Unbelievable. U.S. equity markets continue to diverge from reality. The Dow surged past 13,000 based on absolutely nothing besides empty assurances from Germany about propping the euro. Meanwhile U.S. GDP growth keeps slowing down and copywriters can’t seem to drop the word “recovery” from their headlines.
Just how did we get so much distance between macroeconomic performance and broad market valuation? Forget the old canard that stock prices are a leading indicator; if they were, we’d see a sharp downward turn in the DJIA before we see any disappointing macro reports.
Traders are placing way too much faith in the continued ability of central banks to inflate stagnant economies into prosperity. The Fed’s QE2 had less juice in it than QE1 but traders pray for more, hoping to squeeze one last short covering rally out of their strategies before the big crash sends them all home. This is a stupid way to invest and that’s why I don’t invest hoping for a central bank steroidal shot.