Why stock markets are no longer reflecting the economy

Lately, economists have been making a reasonably convincing case as to why stock markets are supposed to be suffering a setback, and yet continue to rise.

Even in Japan, a country mired in recession, stocks are trading at levels not seen for a long time.

Some would say that it is all due to a super-optimistic outlook; for example in the case of the US, the uptrends in the S&P 500, Nasdaq etc are due to an expected cut in interest rates.

Meanwhile, in Japan, the good momentum is explained by the conitunity of ultra-loose monetary policy and the regulator’s reluctance to end Abenomics.

But here’s the catch: Everyone seems to be turning a blind eye to the mountain of problems piling up. And we’re not just talking about regional banks and commercial real estate.

We’re talking about colossal debt bubbles that will never be paid off. Another risk is rising tensions, not only in armed conflicts but also in trade disputes.

For instance, US presidential hopeful Donald Trump is waving the tariff stick against European and Chinese products. Obviously, such protectionism will not be conducive to economic growth.

Why else are stocks skyrocketing?

First, investors are afraid they’ll miss out on this historic rally. It’s all going well now, so why not keep the party going?

Then there’s the feeling that, for many, stocks aren’t just about making money; they’re a kind of shield against geopolitical uncertainties and inflation.

And the bigger the company, the more trust folks seem to have in it. That has made everyone forget about things like fair value.

The third factor is in the head: Thanks to the US Federal Reserve bailing out regional banks last year, many people are convinced that Big Brother will come to the rescue if things go