[adventured]

The US market is eventually correct (which is exactly what you're seeing with Nikola getting properly dismantled), not efficient on every trade or even short-term. I think your premise fundamentally misunderstands how very large, liquid markets with huge numbers of participants like the US stock market actually function.

To paraphrase a famous quote from Ben Graham: short-term the market is a voting machine (prone to trends, mania, over-reactions both directions), long-term it's a weighing machine (value will out). That's still spot on all these decades later.

There is about $36 trillion in value in the public US markets. Can you support your premise that Nikola is somehow relevant as a point of evidence that the broad financial markets do a poor job of allocating capital? Nikola is barely a rounding error in the scheme of the US financial markets.

[cultus]

Financial markets grossly misjudged risk and caused the 2008 financial collapse. The recession previous to that was caused by a tech bubble that saw Pets.com with a greater valuation than GE. These incidents of irrationality have huge long-term effects on the real economy. The middle and lower class never recovered from 2008.

Those were on markets and their irrationality. We are currently in giant asset bubble (enabled by the Fed, but still) in the middle of the worst recession since the Great Depression. It will crash, and take the economy with it.

As far as allocating capital, the markets have systematically discouraged investment and encouraged stock buybacks and other uses of money that not only don't promote the real economy, but increase risk (necessitating more bailouts). Our finance industry systematically pushes industries into rent-seeking instead of production, as well as increasing financialization.

Sure, Nikola isn't significant in things, but it is a microcosm of how the market as a whole operates.

[pas]

Why do you say they misjudged the risk? They got bailed out, the regulations that were enacted in 2008 with big fanfare were/are being slowly but surely rolled back, metrics are good, business has been booming for 10+ years until COVID, but even now "the assets are safe".

The middle class is being displaced by automation and capital consolidation: [pdf] https://economics.mit.edu/files/11563 and https://economics.mit.edu/files/12979

Since yields/returns are so low, it's no wonder rent seeking is the "new" hot shit. Returns are low because there's no aggregate demand, because the middle class disappears, see above. And so the vicious cycle does what it does.

Agreed on Nikola just being a small symptom. See also WeWork.