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Coronavirus cases are rising again. When will Wall Street wake up?

Everyone knows the current stock market roller-coaster is more digital hallucination than real economy rebound. Wall Street seems confused about the severity of COVID-19 even as thousands of Main Street businesses fail. The Federal Reserve has supplied markets trillions of dollars of liquidity, while the Treasury has mailed millions of Americans checks to tide them over. Amateur investors, bored at home, are pouring their savings into the latest chimera.

The world is full of risk, but we refuse to act like it. Coronavirus cases are rising again. More than 20 million Americans are unemployed. Government relief programs will begin petering out by August. If America Inc. wants to make it through winter, it needs to take a hard look at business fundamentals.

Human beings, and Americans in particular, tend to ignore systemic risk. Imagine it’s the year 1925 and you are negotiating to buy a company. You are presented with the firm’s five-year historical performance including revenue growth, margins, and cash flow, as well as a tidy estimate of the present value of future cash flows—all a solid basis for generating a credible valuation. Would you have responded to the data by saying, “This is all well and good, but what if an unpredicted catastrophic event occurs such as a second world war? Won’t that knock your company off-kilter?”

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