Two economists see red flags again for stock market

red-flags_N.htmEconomists see red flags in the stock market

NEW YORK — Ignoring warnings from Wall Street skeptics is as American as apple pie — especially when stock prices are rising and investors are making lots of money, as they have since the market took off in early March. Sometimes, shutting out bearish lines of thought is a profitable strategy. But it can also prove to be dangerous to an investor's financial well-being if the advice to proceed with caution turns out to be correct.

"Eventually," Roubini says, "a correction has to occur." Rosenberg says he is "as nervous as I was in 2007," before the financial crisis hit. He says the stock rally does not reflect reality and that prices reflect too bright an outlook for economic growth and corporate profits in 2010. "If you have the view that it will be a very bumpy road to the next sustainable earnings expansion, stocks are very expensive," relative to earnings, says Rosenberg, who prefers to use companies' reported earnings — and not operating earnings, which strip out all kinds of one-time charges and so-called non-recurring losses. When you calculate a stock's price relative to these more conservative profit numbers, stocks appear far more expensive.

After suffering huge losses last year, professional portfolio managers can't afford not to be invested in stocks right now, for fear of posting subpar returns compared with their competition and industry benchmarks. "If you're a money manager, you are aware of the risks, but when you see the market moving up day after day, it makes it hard to give credence to academic reasons why the market can't keep going higher," Bensignor says.

This article makes an interesting point that portfolio managers are going to ignore the advice of economists if they feel that they are missing out on potential earnings. Its important to see the difference between stock market investors and actual economists who might not be financially motivated to see positive signs where they actually do not exist.
Personally I trust real economists, not CNBC...

This article makes an interesting point that portfolio managers are going to ignore the advice of economists if they feel that they are missing out on potential earnings. Its important to see the difference between stock market investors and actual economists who might not be financially motivated to see positive signs where they actually do not exist. Personally I trust real economists, not CNBC...

CNBC is a joke. I am currently studying to hopefully be an economist in the future and am currently an investor (with the little money I have) and I must agree with your statement. Investors see opportunities and ways they can manipulate the economy, economists use actual mathematical and logical evidence to project future trends and understand the implications of policies.

Economists understand monetary policy and consequences of bad policy. Investors that ignore these are dumb.


Stock market prices are inflated. It's impossible for us to continue growth (3.5% GDP last QT) and lose jobs. It is unsustainable.

As an investor myself, I use a self-directed Roth IRA and have found investments outside of the stock market to invest in. I would advise anyone with a 401k (play money for money managers) to take it out and eat the penalty and invest in a self directed IRA. I am not fooled by the constant growth on Wall Street, but I know that, for now, I can ride the wave while never letting go of my safety rope. I will be honest, I have turned my measly investment into a relatively substantial amount of money in a short while.

Anyone with an IRA or 401k based retirement needs to educate themselves. They need to be more creative in their money preservation and wealth management. It isn't hard to do. One just has to talk to the right person.