporting goods chain announced that it would put most of its 40,000 employees on temporary unpaid leave, told only part of the story. Just a day earlier, when market turmoil had sent shares in Dick’s Sporting Goods to their lowest level since the 2008-09 financial crisis, its board granted options to a host of executives.”
Stack got, well, a stack of these options. He received 950,000 of them – more than the total granted him in the past six years combined. Already those options are in the money.
This is unlike, of course, all those employees who were placed on unpaid leave. They sit at the bottom of the pile, amid the 40-million or so Americans who have lost their jobs.
In fact, you could argue that the two fastest-growing curves in the financial world are unemployment and share prices.
And they are not unrelated. Where, after all, will a company cut the fat? From the bottom of the pyramid, not the top. To the eternal applause of the market, now gorging itself silly at the punchbowl of cheap money.
And that punchbowl is not emptying anytime soon. Read US Federal Reserve chair Jerome Powell’s comments here.
I realise that I’m late to the party, but the lockdown has introduced Netflix to my living room, finally. If you haven’t already seen the documentary Saving Capitalism (it was made in 2017) go and watch it. It is based on the book of the same name by Robert Reich, once former US president Bill Clinton’s former labour secretary.
When Reich stepped down from the job in 1997, he gave a truly prescient speech.
“My friends,” he said, “we are on our way to becoming a two-tiered society, composed of a few winners and a large group of Americans left behind, whose anger and whose disillusionment is easily manipulated. Once unbottled, mass resentments can poison the very fabric of a society – the moral integrity of a society; replacing ambition with envy, replacing tolerance with hate. Today the targets of that rage are immigrants, and welfare mothers, and government officials, and gays, an ill-defined counterculture. But as the middle class continues to erode, who will be the targets tomorrow?”
It may go some way towards explaining the monumental ructions we are witnessing in civil society in the US now.
And as we try to puzzle out what we should do with our savings in these perplexing times, it’s worth reading the thoughts of RECM chair and value investor Piet Viljoen on what the markets are telling us here.
*Talevi is the FM's Money & Investing editor.
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