At the time, Trump was assuring Americans on Twitter that the coronavirus was “very much under control” and claiming the stock market was “starting to look very good to me!”
Word of private uncertainties held by US officials quickly spread to elite investors via a hedge fund consultant, the Times reported. That intel gave these traders a crucial leg up on common investors, allowing them to make timely bets that stocks would drop.
“Short everything” was the reaction of one major investor briefed on the memo from the hedge fund consultant, the Times said.
Although the Times said the briefings may not have violated any securities laws, the episode fuels a sense of unfairness about modern financial markets. Elite investors have the resources to make bigger bets than average investors, while using faster technology and often better intel.
Not only can sophisticated investors avoid losses the masses endure, but they can short the market — profiting while others suffer.
Hedge-fund consultants like the ones raised in the Times story charge up to $100,000-a-year for access to their written reports, according to Wall Street veteran Nicholas Colas. And for premium access, these consultants can charge several hundred thousand dollars a year, Colas said. (It’s not clear how much, if anything, the hedge fund consultant described by the paper charged).
Still, elite traders get access to information that everyday investors don’t because they can’t afford $100,000-a-year consultants. Many don’t even have that much money in their investment portfolios.
“If I had better information available to me, maybe I would have made better decisions,” said Shonna Clark, a 34-year-old single mother in Minnesota who was laid off in March because of the pandemic.
“I’m barely making it by. I’ve already gone through my savings,” she said.
Swift market rebound
Although stocks crashed into the fastest bear market in history, they also swiftly rebounded. The pandemic bear market turned out to be the shortest on record and today US stocks are near record highs.
That means someone who sold an index fund tracking the S&P 500 in late February and stayed on the sidelines would have avoided short-term losses — but also missed out on the subsequent rebound.
The S&P 500 is near record highs today — it’s up 7% on the year — despite a slide on Thursday. By comparison, an index tracking the performance of hedge funds was basically unchanged on the year as of the end of September, according to Hedge Fund Research.
In other words, the average person with a long position in the S&P 500 is beating the average hedge fund.
“So did you want that [private coronavirus briefing] information? I don’t know,” said Colas, co-founder of DataTrek Research.
Although the stock market fully recovered its losses, large swaths of the market (and the economy) have not.
Treasury Secretary Steven Mnuchin dismissed the Times report on Thursday as “another exaggeration” by the paper.
“I can’t imagine this occurred,” Mnuchin told CNBC. “By the way, there were plenty of investors who had their own views of what was going on at the time and were very concerned rightfully.”
‘Sugarcoated’ comments from Trump officials
The other hard truth is that investors can’t take public statements from the Trump administration at face value.
“But the problem is — and what crystalized that story — the feeling that the public was getting one set of briefings from White House spokesmen, ‘Not to worry — it’s mostly contained, or all contained’ and then donors and insiders were getting a different set of more worrisome briefings inside the White House,” Chanos, the billionaire hedge fund manager said.
“I feel like they sugarcoated a lot of stuff. They needed to let the public know more about what was going on,” said Clark, the single mom from Minnesota.
Colas said the episode is another reminder that investors must think for themselves and realize that sometimes officials and CEOs will only paint the rosiest of pictures.
“Welcome to Wall Street,” he said.