The Wile E. Coyote Stock Market Explained

Any body suspended in space will remain suspended in space until made aware of its situation. A character steps off a cliff but remains in midair until looking down, then the familiar principle of 16 feet per second squared takes over.

1st Law of Cartoon Physics, Wikipedia

The Trump stock market seems to defy comprehension. I’m not the only one who’s noticed that it’s completely untethered from the reality of the economy. Consumer sentiment is at an all-time low. The S&P 500 is at an all-time high. The market gets pushed up by Trump statements about the war that no rational human being would believe. Every day I expect the crash that brings this house of cards down.

My number one rule for understanding history and everything else – “Because people are Stupid” is never the right answer. So it must be something else.

It’s the Algorithms, Stupid. Or It’s the Stupid Algorithms.

An offhand comment the other night by an MSNow commentator gives us the first insight. He mentioned that a lot of trading isn’t being done by humans but by algorithms that search the news and what’s trending on the web for clues about how the market will move the next day.

So when Trump Truths that the war with Iran is over — they’re opening the strait and have agreed to all his terms and are becoming the 51st state — the algorithm doesn’t need to believe him. It just needs to see that true or not, this statement will move stocks up and oil down. With so much trading done by algorithms, each algorithm knows stocks will rise because the other algorithms will move them.

With 70% of daily trading done by algorithms, humans have become largely irrelevant to the stock market. So it isn’t people at all moving the market.

Wile E. Coyote Thinks He Has a Net

Kyla Scanlon gives us another huge piece of the puzzle in her New York Times essay, Why the Stock Market Makes No Sense Right Now. The real Wile E. Coyote has to worry about falling — he’s suspended in midair above the Grand Canyon, and when he drops, he falls for miles until you see that tiny poof of dust when he hits the ground.

But the stock market doesn’t have to worry, because every time it’s about to plummet, the Federal Reserve steps in and saves it. Under Greenspan, the Fed pulled the market out of a crash in 1987 and again when the dot-com bubble burst in the late ‘90s. Under Bernanke, it pumped trillions — not a typo, that’s trillions with a T — into the financial system in 2008, and then again, along with Congress, after COVID hit.

And every time the Fed did a bailout, foreign investors covered it by snapping up Treasury bonds.

The market has learned it will always be caught. So in a world where rewards are capitalist and go the investor, but risks are socialized and covered by taxpayers, damn right, they’re going to keep increasing their bets.

Wile E. Coyote isn’t worried because he knows the net is there. And so far, he’s been right.

But what happens when the algorithm shows that all the algorithms say sell instead of buy and foreign investors have lost their interest in buying Treasuries.

Look out below.

Coming in Part 2: It Doesn’t Matter If the Peasants Are Starving. The King is Feasting.

In Part 2, we’ll look at how we’re paying the price for the Wil-E-Coyote stock market— and the numbers are shocking. Corporate profits have gone from 8.5% of the entire US economy in 2001 to 16.6% today. That translates to a Corporate Profit Tax on Consumers of over $15,000 per person — nearly double what the IRS collects from you in personal income taxes.

The market isn’t broken. It’s working exactly as designed. Just not for you.