Welcome to Wall Street's 'Summer of Anxiety'

• No one on Wall Street knows where the economy will go once the pandemic weirdness clears.
• No one knows if the retail traders driving bizarre, violent stock trading activity are here to stay.
• Everyone is losing their minds about inflation.
• Welcome to Wall Street's summer of anxiety.
• This is an opinion column. The thoughts expressed are those of the author.

As summer comes to the United States, the coronavirus is receding, businesses are reopening, and people are going back to work. There are memes everywhere trying to encapsulate the elation of the season - "hot vax summer," "the new Roaring 20s," etc.

But on Wall Street, things are a bit darker. Among money men paid to predict the future, this will be the "Summer of Anxiety."

The peculiar nature of pandemic's economic recovery has made the next few quarters nearly impossible for even grizzled old-timers on the Street to forecast. Meanwhile, over in the stock market, retail traders stuck at home continue rewarding their favorite stocks for only-Christ-knows-what-reasons and jumping on momentum trades - corporate fundamentals be damned.

All of this is to say that Wall Street has found itself in limbo. No one knows how the economy will shake out after the strange dislocations caused by the pandemic are sorted, and no one knows if retail traders violently shoving stocks around will be here to stay once the world fully reopens.

There is so much uncertainty that Denise Schull - an author and psychologist who works with hedge fund managers and professional athletes- says her main trick these days is to get her worried Wall Streeters to take money out of the market and do less.

Or, as Bob Chapman, founder of Chapman Capital, said in an interview with CNBC last week: "To me it's time to go kitesurfing." He's lucky, of course. If you know Wall Street you know that not all money managers are well-adjusted enough to have a hobby.

Inflation - worse than bed bugs, scarier than Freddie Kreuger

There has never been a recovery like this one. This economic downturn was different from any in recent memory - people lost their jobs and businesses closed because they were required to do so. After losing 22 million jobs at the start of the pandemic, we still have to regain under 10 million jobs to get back on the country's pre-pandemic trajectory. This isn't steady going either. In March the economy created an incredible 916,000 jobs, only to crash down to a disappointing 266,000 new jobs in April, and then back up to 559,000 new jobs in May.

At the same time, US household savings rates reached record highs in March, boosted after the government handed out stimulus checks. But with the country partially in a pandemic shut down there were few places to spend them, so the money waited.

As we reopen there are shortages everywhere - for things like houses, cars, food, and, workers. Wages are going up as businesses try and lure workers, some of whom are choosing to wait to jump back into the job market because they still have children at home or until the vaccination rates get a bit higher. In Washington, the Federal Reserve is continuing to support the economy and the Biden administration wants to pass a $1 trillion+ infrastructure package.

What this all means is that inflation is here. Economists at the Federal Reserve say it will be "transitory" - that once all these pandemic dislocations normalize these price pressures will ease. For Wall Street's money men this is a hard story to swallow. "What the hell does 'transitory inflation' even mean," one worried client asked Shull.

Many older money men on Wall Street connect inflation with their youth - to the 1970s when slow growth and high inflation teamed up to ravage the economy. Near as I can tell, talking about the return of this combination, called "stagflation," makes them feel young again. Many younger money managers - having lived through the financial crisis and a world where too low inflation was a bigger worry - simply do not trust economists or the Fed to predict a future they themselves cannot see.

None of these people will sleep well until this period of uncertainty is over.

Trading from the cheap seats

Perhaps, given this lack of understanding of the future, it makes sense that the market has turned into a paradise for day traders - investors who buy and sell quickly. To a certain kind of person on Wall Street, this kind of trading is, at best, considered a gentleperson's game for dedicated hobbyists. At worst it's considered gauche - an amateurish way to play the stock market that does not require a fundamental understanding of a company's value or any real aptitude for math.

During the pandemic momentum took over the stock market, as retail traders used low cost platforms like Robinhood to throw money at stocks just because they were moving. Wall Street's staid tradition of exchanging ideas about a company's business prospects in air conditioned hotel ballrooms has been replaced with meme lords flooding Reddit with their favorite stock picks - regardless of any numbers of fundamental analysis - and shoving them higher in the market.

This brings up an important question. What is the stock market for? Is it for sending capital to companies with the best prospects and management team so that it can be put it to productive use? Or is it simply a video game for making traders money?

Take movie theater chain AMC, for example. The stock is up 2,321% (yes, that's a comma not a decimal) since the meme stock craze took hold in January. For many seasoned investors, it has become bringer of doom, running over short sellers and confounding fundamental analysis to no end. However, the business has few prospects. The company lost over $567 million in the first quarter of the year. Even before the pandemic AMC was in dire straits, and now holds $5.5 billion in debt on its books and owes $473 million in deferred rent. Worse yet, the entertainment industry has changed during the pandemic, doing deals that have more movies spending less time in the theater so they can head to streaming platforms.

None of these numbers matter to the loyal buyers of AMC's stock. Last week the company filed to would issue 25 million new shares in 2022. At the same time it issued a warning to any prospective buyers: Anyone who does, the company said, should be prepared to lose all their money.

For Wall Streeters trained to make the most beautiful model of how a business should operate this is utter, complete nonsense.

"People think it should be that companies that produce value have high stock prices, but it really only works that way because money managers have believed it should," Shull said. Now there is a powerful force in the stock market that does not believe it should work that way anymore. Money managers just have to deal with that, at least for now.

Of course, all of this could collapse any day. That's how bubbles work. It could be that, as everyone heads back to work, retail traders have less time to be vigilant about the prices of their favorite stocks, and that kills their momentum. It could be that the recovery stalls for some reason, maybe a vaccine-resistant variant of COVID. It could be that the Wall Street inflation nightmare comes true for a while, crushing stocks for a sustained period and washing out investors with weaker hands. It's also quite possible that the Biden administration is unable to push through more stimulative measures, and there's less money sloshing around the economy than investors had previously thought there would be. We'll know more about all of this in September at the earliest.

In moments like this, when the future is so uncertain, it's a lot easier to think of the market in day-to-day increments. Shull told me that one of her clients - a veteran in the business - is making his analysts read Reminiscences of a Stock Operator, the story of 1920s day trading legend Jesse Livermore. They need to be reminded, she explained, that their job is not to build perfect models, it's to make money.

And right now making money means forgetting what they know, trusting the wisdom of Congress and the Fed to get things right, and chasing after a bunch of anonymous Reddit traders in the stock market. If that's not anxiety inducing, I don't know what is.