If The World Economy Is So Weak, Why Are Stock Markets So Strong?

As Warren Buffett said during an interview on CNBC earlier this year, "Interest rates act on asset values like gravity works on physical matter. If you had zero interest rates and you knew you were going to have them forever, stocks should sell at, you know, 100 times earnings or 200 times earnings."

I thought it worth discussing today what is superficially described as the supreme irony between record stock index performance amid ever-gloomier economic data. Either the economists are wrong, or the market is wrong. Or, is there a rational explanation to justify the contradiction? Firstly, consider that markets are very much fuelled by the perceived rate at…

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