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You're right---it doesn't matter what the economy is doing, it matters what
the markets are doing. My point is that in a deflationary enviroment, a
trader can not look for weakness in the bond market to foreshadow stock
market weakness. Instead, we should watch for STRENGTH in the bonds to
foreshadow weakness in stocks.
If you use a system that counts on the weakness in the bond market giving
you an advance warning of a coming stock market sell-off, the system will
not give you any such warning in this economic enviroment.
Bill Bancroft
Ira wrote:
> I don't know. Does logic overcome chart patterns or does money flow
> really
> tell the story? If the last two years have been a deflationary
> environment
> with all the commodities going down, then your thesis is incorrect.
> Both
> stocks and bonds rallied. If you are a member of this society that pays
> for
> health care, prescriptions drugs, has a child going to college, goes to
> a
> sports event buys a car, needs auto or home owners insurance, plays golf
> or
> goes to a movie it is an inflationary society. In that case you are
> wrong
> because bonds are rallying with the stock market. So don't worry about
> the
> economy, it all depends where you are coming from that gives you
> inflation
> or deflation, what you are really interested in is " how do I make a
> living
> trading the current conditions shown on the charts". For that you need
> a
> plan and a system that works. I wish you luck. Ira
>
> Bill Bancroft wrote:
>
> > Is there a consensus on this forum regarding the US economy and
> > deflation?
> > Is our economy now deflationary vs. inflationary?
> > Furthermore, if the economy is now deflationary, doesn't that change
> the
> > relationship between stocks and bonds?
> >
> > Here's why I ask: Compare the recent action in the daily chart of the
>
> > Dow Jones Industrial Average to the daily chart of the yield on the 30
>
> > yr treasury bond.
> > They look the same! They both clearly show a bearish
> head-and-shoulders
> > pattern that is close to breaking the neckline!
> >
> > Isn't this relationship consistent with a deflationary economy rather
> > than an inflationary one? Anyone familiar with Gibson's paradox? "In
> a
> > deflationary enviroment stock prices move inversely to bond prices."
> > Are we there now?
> >
> > Bill Bancroft
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