I did not say that the markets perfectly price everything. Of course, it doesn't. Otherwise, a guy like Warren Buffett wouldn't exist. Yes, most investors and economists did not foresee the depth of the stock market decline. But some did. And as documented in The Big Short, a handful of investors made truckloads of money. They did it by identifying risks the markets were ignoring. Every risk mentioned in this thread is already in the front pages. The markets are discounting it. I don't see a case here for why the market is wrong.Its not hard to argue that the market failed to correctly identify the crash of 2008 coming, otherwise so many people would not have lost 50% of their portfolio assets (as the people are the market) in such dramatic fashion. The world's top economists, who mostly seem to work for financial institutions, did not see 2008 coming, and these are the same people advising policy makers now on the cure.
The other answer is, i think the markets are behaving irrationally. For example, why would BP rise 8 points based on the idea that the GOM oil disaster damage is quantifiable? (when it is clearly not).
For another example, i'll quote a BMO economist on the CBC news 4 weeks ago who said (paraphrasing) ' Canadians are going to have to adjust to the (new) reality that consumption is no longer going to be the main driver of the US economy going forward' .
I find myself in agreement with the above noted economist, but try as i may, i can't think of what will replace consumption as the main driver. Can anyone? Its not going to be manufacturing any time soon. My conclusion is that the market does not have an answer for this problem, and is buying into the idea that it will sort itself out going forward. I think the bulk of the market today is only looking 3 months ahead.