Rising U.S. stock prices — particularly following a 50 percent decline — say nothing about the health of the U.S. economy or the prospects for a recovery, says Euro Pacific CEO Peter Schiff.
"In fact, relative to the meteoric rise of foreign stock markets over the past six months, U.S. stocks are standing still,"
"If anything, it is the strength in overseas markets that is dragging U.S. stocks along for the ride."
There is an inexplicable but widely held belief that stock market movements are predictive of economic conditions, Schiff writes at GoldSeek.com.
The current rally in U.S. stock prices has caused many, including President Obama, to conclude that the recession is nearing an end, Schiff notes.
“Reality is clearly at odds with these optimistic assumptions,” he says.
“In the current cycle, neither the market nor its cheerleaders saw this recession coming, so why should anyone believe that these fonts of wisdom have suddenly become clairvoyant?”
Schiff points out that through most of 2008, even as the economy was contracting academic economists and stock market strategists were still confident that a recession would be avoided.
“If they could not even forecast a recession that had already started, how can they possibly predict when it will end?” he asks.
Even money managers seem to have little idea of what to buy and when, a new study shows.
Wall Street brokerages are better at picking stocks than money managers, according to a seven-year study that ran from 1997 through 2004.
Stocks picked by sell-side brokerages performed three times better than those picked by buy-side mutual funds, according to the study prepared by Harvard Business School and the University of North Carolina.
Competition among brokerages, as well as the need to publish results at brokerages, may be behind the difference.
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