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The strong positive correlation between stock prices and bond prices is a
relatively recent phenomena which has long been ignored by the financial talking
heads. A study of long term government bond history vs S&P or DJIA history
reveals that there have been long periods of negative correlation. I don't have
time right now to dig into my history, however if memory serves; the 30's, 40's,
and 50's included many such extended periods and several such periods are to be
found in the 60's and 70's.
Markets tend to go to extremes and then make major shifts in correlation's.
While such correlation's are not of major importance to day traders, they are
critical to position traders and long term investors. Position traders and
investors should be questioning many assumptions right now: why are some
currencies (e.g. dmark) running to upside? why are both stocks and interest
rates falling? why is the US$ burping at a time of crisis? what happens to
commodity prices, currency flows, and bond yields if US$ begins falling? will
Asian markets fall forever? Certainly answers to these questions are few and far
between but traders and investors should be alert for yet another "new
paradigm".
In a lighter/serious vein, one might consider what commodities will be required
for the second and third worlds to build an adequate inventory of ICBM's.
Earl
-----Original Message-----
From: CRLeBeau@xxxxxxx <CRLeBeau@xxxxxxx>
To: markbrown@xxxxxxxxxxxxx <markbrown@xxxxxxxxxxxxx>; eadamy@xxxxxxxxxx
<eadamy@xxxxxxxxxx>; omega-list@xxxxxxxxxx <omega-list@xxxxxxxxxx>
Date: Tuesday, September 01, 1998 12:27 AM
Subject: Re: Re: Bear Market
>This decline or whatever you want to call it is puzzling because it has
>occurred in an environment of declining interest rates. The decline in
>interest rates this year is not typical of what we would expect to see going
>into an extended bear market. Our long term market timing model based on
>interest rate relationships would indicate that this is only a short term
>correction in what is still a bull market. Does anyone familiar with Dennis
>Myers work and interest rate/ stock market relationships have any comment?
>
>Chuck
>traderclub.com
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