Sorry to say this, but Wall Street is deluded

The markets and reality are diverging. I am sorry to say this, but Wall Street is deluded.

Article updated: 4 May 2020 12:00pm Author: Michael Baxter


You may know, I am something of an Elon Musk fan, even so, I have been disappointed with him during the Covid crisis — but I am not disappointed with Tesla.

Americans, I believe, are inherently optimistic people. Indeed, I have long thought that an American sense of optimism is why the US has traditionally been such a hotbed of entrepreneurial endeavour. In the UK, we are naturally cynical. If a startup presents your typical British investor with bold new ideas, then the investor will often look for reasons ‘why not’. In the US, the onus is often on ‘why it could’.

I make that above statement in an effort to try and understand what I see as a totally unrealistic sense of optimism regarding a predicted bounce back in the US economy next year.

When optimism goes too far

Elon Musk, tech entrepreneur extraordinaire, and CEO of Tesla, has optimism by the bucket loads — without it the remarkable story of Tesla defeating the odds would have only ever have been a story, fiction fit for a comic. Yesterday the company even revealed a small profit in its latest quarter, despite lockdown, an impressive achievement. It has been, and still is, a true pioneer not only of electric cars and lithium ion batteries, but in AI and the evolution of autonomous cars.

For Musk, to have pulled the Tesla achievement off, he needed faith, faith in himself, faith in his ideas.

Alas, I would say that such faith in oneself, which is in such abundance in the US, is now creating a wholly incorrect analysis.

Elon Musk has been one of the biggest Covid cynics and one of the loudest voices calling for the US to go back to work.

At the moment, there is so much we don’t know about Covid-19. Maybe as spring turns to summer, it will disappear in what President Trump has likened to a miracle.

Personally, I think there is a real risk of a second peak in the autumn. It was the second phase that saw the Spanish Flu of one hundred years ago at its most deadly. I do think that the spread of the virus will slow as the weather gets hotter. I fear that those of an inherently optimistic disposition, especially those who pay scant attention to history, or indeed detail, will celebrate the end of Covid, will welcome a return to normality at just that moment of maximum danger.

The end of the beginning is only just beginning

I am sorry. I know this crisis is awful. We all want to get back to normal. I am desperate to see my kids again. I have been so worried about them, especially my pregnant daughter who works in ICU at one of the most front line hospitals in the world. But as I look at the curve tracking UK deaths fall, I get a sense of dread that this may return.

That is why I don’t think the lockdown will end soon. I fear that if it is ended too soon, the second wave will impose an even bigger human cost and leave an economic wound that may never heal, not this side of a revolution, anyway.

And yet I look across the Atlantic, at the daily death rates which are still close to peak. I look at falling deaths in New York, increasing deaths in other states. I note the protestors demanding the right to return to work. I note how some Republican politicians call for states, (often Democrat run) suffering especially badly from Covid, to go bust. I note how others call to end unemployment payments to workers who refuse to return to work. The US, libertarian mindset is backfiring in this crisis. The sense of natural optimism is creating dangers. And all of this without making any reference to the somewhat, shall we call it ‘perplexing,’ behaviour of the President.

I see a country with so much social division, so much at odds with itself, that I even wonder if it may experience another civil war. Don’t get me wrong, I don’t think it will. I just think it is possible.

And amongst all of this, Goldman Sachs predicts a rapid economic recovery, a V shaped economy pre to post-Covid. It suggests that valuations are justified as investors are looking beyond the crisis.

I don’t see it. I do think that once the world has worked through the after-effects of this crisis, the economy will do well. I also think that this crisis will see a sharp acceleration towards digital technologies which will boost the economies of the world.

But before hand, we will pass through a period of extreme uncertainty. It will take several years before the global economy can work through the after-effects of this crisis.

The social disruption that occurs will be dangerous. The so called new normal that emerges post-Covid may be one of greater social conscience, one which sees a determination to see greater equality and fairness, or it may be one that sees increased inequality, more power residing with billionaires, and a permanent encroachment of our privacy.

People may react to such conditions by electing ever more totalitarian governments.

The markets are totally out of touch with these risks.

By the way, I am exploring these ideas in more depth in my soon to be released new book: Living in the Age of the Jerk

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

See what else we have to say