Did I hear the earth shift? Joe Biden intends to appoint Janet Yellen, former Chair of the Federal Reserve, as Treasury Secretary in his cabinet. How sane is that: a person of vast financial experience, untimely beheaded by an insane president, only to be resurrected by a stable one? Yes! I hear thunderclaps in the firmament. On the same day, Michigan certified the state’s 2020 voter results, sucking the air out of the Republican wait-and-see excuse to do nothing to put the country back together again. Both events give me hope the nation may retrace its steps Through the Looking Glass and return to the land of plain vanilla.
Yellen’s sharp pencil might convince a recalcitrant Congress to pass a second Cares Act which Jerome Powell, current Fed Chair, is urging them to do. Secure in their power to give themselves raises and sign their paychecks, they seem reluctant to do unto others, however.
With no lifeboat on the horizon, jobless people, confined at home, are taking risks in the stock market. Acting as day traders, they buy when prices are low and sell on the uptick. Normally, brokerages charge for each transaction, which would be a prohibitive cost for small, multiple purchases. But some firms, like Charles Schwab and TD Ameritrade, permit free trades. As a consequence, these retail day traders make up a fifth of today’s equity market’s volume. (“This Market Is for Noobs,” by Casey Wagner et. all, Bloomberg Businessweek, November 23, 2020, pgs. 24-26.) Because stocks have been on a steady rise, the amateurs are not only benefiting but outperforming professionals.
Individual investors don’t have to worry about their reputations or careers. They are risk immune, often behaving like gamblers rather than investors. Experts muse these folks are making “virtually every error amateurs are capable of,” (Ibid, pg. 25) and aren’t paying the price because the Federal Reserve is buoying the market during the pandemic. (Ibid, pg. 24.)
The worry is that out of work gamblers may come to imagine they are geniuses, says Dan Egan, managing director of behavioral finance and investing for robo-adviser Betterment LLC. That’s why professionals are monitoring this delusion with an eye to the future. They know excessive euphoria can signal a market crash. When it happens, they’ll be in a position to step in.