[The following commentary is from the latest issue of the Weekend Update (Volume V, Issue 32) at Iacono Research. For subscription details, click here.]

Over the last few weeks, prices for stocks and bonds have been rising together in what is a most unusual sequence of events where, clearly, one of the two is wrong about the future direction of the economy. Typically, higher bond prices (that result in yields being pushed lower) indicate economic weakness ahead and the lack of pricing pressure, whereas, rising equity markets are typically a harbinger of stronger economic growth and higher consumer prices.

As best I can tell given the recent spate of disappointing economic reports and the beginning of the process where Wall Street economists begrudgingly revise their growth estimates lower rather than higher, the bond market is the one that has it right at this juncture. But, the stock market is now taking its cues (to some degree at least) from the recent talk about quantitative easing (i.e., money printing) and, along with the natural resource sector, prices are being bid higher in anticipation of this effort being successful, that is, at least insofar as it inflates asset prices.

One thing is certain, the economic recovery in both the U.S. and elsewhere in the world at just past the mid-point in 2010 is not what it was expected to be just a few months back when stock prices were soaring and American workers were being hired by the hundreds of thousands. Last week’s labor report was dismal given that we are supposedly more than a year into an economic recovery and the prior week’s Q2 GDP now looks even worse a week later after the latest data came in.

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