Fleckenstein: Don't Judge Economy by Stock Market

Tuesday, 17 Apr 2012 08:01 AM

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Contrarian investor and fund manager Bill Fleckenstein says looking at the stock market as an indicator that the U.S. economy is doing better than expected is a mistake.

"Were it not for the money-printing going on, I would be looking very seriously at getting short, betting stocks will go down," Fleckenstein writes for MSN.com.

Obviously, says Fleckenstein, the April 6 employment report was a giant disappointment. But many observers have been all too willing to let the stock market "write the news."

Editor's Note: Wall Street Insider: The System Is Rigged

“By that I mean, as stocks have gone higher, people have changed their opinion about our economic situation, thinking, ‘Gee, the market must be telling us that the economy is better than we thought,’” he says.

"I do think the market is quite vulnerable, for a number of reasons, but obviously there is a rather large, oblivious contingent out there."

The first half of April has punched holes in the idea that the economy is becoming healthy, either here or abroad, notes Fleckenstein. It also raises the specter of more easy money from the Fed.

The influence of unseasonably warm weather in improving the underlying economy will cease shortly, Fleckenstein says.

“Thus, all the economy bulls, who had concluded that another round of quantitative easing from the Federal Reserve—including the much talked about QE3—is D.O.A. now will be back to contemplating just that,” says Fleckenstein.

“It is really hard to see how the U.S. economy can be all that strong, given the sorry state of Europe and the fact that China is slowing.”

The Associated Press reports that China's declining economic growth fell to its lowest level in nearly three years in the first quarter.

Meanwhile, foreign direct investment in China dropped for a fifth straight month in March on a slowing economy, limited prospects for gains in the yuan and renewed concerns that Europe’s debt crisis will worsen, Bloomberg reported.

Editor's Note: Wall Street Insider: The System Is Rigged



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