Prior to the pandemic, the stock market had reached historic highs, continuing the longest bull market in history. In the face of this historic growth, all kinds of prognosticators and pundits were saying it was way overpriced and couldn’t possibly last. And yet, it did, continuing to rise at blistering rates, defying every signal, metric, and historical indicator. A big reason for that was and is the historically low interest rates. When people can’t make money on their money with safe bank deposits, CDs, bonds, or dividend paying stocks, they resort to the stock market to try to make a return.

Then the novel coronavirus hit and, in the face of record unemployment, economic shut down, and a bleak outlook for reigning in the extraordinarily contagious and lethal disease, the market fell into bear territory faster and deeper than any other time in history.

And just as quick, it’s back to record highs, and everyone is breathing a sigh of relief. All’s good in the market, people’s 401(k)’s have been restored, and we can all forget about it and get back to normal. Companies are opening, and millions of new jobs have been “created.” We can put the Covid back in the bottle and move forward. All that Covid angst and turmoil is behind us, and the economy is roaring back.

To which I say, not so fast.

It is true that unemployment has fallen over the past few weeks, but it’s also true that the jobs numbers are still below where they were in 2016. All the employment gains from the past three years, and more, have disappeared. And there is still a record number of people on unemployment.

Many of those jobs are gone forever, and as most things work in this country, it is the poorest of us that are taking the brunt of the impact, especially in the hospitality industry. Restaurants all over the country have shuttered their doors, many permanently. Cruise ships are still not sailing. Airplanes are flying at record low capacity. United and American have indicated that between them they will be laying off close to 50,000 people once the government relief runs out. Along with many of these job losses, many of these employees are losing their health coverage as well. So, they become responsible for the costs of testing, treatments, and hospitalizations surrounding the coronavirus. We are beginning to see a wave of evictions as protective measures in the Covid Relief Program run out of money. All the while, super spreader events such as the Sturgis Motorcycle Rally and crowded Labor Day gatherings are on the rise as people worn out by the coronavirus pretend it’s gone.

Despite all this harsh reality, the magical thinking that has caused large portions of the nation to dismiss the continuing health risks associated with the virus has overtaken the market at an alarming rate. Overexposed investors are taking on more and riskier investments during a time of accelerating economic crisis, a resurgence in the coronavirus, and a hotly contested and pivotal election season. Exactly the wrong time to take further risk.

The markets and institutional investors know that. According to Burt Dohmen, Forbes contributor and founder of Dohmen Capital Research in his September 1st Seeking Alpha post, The House of Cards is Ready to Collapse, “the Put/Call ratio…has fallen to record 2-year lows repeatedly over the past several months.” Puts and calls are options that allow investors to predict, and bet on, future market moves. Puts indicate a belief the market will fall; calls predict it will rise. These are very risky bets, usually made by sophisticated investors. The move towards puts is a clear indication that the smart money is bearish. Dohmen goes on to say, “Large Wall Street firms have slowly and carefully unloaded their positions over the last 2 and a half months onto retail investors, who are walking into a trap.” This is reminiscent of what these same firms did in 2008 to cause the great recession.

Apropos of nothing (I mainly just liked the illustration and was looking for a place to use it!), we often make really, really, stupid decisions. Here’s a hall of famer. It seems that one of the main things states in the Southwest use prison labor for is fighting wildfires. The lucky cons get about 75 cents per day, risking their lives in a raging inferno. While that hardly seems fair, it’s not the part I find stupid. The monumentally stupid part is the insane law that prevents those same convicted felons from fighting fires after they are paroled or released! And, they currently have a severe shortage of veteran and experienced firefighters.

Let that settle for a moment. A job prisoners train for and become proficient at is unavailable to them once they are released, often causing them to be back on the streets and committing more crimes. And a well of seasoned and experienced firefighters who are desperately needed during a raging fire season is not available to keep people and their houses safe. A move that is designed to punish ex-cons is really punishing the people in the path of the fire.

My point is that until we get our heads on straight and start to focus on the disease that has killed more people than WWI, Korea, Viet Nam, the Gulf War, Iraq and Afghanistan combined, our entire economy and this bull market are at extreme risk. The nation and its economy are on fire, and we are standing in the way of extinguishing it. Until we remove the man-made obstacles, there is no real hope of anything changing. We must get in touch with reality and focus on solving the actual problem.

Stephen Kelley is a recognized leader in retirement income planning. Located in Nashua, NH, he services Greater Boston and the New England areas. He is author of five books, including “Tell Me When You’re Going to Die and I’ll Tell You How Well You Can Live,” which deals with the problem that unknown lifespans create for retirement planning. It and his other books are available on Amazon.com. His radio program, The Free Money Guys, can be heard each Sunday at noon on WCAP. He also conducts planning workshops at his New England Adult Learning Center, located in Nashua. Initial consultations are always free. You may reach Steve at 603-881-8811 or at www.FreeToRetireRadio.com.

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