David Rosenberg on How The Stock Market Became a LAGGING INDICATOR

Here is a great excerpt from David Rosenberg's comments:

No doubt that the global economy appears to be on a firm footing, but much of this has reflected dramatic fiscal stimulus, overbuilding and credit extension in China. Only the future knows how sustainable this is.

We do know that just about all the growth in the U.S.A. in Q4 is coming from inventory restocking; and that every basis point of growth in Q3 came from government stimulus, directly and indirectly. The same stock market that couldn’t see a recession coming in late 2007 even though it was two months away, doesn’t see how low-quality this “recovery” is since there is nothing organic about it. The market is relying continuously on government support, so much so that nearly 20% — by far a record — of U.S. personal income is now coming from Uncle Sam’s generosity in the form of transfers. This deserves a lower-than-normal price-earnings multiple, but it may take time for Mr. Market to figure this out, just as it took several quarters for it to see the effects of a housing recession and credit collapse two years ago. The stock market, in other words, has managed to become a classic lagging indicator.

Here is the link for the full article.