The great divide: Economists versus the markets

Posted: January 19, 2016 in economy
Tags: , ,

TWO groups seem to be staring at each other in mutual incomprehension at the moment; investors and economists. Judging by the behaviour of stockmarkets so far this year, the former are very worried about the global outlook. But the latter think investors are panicking for no good reason.Market movements (and much commentary) suggest that the big concerns are the Chinese economy (and its effect on global output), and the possibility that the Federal Reserve might have tightened monetary policy too soon, given the recent weakish figures on the American economy. But economists believe that China, while slowing, is hardly collapsing and that falling oil prices are generally a positive, rather than a negative, sign.Take Olivier Blanchard, the former IMF chief economist who just published his first blog for the Peterson Institute. Having examined the Chinese and US economic outlooks, he thinks it is hard to justify the market movements. So what explains the market movements?  (http://ift.tt/1OXVVXx) He concludes thatto a large extent, herding is at play.  If other investors sell, it must be because they know something you do not know.  Thus, you should sell, and you do, and so down go stock prices.In a note to clients, entitled “Let’s analyse our fears”, Torsten Slok of Deutsche Bank puts markets on the analyst’s couch before concluding thatThe …

via Economic Crisis http://ift.tt/1JW5kyz

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