A disconnect between Wall Street & Main Street?

For a year, market participants said that there was a disconnect between the perma-rally in stocks and commodities versus the economy. Stocks kept rising while the economy was barely stabilizing. But the game all along was to get the capital markets to convince the rest of the world that the economy was getting better. It was the great engineered rally–The Royal Scam as I liked to call it. I never thought it was true but cautiously played along. I was particularly fond of the market prognosticators that made appearances on Business TV saying how the stock market was telling us how well the economy would be in the future. Now, the vast majority of stocks have now pulled all the way back to where they were last July and everyone is miserable and bearish.

Is it possible that the stock market is now disconnected to what is really going on in the economy? Sure, real estate really sucks huge and much of the massive engineering job by the FED and Treasury is done for now too. The recent government statistics released show a downtick in many of the economic indicators. But is that so bad? Must we grow 4% every quarter? It’s a rhetorical question.

The stock market continue to suffer throught this vicious correction. And it’s no wonder, look at the 14 month move up. To the extreme! We are now paying for it, but we will also reach extremes on the downside. I doubt we will test the lower reaches in the 2009 lows, but certainly some individual equities will.

The market really went to the extreme yesterday with some of the worst market internals in history. But it means nothing in our one-way market. We can just as easily bounce with opposite internals. But again, look at your calendar and figure out why the action is so extreme. Is it because we’ve reached the end of the world? I doubt it. I am still looking to accumulate my ideas as we find our footing again, but before the next rally.