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Bill you're on to something, but I am asking you to switch
gears now...
The recent disconnect between bonds and spoos (inverse
movements) - is something I've been researching as well,. though not nearly as
thoroughly or minutely as you do.
My feeling is that we are in a different stage of the
liquidity cycle now, and therefore bond and stock prices are reverting back to
the way their prices (inverse with yields) moved when new liquidity was being
pumped into the system - either by reduced FFund rates or by increased M1+M2 or
by both, simultaneously.
In short, bond market rally this time around is GOOD for stock
market, because it shows that the work of the FRB is getting done and we'll
begin seeing trickle down impact on stuff like savings rate, GDP growth
etc.
In reflation cycles that are effective (as opposed to
Japan), money flows from FRB -->Banks-->Bond Market --> High Yield debt
-> Companies (stocks, IPOs) and then the real economy (commodity inflation)
at which point the hawks gain the upper hand and reflation ends.
To corroborate the above logic, I find that the major stock
market rallies in history are preceded by (with progressively reducing lag)
major rallies in the bond market.
I'm not at my data computer now so charts are not enclosed,
but those wanting to look into this may want to check the long bond prices and
SPX prices for the following sets of years:
1953-54
1957-58
1960-61
1962-63
At this stage the lag time started decreasing, until now, when
it is almost instantaneous, as I think is happening now.
1970
1974-75
1981-82 --> this sowed the seeds of the first leg of the
secular stock bull market.
1984
1988
1991
1994
2000 --> happening now, as evidenced by a plethora of
events: High yield/treasury spreads narrowing, yield curve steepening, bond
rally, high yield stocks and bond funds appreciating in price (all happening
simultaneously) - this is too much coincidence to write off as an
anomaly.
So Bill - and others - the anticipated breakout may actually
happen, I wouldn't outhink it.
Gitanshu
<snip>
To me, the attached chart looks very much as if the
S&P is on the verge of breaking out of its trend and could be in for a
decent rally. The only thing that bothers me is when you then look
at the bonds, which have had tree substantial up days, at the same time.
Since the bonds have been running in the opposite
direction to the spoos, I find this a bit odd.
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