One of the common myths about the stock market, often repeated in the press, is that it peers into the future. The market is the 'great discounting machine.’

In 1999 and 2007, we saw the financial markets blithely trundle along higher, even as clear signs of trouble at the margins were abundant.

One of the common myths about the stock market, often repeated in the press, is that it peers into the future.  The market is the 'great discounting machine.’

But the stock market powered higher into the new millennium, despite being the most overvalued it had ever been in history, before diving violently in 2001.  So much for peering into the future.

And again, the stock market went to new heights in 2007, even as the housing market was obviously deteriorating and about to suffer a truly historic break after an unprecedented and bubbly run to the upside.  The great discounting machine ended up reacting to trouble rather than anticipating it.

Despite these two obvious failures, many still hold to the belief that the stock market is a useful indicator of future health or distress, which means this view is more a matter of faith than fact.

My view has always been that the stock market is a 'great liquidity detecting machine’ – forts...

Chris Martenson Tuesday, August 27, 2013