Stocks Are Soaring. So Is Misery

One of the bizarre aspects of the ongoing pandemic is that after initial drops, the stark market is soaring and the residential real estate market is on fire, driven by insanely low interest rates available to those still employed (locally, many buyers are members of the military and white collar workers, some getting 30 year loans with rates at 2.75%).  I will admit my own good fortune as I have one of my best ears ever financially albeit it has been offset in part by the husband's salon being closed for two months earlier in the pandemic.  At the other end of the spectrum are the millions still unemployed facing eviction or foreclosures of the mortgages on their homes.  Also struggling are many small landlords and real estate investors who see unemployed tenants - and some tenants cynically taking advantage of the eviction moratorium - not paying rent even as they face difficulty making mortgage payments on their rental properties.  Sadly, congressional Republicans have refused to pass further economic relief for the unemployed and struggling businesses.  Many - including myself - predict that once eviction and foreclosure moratoriums end, we will see a huge wave of evictions and mortgage foreclosures which will see many suffer and the current soaring real estate market crash.  A column in the New York Times looks at these two different worlds in these strangest of times. Here are column highlights:

On Tuesday, the S&P 500 stock index hit a record high. The next day, Apple became the first U.S. company in history to be valued at more than $2 trillion. Donald Trump is, of course, touting the stock market as proof that the economy has recovered from the coronavirus; too bad about those 173,000 dead Americans, but as he says, “It is what it is.”

But the economy probably doesn’t feel so great to the millions of workers who still haven’t gotten their jobs back and who have just seen their unemployment benefits slashed. The $600 a week supplemental benefit enacted in March has expired, and Trump’s purported replacement is basically a sick joke.

Even before the aid cutoff, the number of parents reporting that they were having trouble giving their children enough to eat was rising rapidly. That number will surely soar in the next few weeks. And we’re also about to see a huge wave of evictions, both because families are no longer getting the money they need to pay rent and because a temporary ban on evictions, like supplemental unemployment benefits, has just expired.

But how can there be such a disconnect between rising stocks and growing misery? Wall Street types, who do love their letter games, are talking about a “K-shaped recovery”: rising stock valuations and individual wealth at the top, falling incomes and deepening pain at the bottom.

What’s going on?

The first thing to note is that the real economy, as opposed to the financial markets, is still in terrible shape. The Federal Reserve Bank of New York’s weekly economic index suggests that the economy, although off its low point a few months ago, is still more deeply depressed than it was at any point during the recession that followed the 2008 financial crisis.

And this time around, job losses are concentrated among lower-paid workers — that is, precisely those Americans without the financial resources to ride out bad times.

What about stocks? The truth is that stock prices have never been closely tied to the state of the economy. . . . stock prices are pretty disconnected from things like jobs or even G.D.P.

[T]he recent rise in the market has been largely driven by a small number of technology giants. And the market values of these companies have very little to do with their current profits, let alone the state of the economy in general. Instead, they’re all about investor perceptions of the fairly distant future.

Take the example of Apple, with its $2 trillion valuation. Apple has a price-earnings ratio — the ratio of its market valuation to its profits — of about 33. One way to look at that number is that only around 3 percent of the value investors place on the company reflects the money they expect it to make over the course of the next year. As long as they expect Apple to be profitable years from now, they barely care what will happen to the U.S. economy over the next few quarters.

So big tech stocks — and the people who own them — are riding high because investors believe that they’ll do very well in the long run. The depressed economy hardly matters.

Unfortunately, ordinary Americans get very little of their income from capital gains, and can’t live on rosy projections about their future prospects. Telling your landlord not to worry about your current inability to pay rent, because you’ll surely have a great job five years from now, will get you nowhere — or, more accurately, will get you kicked out of your apartment and put on the street.

So here’s the current state of America: Unemployment is still extremely high, largely because Trump and his allies first refused to take the coronavirus seriously, then pushed for an early reopening in a nation that met none of the conditions for resuming business as usual — and even now refuse to get firmly behind basic protective strategies like widespread mask requirements.

Despite this epic failure, the unemployed were kept afloat for months by federal aid, which helped avert both humanitarian and economic catastrophe. But now the aid has been cut off, with Trump and allies as unserious about the looming economic disaster as they were about the looming epidemiological disaster.

So everything suggests that even if the pandemic subsides — which is by no means guaranteed — we’re about to see a huge surge in national misery.