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Page added on June 24, 2012

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http://www.peakprosperity.com/blog/when-will-reality-intrude-and-stock-market-hit-bottom-part-1/76292

General Ideas

[Today I’ve posted a few stories about the increasing liquid fuels supply so here is one about the other side of the equation, the poor economy and lowered demand –Pops]

 

If we pursue the line of inquiry established by Chris Martenson’s recent call to Buckle Up — Market Breakdown in Progress, we come to these basic questions: When will the market reflect the fundamental weakness of the global economy? And when will the market finally hit bottom?

First, we have to stipulate that the correlation between the real economy and the stock market is tenuous at times. According to the National Bureau of Economic Research (NBER), the widely recognized designator of recessions, the most recent recession began in December 2007 and ended in June 2009. Fully six months into the downturn (June 2008), the S&P 500 stock market index was still resiliently hovering around 1,400. The market did not break down until September 2009, the tenth month of recession.

A mere three months after the market bottomed in March 2009, the recession ended (as determined by the NBER).

Clearly, the correlation between market action and the underlying economy is weak.  While many would declare the stock market to be a “lagging indicator” of recession, even that may be overstating the connection. If we have learned anything in the past three years, it’s that weakening the dollar to foster the illusion of rising corporate profits, central bank monetary easing (QE), and central state borrow-and-spend stimulus can goose the market higher even as the underlying economy remains weak or recessionary.

Properly inflated with cheap liquidity, the stock market could continue rising even as the real economy (as measured not just by profits but by employment, household earnings, and tax revenues) sags into recession.

 

Much more of this article from Charles Hugh Smith at PeakProsperity



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