What is the Stock Market Telling Us?

This news article was published in Savannah Morning News.

The purpose of financial markets is to allocate society’s scarce capital, or savings, to its most productive uses given estimates of risk and expected return. Ideally, financial market prices would accurately reflect the underlying value of its assets and future prospects of firms and their investment decisions. Markets accomplish this through the price mechanism – the aggregation of myriad forecasts and knowledge of its participants into one price at a point in time. However, the recent global financial crisis – characterized by dramatic upswings in housing and equity prices followed by sharp reversals - has suggested this idyllic world to be nothing short of a myth...