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As the Fed Pumps, the Stock Market Is Increasingly the Only Game in Town

While the economic storm caused by COVID-19 has seemed to wane (temporarily?), the stock market can’t seem to go but one direction—up. Graham and Dodd’s meaty 700-page Security Analysis has soared to number 7695 on the Amazon best-seller list. According to Warren Buffett, the book is “A road map for investing that I have now been following for 57 years.”

One wonders what roadmap the young people who saw the pandemic March meltdown as an opportunity to buy slices of familiar technology stocks are following?

CNBC reports, “The major online brokers — Charles Schwab, TD Ameritrade, Etrade and Robinhood — saw new accounts grow as much as 170% in the first quarter, when stocks experienced the fastest bear market and the worst first quarter in history.”

What company shares was the shoeshine boy recommending?

Who knew a person can now buy partial shares of Amazon, Tesla, and other modern unicorns? If nothing else, Wall Street thinks outside the box. If you thought Robin Hood wore a pointy hat adorned with a feather, stealing from the rich to give to the poor, turn your calendar. The new Robin Hood allows the rich to steal from the poor.

CNBC’s Maggie Fitzgerald writes,

Robinhood — millennial favored stock trading app — saw a mind-blowing 3 million new accounts in the first quarter, despite glitches and crashes on heavy trading volume days.

“The access to trading, there are no barriers to entry anymore, it’s on your phone, you can buy whatever you want, fractional shares are available so if you can’t pony up $1,400 to buy one share of Google you can still own the FANG stocks,” Welsh added.

As they say, “What could go wrong?””

“New investors who sense a generational-buying moment but do not have much background in the equity space,” Citi chief US equity strategist Tobias Levkovich said (presumably with a straight face) in a note to clients. “We have heard anecdotally about younger individuals with less market experience viewing the March plunge as a unique time to start portfolios and often crowding into the tech arena, purchasing the stocks whose services or products they know and use.”

Warren Buffett hasn’t found anything he wants to buy, but Millennials can’t get enough of “The technology darlings that have carried the market over much of the last decade — Facebook, Apple, Microsoft, Amazon, Netflix and Alphabet…Shares of Netflix are up 36% and Amazon is up 30% this year.” And “Tiger King” Joe Exotic is still stuck in jail and has lost his zoo to Carol Baskin.

“Traders here are ‘buying the dip’ in a lot of names with questionable fundamentals now, i.e. airlines, highly volatile stocks, low in recent price momentum, and ones…that have recently (in the last 3 months) had lottery ticket like upside payoffs occur,” spoiled sport Michael Krause told CNBC. “Robinhood investors are making all the classic mistakes in the short term. May work for today’s market, but not in the long-run if repeated.”

“If you don’t know what you’re doing, it’s almost gambling, it’s almost speculation, and that sounds like fun…you experience very quick run-ups and rundowns,” said Tim Welsh. “It’s entertainment.”

Almost gambling?

Full story here
Doug French
Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master's degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe.
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