EDITOR NOTE: The notion that the market is disconnected from the economy is now so “old,” relatively speaking, that it’s possible we’re analyzing it using woefully inadequate tools. We’re quite possibly facing a major schism in economic reality, as if looking at the economy from shards of a broken mirror; one requiring something more of a “schizoanalysis” than an economic assessment. El-Elrian of Allianz fame discusses this in the video below. It’s “the biggest disconnect” he’s ever seen. While the labor market carnage is clearly showing the increasing weakness in the economy, the stock market continues to rally, focusing solely on monetary and fiscal stimulus. The market is “brushing-off” the economy. People, the economy is the very thing that “validates” the markets; not the other way around. But investors are taking, what El-Elrian calls, “the path of least resistance.” If somehow you, as a vehicle driver, were able to jump ahead of your vehicle, running in front of it, you know that it’s just a matter of seconds before you end up a splattering of flesh and bone along the roadside. Likewise, when the markets run ahead of the economy, in terms that are blatantly unreasonable and unjustifiable, you know that the markets, and all of its investors, are going to get critically crushed. That’s how all irrational exuberance ends. Financial roadkill.
Allianz chief economic adviser Mohamed El-Erian shares his thoughts on the December jobs report, a ‘weakening’ U.S. economy, bitcoin, the importance of the 10-year treasury yield and how markets are impacted by government spending.
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Originally posted on Yahoo! Finance