Stock market disconnect

Brenda Schimke
Written by Brenda Schimke

The world’s economic output plummeted, unemployment soared, and consumer spending cratered, yet other than a quick downward blip at the beginning of the pandemic and the annual September stock market blues, Wall Street and Bay Street are unaffected by the pandemic.

Market experts feigned amazement at the disconnect between the stock market performance and shuttered economies—”this is not traditional behaviour”, they said. When in fact, it should be yet another reminder that stock markets have virtually nothing to do with the average Joe’s economic health.

Stock market indices are poor measures to predict the future for you and I. With weakened regulations, the stock market has become a distorted, narrow metric that enriches those with insider knowledge and large capacities to bet.

The 2018 financial crisis was a window into the shenanigans that is today’s stock market. Insiders have become masters at creating new ways to gamble with our life savings having more schemes up their sleeve than Nigerian tricksters. Disgustedly, the 2018 bailouts, enriched the very ones who had caused the crisis in the first place.

Things have not changed in 2020. A recent New York Times article uncovered how the U.S. President briefed his powerful, wealthy friends about the seriousness of the pandemic a full month before telling the public. This insider knowledge enabled his wealthy friends to engage in short selling, a technique that enriches those who successfully bet on stock prices falling.

Corporate valuation is another farce. Canada’s e-Commerce giant, Shopify Inc., saw its share prices rise as much as 185 per cent yet its profits were little to nothing. The Royal Bank of Canada, which year-over-year makes profits in excess of $1 billion and pays dividends, saw their stock value decline.

Weekly, financial pages report on the malfeasance of yet another investment giant. This week—Goldman Sachs is to pay $3-billion to settle their part in a corruption scandal with a Malaysia company.

The ‘traditional role’ of stock markets was to democratically value corporations and provide investment capital. That function still exists in the stock market, but more often it is a disconnected gambling institution for the wealthy. Never forget stock brokers earn money, albeit less, even when your retirement investment fund is bleeding losses.

Too many politicians and all market updates on our local TV stations focus on gross domestic product (GDP) and the markets. Yet those numbers are meaningless to the majority of working Canadians.  

Without money to invest, the stock market has little significance to one’s wellbeing—especially true for millennials, Gen Z and those coming behind. Seventy per cent of baby boomers were middle class earners in their twenties, 60 per cent for millennials, and even less for Gen Z. Well-paying, full-time jobs marks success; nobody takes home GDP.

In 2008 and again today, it is central bankers and governments that are taking the risks to provide capital to sustain and restart the economy—not the stock market. Stock markets are just chugging along wondering ‘what pandemic’ and looking for the next big manipulation or hostile takeover.

The federal government will eventually support big corporations such as airlines, but unlike 2008, they must demand an equity position. 

We say, “governments should function more like businesses”. A wise businessman wouldn’t pump billions of dollars into a company without taking an equity or secure debt position.

As such, any taxpayer investment to support industry giants must include board representation. It is imperative that taxpayers be part of the decision making process since it’s our money and our risk. 

After the 2008 debacle, taxpayers are just done with propping up share prices, enriching executives and growing the one per cent during economic downturns.

 

Brenda Schimke

ECA Review

About the author

Brenda Schimke

Brenda Schimke

Schimke is a Graduate with Distinction from the University of Alberta with a BCom degree. She has lived and worked in Alberta, BC and Ontario.

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