The stock Market is not the Economy

In the previous post following Paul Krugman we made a pertinent observation that stock market performance, the rise and fall of stock prices do not actually represent the real state of the real economy.

The relationship is spurious,and at times, simply nonexistent.How could one forget the quote of Paul Samuelson made way back in 1960 that market had predicted nine of, the past five recessions

The question of strong stock prices in the face of weak economy should not baffle anyone.Because as in 2008 crisis ,this time too,expansionary policy of the Fed depressed interest rate.

This was the reflection of weak economy and even with weak dollar,either investment or exports have responded.

Indeed the weak conomy created a fertile climate for surge in stock prices,as low interest rate made other avenues less lucrative.

This does not imply that the upward trend will continue.In an unstable and unpredictable economy selective havest is being done and by the time the market capitalization has reached beyond sustainable level,the scenoria mig,ht change

One thing is clear now as it was known earlier, that stock market is not economy and that in a loose monetary environment crashing economy ,the weak economy do support strong stock prices