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Gary Shilling: There’s a ‘Grand Disconnect’ Between What Investors See and Reality

“While many investors see nothing but blue skies for stocks, economic performance around the world continues to sag, creating a “grand disconnect,” according to economist Gary Shilling.

“The reality is that investors are only enamored with what the [Federal Reserve] and other central banks are doing,” he told Yahoo, referring to easing programs.

“Their attitude is don’t fight the Fed. As long as the money is there, I’ve got to own stocks. They couldn’t care less about what’s happening to economies on the ground.

And what is happening to economies on the ground?

“They’re limping along at best,” Shilling, president of A. Shilling & Co., explained. “Europe is in recession, Japan is barely growing and China’s growth is slowing. The U.S. economy is certainly underperforming.”

When you add in investors’ hunger for yield and willingness to ignore major risks to achieve it, “you really have an unsustainable situation,” he said.

So what’s the ultimate outcome of this?

“Nobody will stop a party like this voluntarily,” Shilling noted. “It will only come to a grinding halt when there’s some big shock,” like a blow-up in North Korea or the failure of a European bank….”

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