Paranormal Disconnect of Real, Financial Economies

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Dec. 6 (Bloomberg) -- Jeffrey Rosenberg, chief investment strategist for fixed income at BlackRock, talks about the disconnect of markets from the U.S. economy on Bloomberg Television’s “In The Loop.”

You will be frustrated what is going on with what the fed is doing.

You call this paranormal activity.

What do you mean by that?

We have seen this for a while.

What paranormal means is nothing in the relationship between the real economy and the stock market is normal.

Good news in the economy is bad news for the stock market.

This is because fears over better news in the economy, what that means for withdrawal of monetary policy accommodation -- stock markets, financial markets globally are addicted to accommodation, so there is a complete disconnect between what happens in the financial market, what happens in the real economy, and that is the paranormal market activity that i am talking about.

You wrote in this report "nightmares are guaranteed.

You cannot ignore the impact on your psyche." what, jeff, are your nightmares?

That was a quote form the "paranormal" movies.

It was from the movie poster that i was making an allusion to, paranormal activity should be disconcerting.

This is not normal, not necessarily healthy financial market behavior, because the transition we are trying to accomplish is very difficult to pass the baton for support for valuations from monetary support to real economic activity.

That is the hope, you can create the transition.

You hope that, that i get back to the question, what is your nightmare scenario?

The nightmare scenario, the bad scenario, is that the transition between monetary policy support and real economy support does not happen smoothly and he just does not happen with valuations detailing to go up.

Market valuations have gotten so far ahead of real economy fundamentals that when you fear the withdrawal of policy accommodation, valuations fall.

That is really the risk.

And you think it will get even worse under janet yellen when she takes over the fed?

No, actually, i think it is the opposite.

What janet yellen represents and what they are going to try to communicate is even as they begin the process of trying to pull back from quantitative easing, they will augment that withdrawal of accommodation by giving you more accommodations for expectations of lower for longer, longer than zero interest rates, trying to convince the markets they will be accommodated, even as they are pulling away from quantitative easing.

The tricky part of that is they are moving more towards communication of policy than action, and it seems the markets are having a hard time appreciating what that really means.

It is a hard time for anyone in fixed income, so how are you trying to get your returns?

But the trick here in fixed income is we really have to think differently -- the trick here in fixed income is the really have to think differently.

If we are in rising interest rates, which means falling bond prices, to manage an interest rate -- fixed interest portfolio, you need flexibility.

We want to be able to buy bonds and be a long-only investor, but also sell bonds.

It is good to be long and short to manage fixed income in today's environment.

Thank you, jeffrey rosenberg from blackrock.

We are about seven minutes away from the november jobs numbers.


This text has been automatically generated. It may not be 100% accurate.


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