Today the BBC reported
I remembered something I wrote in the Wall Street Journal just over two years ago
As a result of this liquidity infusion (Quantitative Easing)—which the Fed last week cut to $75 billion a month—stock markets have nearly doubled since 2009 while the “real” economy has hobbled along with 2% growth. This perverse situation suggests that the stock market has joined government bonds and emerging markets as the latest inflating bubble.
On Aug. 15, the London Telegraph reported that British retail sales had risen unexpectedly sharply and that American unemployment had fallen to a six-year low. This would usually be promising macroeconomic news, but that day major indexes—the Dow Jones Industrial Index, the S&P 500, the CAC 40, among others—tumbled. Markets, hooked on the Fed’s cheap liquidity cocktail, were terrified that an improving U.S. economy might see the punch bowl removed with a Fed “taper” of quantitative easing.
A day later, when the results of a U.S. consumer confidence survey came in “far worse than expected,” stock markets rallied. Markets are supposed to be driven by the expectations of a stock’s perceived profitability, not the pursuit of speculative gains caused by the manipulations of central bankers. Now the economy appears to be in a position where the interests of financial markets are precisely at odds with the interests of the rest of the economy.
Little has changed.