Why Stocks Are Soaring Despite the Pandemic

DRIGGS, IDAHO – Since the pandemic started, the COVID-19 virus has killed 2 million people, including 425,000 in the U.S.

Recently, they found a new variant that’s more infectious. They say it’ll soon be the dominant variant of the virus. (They’ve already documented it in at least 60 countries.)

Many businesses have closed permanently. Workers have lost their jobs. And students are falling behind at school and university.

A couple of weeks ago, Federal Reserve governor Lael Brainard said she thinks unemployment is “likely above 20%” for the bottom quarter of the population (in terms of income.)

This chart shows the Vanguard Total World Stock ETF (VT). It’s an exchange traded fund (ETF) that tracks the performance of companies of all sizes from all over the world…

The stock market is supposed to represent economic progress and prosperity. Isn’t it odd to see stock markets soaring during this pandemic?

“Government stimulus” is the common explanation for this phenomenon. “Governments are filling the gap with their spending,” the theory goes.

This makes no sense to me. How would a government spending money (that it doesn’t have and simply takes from one group to pay another) raise the market value of the world’s private businesses?

Fortunately, there’s a better explanation… (more below)

Hibernating Near the Wyoming-Idaho State Line

Greetings from our mountain hideout in Driggs, Idaho…

My family and I are a modern nomad family. We have no home. Our three kids don’t go to school, and Kate and I don’t have traditional jobs.

We live out of a suitcase and drift from place to place, sleeping wherever we can, and educating our kids ourselves. Through a combination of investments, the income I receive from my publisher, and cheap living, we scrape by financially.

We’re currently hibernating in an Airbnb near the Wyoming-Idaho state line, waiting for spring, when we’ll emerge from our bolthole and go somewhere else. Maybe Mexico. Or Alaska. We’ll see.

In the meantime, we’re enjoying the winter in Idaho. Here‘s Penny (8) skiing at our local ski resort last week. The peak in the background is Grand Teton, the most prominent mountain in the region…

A Better Measure of the Stock Market’s Performance

Back to the stock market and the pandemic…

The problem with the analysis above – that stocks are soaring thanks to government stimulus – is the chart of the world stock market itself.

It shows the stock market measured in terms of paper currency (the dollar). But the value of paper currency is not constant.

Because of the fluctuations in currencies this chart includes, we’re not getting a reliable measurement of the stock market’s true performance.

We need a constant value to measure the stock market against. My preferred way of doing this is to look at the stock market in terms of gold.

You can’t just “print” more gold out of thin air, making its value steadier over the long run in the face of currency devaluations. (Plus, gold has been around for ages, and likely will be around for decades to come… unlike paper currencies, which often get so devalued, a new currency has to be created to replace it altogether.)

Let’s look at the stock market again, using gold as the baseline…

Now, we get a much clearer picture. Far from making all-time highs, the stock market – while volatile – is still at 2017 levels. And it has been in a general downtrend since the fall of 2018.

I hope this idea is useful…

That to get a meaningful picture of the stock market’s performance, you have to measure it against a constant baseline. Paper currencies don’t work – especially now that governments are devaluing their currencies.

When you look at the stock market this way, things make a lot more sense. But why has the stock market also been rising in gold terms for the last nine months?

The pandemic caused a big hit to global prosperity, and the stock market had to quickly adjust 30% in March. But once it adjusted, the stock market considered the pandemic to be old news and immediately started looking forward to the next few years.

This is completely normal stock market behavior. The stock market always looks forward. There are many examples of this.

But my favorite example of the stock market “looking forward” was when U.S. stock markets bottomed in 1942, three years before the official end of the Second World War…

– Tom Dyson

P.S. In 2018, Kate and I moved to the sidelines in gold, so we can protect and grow our nest egg over the next decade as the U.S. government devalues the dollar faster than ever before. For anyone who wants to do the same, I put together a model portfolio – including specific percentage allocations and the 11 gold stocks I recommend today. Learn more right here.

Like what you’re reading? Send your thoughts to [email protected].

Kind words keep pouring in for Tom in the wake of his mother, Teddy Dyson’s, passing…

Reader comment: Sorry to hear of your mother’s passing. Your eulogy brought together the many memories of her. Those memories will stay with you forever. Treasure your writings of her; they will mean a lot to your children later. God bless your family, father, and in-laws.

Reader comment: Tom, I am very sorry to learn of your and your family’s sad loss. Your mother sounds like an exceptional, loving, and inspiring woman. I’m sure it is a very difficult and sad time for all of you. And I’m sure she was very proud of you.

I am based in London, so if there is any way to provide practical help here (whether from an organizational perspective or otherwise), please let me know. Wishing you all the best in this difficult time.

Reader comment: Great photo of a very vibrant lady, your mom. Excellent eulogy and something you should carry with you every day until it’s your turn to take a final “curtain call.” You can consider yourself blessed to have had such a fine lady as your mom. Now, carry on the tradition as a dad.

Reader comment: Great eulogy for a delightful lady. Very moving as well as entertaining. It is a great loss. God’s grace to you.

Reader comment: Sorry for your loss and kudos for doing what had to be done to be there with your brother.

Meanwhile, another reader says Tom has his priorities straight…

Reader comment: Family is all important. Being with your wife, raising your children together, is probably the most important thing to do in life. Glad for you that you figured it out. I didn’t – wish I had.

Tom’s note: Thanks to everyone who wrote in! Your notes keep us going. Please keep writing us at [email protected].