Friday, March 08, 2013

Why are stocks rising when growth is so slow?

I love to read about a variety of topics as many of you know. One of the subjects is economics and the present state of the economy. Why? There is so much I don't know. Simple as that.

The big question in the midst of this market rally is why are stocks so high while unemployment/growth is so slow? Here are some excerpts from a well known economist which tells the story beautifully: I paraphrased the article. The link to the complete article is below

"The financial crisis and the bursting of the housing bubble created a situation in which almost all of the economy’s major players are simultaneously trying to pay down debt by spending less than their income...

...right now everyone wants to save and nobody wants to invest...excess savings are driving down borrowing costs...Stocks are high, in part, because bond yields are so low, and investors have to put their money somewhere.

It’s also true, however, that while the economy remains deeply depressed, corporate profits have staged a strong recovery. And that’s a bad thing! Not only are workers failing to share in the fruits of their own rising productivity, hundreds of billions of dollars are piling up in the treasuries of corporations that, facing weak consumer demand, see no reason to put those dollars to work."


Hence, the markets are soaring but income is hardly rising, unemployment is high and the overall upward trend of the US GDP is not high enough to make a dent in the unemployment rate. 

Basically, We have a long way to go!

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