QOTD: On the Real Economy

January 18, 2011 7:00am by Barry Ritholtz

I really like this quote, but with a caveat:

“The economy remains on government-assisted life support, and the government has been very successful in creating the illusion of economic prosperity. It is doing this to buy time and help preserve social stability as the adjustment towards housing deflation, consumer deleveraging, and chronic unemployment takes its toll on the growth rate in organic final demand.”

-David Rosenberg

Its a reminder of just how broad the disconnect between fundamentals and the market can become.

Any portfolio manager who is overly reliant on macro economics and fundamental analysis will run into a timing issue.

That is why I find it so important to use additional metrics, including technical (breadth, volume) sentiment and liquidity. Otherwise, you can wait a very long time for the market to start reflecting the fundamental realities.

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