Wednesday, October 6, 2010

The disconnect between bonds and equities has been touted here in the past.

Tim Knight picked up on that same subject with a stellar chart as is his forte'

A post below is awesome:
kea11Indeed the equity catch up may not be the direction, the spring may well unwind the other way. Thats why I am standing aside.

It would seem that two former economic super powers and pragmatic allies have the same economic aim and need, yet to achieve that aim they must act as adversaries while their mutual and historic foe gives the bird to them both.

There are too many Macro influences slopping around the Globe. China, the US and Japan are shaping off to protect their individual economies. One in the Doldrums for years, another under water and the third attempting to impress. 

The flight to bonds of all sorts  has been going for well over  year.   They are overpriced, and thus the interest rate (aka yield) is under priced.   bond price and interest rate are exactly related by mathematics, there is no arbitrage there.

This game will not end well for most people.


  1. "bonds" is proving to be a too-wide generalization these days. the 10-year notes, source of the much-beloved TNX that some traders like tk think is the end-all and be-all of market indicators, have been hotter than the longer term 30-year bonds, which have still not made a new high relative to late august.

    the whole correlations game, while valid for long, long stretches of time, sometimes doesn't work anymore for one arcane reason or another. that's how it goes.

    tk has so much money, it probably doesn't matter to him anyway! lol

  2. good point, should talk more specifically about different types of bonds, municipal, junk, corporate (high grade), Greece :),

    they say the bond guys are a bit smarter than the average equity slinger, maybe that is only the "real bond guys" not the retail bond guys.

  3. that's a good point, too. maybe I'm getting too complicated with it, but the TNX to SPX thing seems a little too pat at this stage.

    but hey, the 2000 crash taught me that it's very unlikely 'things are different this time'. the old saws always seem to catch up with us sooner or later, so I'm just watching carefully and trying to game this like everyone else!


Insightful and Useful Comment!