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Otto
I agree with your comments, however right now, it appears that we have
decoupled without the recession indicators flying, at least here in the US.
With regards to Asia, I see a flight to US Bonds to increase the meager
interest earnings available to the Asian saver and as protection from the
collapsing markets over there. For it to happen now, after the market
collapse in Japan, the problems in Korea, Hong Kong reunification, etc. Why
now? Why not earlier, while the Japanese market was beginning its way down?
Commodity prices have been on a downward slide for some time now as well.
Through all this, Bonds remained coupled to equities here (at least in our
system). I guess what I was posing was has anyone else seen this or was I
imagining it and did anyone have thoughts to share whether concerning the
fundamentals or what they noticed through their Technical Analysis.
BTW, other areas to consider in addition to utilities are food vendors like
the big grocery chains. People still have to eat, as the story goes.
-----Original Message-----
From: owner-metastock@xxxxxxxxxxxxx [mailto:owner-metastock@xxxxxxxxxxxxx]
On Behalf Of Otto
Sent: Friday, June 19, 1998 7:00 PM
To: metastock@xxxxxxxxxxxxx
Subject: RE: Times are a changing? Bonds & Equities
I apologize if I am stating the obvious or something totally out of whack.
But it has been my understanding that equities and bonds decouple every
once in a while whenever investors are beginning to focus on a possible
recession ahead. With a possible recession ahead, the utilities rise
markedly and the bonds follow, because investors are anticipating an
economic slow-down which will reduce money demand, reduce interest rates,
and thus increase bond prices.
If investors go back to focusing on economic overheating (and fear of the
fed), then the bonds and equities will re-couple, as investors see any
evidence of overheating of the economy as bearish for both equities and
bonds, and they will see any evidence of moderate cooling of the economy as
relief from their fear of the fed, and thus bullish for equities as well as
bonds.
If the bonds make an extreme move (currently perhaps yields increasing
beyond 6.2%) then the bonds might re-couple because this would strangle
profits enough to be bearish for equities who would then join the bonds on
the way down. If the bonds make an extreme move up, pulling the yield down
to 5.4% and lower, this does not necessarily mean that equities will rejoin
the bonds and rise, because the drastic drop in bond yields can happen in
times of deflation (recession, depression, disaster, catastrophy, end of
the world, etc.) and this is not good for corporate earnings, therefore
remains bearish for equities.
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