inthemoney

Does the Market Anticipate the Economy?

Market reflects available liquiditity and investor physicology at a given moment. If there is more liquidity avaialble the market will go up ( like right now) regardless of the economy. Economy usually will also grow with more liquidity, that is why it looks like market predicts the economy while in truth it is the amount of liquidity available that predicts it.
Currently, though liquidity also gets destroyed quickly ( by the write-offs), banks are hoarding it and people ar not putting it into economy (due to high debt load). This is why this time it will be much lower growth given the amount of liquidity in the system. And this is why we see the disconnect between the market and the economy.
This additional liquidity from money printing is like a drag - it gets the market high only to crash when the economy doesn't recoveras expected.