Why is the US stock market skyrocketing despite record unemployment, extreme uncertainty and people dying across the world? The answer is a combination of technical factors, contractual rebalancing of portfolios and interventions by the Federal reserve, which I'll be focusing on.

Today the fed announced facilities to purchase $2.3 trillion of CARES act loans, high yield bonds, collateralized loan obligations and commercial mortgage-backed securities.

“High-yield” is another way of saying junk rated debt, companies with relatively weak balance sheets in terms of leverage and cashflow have to offer higher yields to attract investors. Junk debt is typically held by risk-on hedge funds, private equity firms and investors.

Therefore, todays announcement can be see as a massive handout aimed solely at the rich because junk rated debt has a higher risk of default, especially in our current environment.

Today during a press conference, Jerome Powell said “I would stress that these are lending powers, not spending powers,” a blatant lie. This is just another example of socialism for the rich and capitalism for the poor.

As a side not, the companies that accumulated cheap debt over the years, courtesy of the fed, used it on stock buybacks in the run up to 2020 to the tune of $4.3 trillion. https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for-the-economy

When the fed buys debt, it raises bonds prices resulting in lower yields, making fixed income securities less attractive to investors. Investors that are rid of their hemorrhaging debt securities and have access to liquidity instead put their money in the stock market.

The fed’s actions are inflating asset prices despite the fact that the real economy is completely shut down. What is truly absurd is that the sectors leading this weeks rally are some of the most impacted by the shutdown, cruise lines, hospitality and consumer retail.

Another typically cited reason for the rally is that a short squeeze occurred, which is where a rally forces net short investors to cover their positions with longs, forcing up prices further.

The benefits of the stock rally most likely went to corporations that are working with the Federal reserve, like Blackrock, which is involved in carrying out the feds programs (if that’s confusing see here: https://www.bloomberg.com/opinion/articles/2020-03-27/federal-reserve-s-financial-cure-risks-being-worse-than-disease), and hedge funds with trapped longs.

What is the cost of feds actions? Inflation, increased inequality, the continued exploitation of emerging markets and austerity for future generations, faced with a ballooning national debt — all to temporarily prop up speculative assets.

People on low incomes have very little exposure to the stock market and certainly don’t hold corporate debt. Corporate loans and bailouts will widen inequality. The check Americans will receive amounts to about 2 months of wages and 10 cents on the dollar of what has been spent.

On inflation. While the US federal reserve has a lot of room the conduct quantitative easing (QE) and monetary policy, that is to say, print money and buy large amounts of debt because we’re currently in a deflationary environment, we could still see inflation for two reasons.

1) this isn’t just a demand shock but also a supply shock, that means if too many dollars are pumped into the economy by the fed, we might still see too many dollars chasing too few goods, especially as the economy begins to open up and production ramps up slower than spending.

2) a lot of the “loans” being issued by the govt and the federal reserve won’t be paid back, so the money won’t leave circulation.

When this is all over, the fed won’t have the tools to combat inflation and unwind it’s balance sheet because Trump would never approve of any monetary tightening in the recovery period and nobody is going to want to buy all that garbage debt.

Finally onto the strength of the the dollar. The USD is relatively strong because of the use of the dollar as the global reserve currency and America being seen as relatively stable.

Over the past month, there have been huge capital outflows from emerging markets and into US dollars, bolstering it’s value. Some of this capital is also probably went into inflating the stock market.

This means the US has much more room to conduct monetary policy and QE than other countries, which can’t just issue massive amounts of debt to provide basic income to their people because of the risk of capital flight and hyperinflation.

This is a legacy of Western imperialism. The conditions that allow Western economies to adopt ideas like MMT are the same conditions that prevent less developed economies from doing the same.

The strength of Western currency also makes imports relatively cheap, which further facilitates so-called “socialist” policies like UBI.

Remember, the stock market is not the economy and it goes up because you are getting poorer.