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U.S. growth has slowed to 1.3%. Greece and Spain are in recession and China's economy has lost momentum for seven consecutive quarters and is now growing at 7.4%. At the same time stocks continue to rally and the S&P 500 Index (GSPC) is trading near its year-to-date high.

Gary Shilling, president of A. Gary Shilling & Co., calls this the "grand disconnect." He tells The Daily Ticker, "Either the economies of the world have got to come to life and… rise to meet investor expectations or investors have got to come down to earth. The latter is more likely."

Shilling, whose firm analyzes the global economy and manages money, says "massive deleveraging" is the source of the slowdown in the global economy. It began three years ago and will likely continue for another five to seven years, driving the global economy into recession in 2013, Shilling says.

Monetary easing in the U.S., Europe and China is offsetting some of the impact of that deleveraging but the effect is limited, says Shilling. Otherwise the global economy would be stronger and the U.S. economy would not be as mixed. He says consumer spending and housing are gaining in the U.S. but exports are slowing along with capital spending in the industrial sector. He says a "hard landing" in China is likely and he's suspect of China's official economic stats. "Nobody really believes their numbers."

Related: China's Slow Growth 'Marks An End of An Era' But No Hard Landing

Investors seem to be a lot more optimistic. Shilling says they're banking on monetary easing in their "risk-on" trades: going long on stocks and commodities and shorting bonds and the dollar. He recommends the opposite. Stocks have outperformed Treasuries this year but longer term the opposite was true. If Shilling is correct, bonds will rule again.

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