Echoing the grave concerns of no lesser 'maestro' of manipulation than Alan Greenspan, Wells Capital Management's Jim Paulsen notes that while the U.S. stock market has risen by about 3 times from its crisis low in March 2009; much of this advance has been against a backdrop of disappointing productivity gains... should productivity growth remain subpar, stock market risk seems to be rising.
[ZH: note the major decoupling that occurred between productivity gains and stock market performance in the early 70s... now what else happened then?]
As Paulsen notes,
Since late 2011, the stock market and productivity have exhibited an uncommon divergence. Stock prices have continued to rise despite significantly weak productivity growth.
What does this divergence suggest?
- Maybe the stock market has simply discounted a near-term expected improvement in productivity growth as it did in the mid-1990s (i.e., then, the stock market began to surge at the beginning of 1995 even though productivity did not significantly improve until 1997),
- perhaps the amazingly low and persistently falling interest-rate structure of recent years has pushed the stock market higher despite disappointing productivity growth (similar to the early 1990s stock market advance),
- or conceivably, the stock market is simply extended today and is at risk of a correction should productivity growth not soon improve.
* * *
So just as The Fed waits for the "inevitable" rise in wages... so permabulls wait with breathless anticipation for a resurgence in productivity... which is odd given Greenspan's explanation of just how America's "entitlement" society - which is getting bigger - is nothing but an anchor around the neck of US productivity hopes.