---
Title: Why are stocks going up when everything is going awry?
Date: 02/07/2020
Category: Global News
Tags: crisis fictitious-capital
URL: https://marxismo.school/communia/en/why-are-stocks-going-up-when-everything-is-going-awry
---


[From the USA](https://www.axios.com/half-us-population-unemployed-341ba30c-777e-4ba2-bccf-d2274b2770f0.html) to [China](https://www.scmp.com/economy/china-economy/article/3083513/coronavirus-china-faces-historic-test-pandemic-stokes-fears) through [Brazil](https://www.perfil.com/noticias/bloomberg/desempleo-record-en-brasil.phtml) and [Spain](https://www.abc.es/economia/abci-desempleo-repunta-5107-parados-y-vuelve-subir-junio-primera-desde-2008-202007020859_noticia.html), the (un)employment figures are shocking. And with the market shrinking on a weekly basis, capital inflows and [foreign direct investment is falling in China, Russia, Britain, the Netherlands...](https://akipress.com/news:644656). Geopolitical uncertainty has reached its peak, to top it all. In addition to the trade war between the United States and China, there is also the war between [India and China](https://timesofindia.indiatimes.com/business/india-business/no-chinese-company-to-be-allowed-to-bid-for-any-highway-project-nitin-gadkari/articleshow/76739635.cms), and the one between [Japan and South Korea](http://www.koreatimes.co.kr/www/nation/2020/06/120_292078.html). And more will come. And yet... [the stock markets are rising](https://www.abc.es/economia/abci-bolsa-espanola-sube-mas-2-por-ciento-impulsada-optimismo-bancos-202007021050_noticia.html) and [the share prices of big companies -especially technology companies- keep climbing until they become divorced from any relation with future profits](https://www.irishtimes.com/business/economy/why-are-markets-booming-when-a-crash-is-on-the-way-1.4292812). Why?

## From capital to fictitious capital

[![](https://marxismo.school/communia/en/assets/bolsa-de-madrid.jpg)](https://marxismo.school/communia/en/assets/bolsa-de-madrid.jpg) In May 1893, at the dawn of imperialism, the Madrid Stock Exchange was inaugurated in the Plaza de la Lealtad.

mode of production|social organization as a whole

wage labor

accumulation

Now let's put ourselves in the place of capital itself. The point is... what should be done with the new capital that is created when - among the available options - it is not possible to find enough productive applications to cover the amount of capital that has been accumulated? In other words, what to do when there is no profitable place in which to invest bulk capital? And here we have to think on the scale of big capital. Of course, there will be small businesses with great returns, but ... What happens when that return is reduced by the management and supervision costs of way too many managers?

fictitious capital

decadence|decadent

## The crisis and the stock exchanges

[![](https://marxismo.school/communia/en/assets/balsa-madrid.jpg)](https://marxismo.school/communia/en/assets/balsa-madrid.jpg) Madrid Stock Exchange

decadence

No, it has nothing to do with that, the system cannot avoid going into crisis. In the end, crises are nothing more than gigantic devaluations of capital that occur because the capital invested in the production of goods and services does not find demand and is proven to be unprofitable. When that becomes evident, all the bets placed on its profitability fall with it. The expectations of all the fictitious capital bets break down, _crashing_ down; the funds that articulate them lose value spectacularly; the stock markets fall suddenly, the futures collapse, credits are classified as uncollectible. And everything happens very quickly, like an avalanche. One day... the stock markets fall, banks go bankrupt, bankruptcies fall amidst a domino of bad debts. And the media, owned by the same capital, hypocritically asks _how could this happen?_.

## And why isn't it happening now?

[![](https://marxismo.school/communia/en/assets/lagarde-coronavirus.jpg)](https://marxismo.school/communia/en/assets/lagarde-coronavirus.jpg) Christine Lagarde presents the ECB's package of measures in the face of the fall in economic activity due to the coronavirus epidemic.

Many companies are making losses. Others, like the banks themselves, are coming out of a long period of falling yields. And yet fictitious capital rains down on the stock markets and are purchasing like crazy. It is true that many of these loss-making companies will soon return to profit. But it is also true that the global expectations given by [the central banks themselves point to a decade of adjustment and impoverishment, i.e., of _depressed demand_](https://www.lainformacion.com/economia-negocios-y-finanzas/banco-espana-augura-danos-permanentes-sectores-clave-economia-espana-decada-ajustes/2809123/). And the world markets, as we are seeing, far from being thriving and accessible, are going to be more and more strongholds guarded by tariff armies... and [increasingy _real_ armies](https://marxismo.school/communia/es/negociacion-comercial-armada). And no, it's not that the speculators are aware of anything that the rest of us aren't.

The question is rather the opposite. To cushion the crisis, central banks - which have long been lending money to banks without interest, i.e. for free - are injecting massive amounts of liquidity into companies and banks. The ECB is already buying from the states those _guarantees_ that were granted by the states for loans requested by companies. And the ECB is merely [increasing this purchase](https://www.lainformacion.com/mercados-y-bolsas/coronavirus-bce-largarde-compras-activos-contraccion-zona-euro/6559767/) and [accepting weaker guarantees as collateral for the loans it gives to banks](https://www.france24.com/fr/20200422-covid-19-la-bce-pr%C3%AAte-%C3%A0-accepter-des-obligations-devenues-pourries-comme-garanties-bancaires). In other words, the ECB will in many cases pay for loans that cannot be repaid and the banks will not suffer. A bookkeeping entry and a loss result in Frankfurt is just one more accounting illusion. This is the whole secret of the banks' optimism' spoken of today by stock market commentators in the media.

Seen from fictitious capital there could not be better news. The players know they're broke, they think they can write off a good part of their investments. But the dealer appears and offers them, without interest, to lend them all the chips they want and ensures that whatever comes out the chips bet on red will return to their owners. Are they going to quit the game, convert the chips they are offered and set up new businesses? Given what is happening in the world? Not a chance. They will double the bet and concentrate on what has the best chance of surviving when it all goes bust. Netflix? Right. The Internet? Of course. Banks? It's almost guaranteed they won't go bankrupt, and everything points to [they'll have to merge soon to make some profit](https://www.lainformacion.com/mercados-y-bolsas/bce-allana-camino-fusiones-bancarias-requisitos-solvencia/2809236/) , which means they might go up... Let's finally add all those fictitious capitals that float around desperately in search of a profitable destination... Netflix stock no longer correlates with expected returns. Will it go down? Of course. Was it crazy to double the bet? The speculator's hope is that it will not go down _too far_. His capital will have dwindled, yes, but he will have survived. _And hopefully with a little bit of luck..._

finance capital