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Chart Of The Day: The Great Regime Change
We call it chart of the day, but it could just as easily be the chart of the century, as this one chart, presented courtesy of Sean Corrigan of Diapason Securities, captures without a shadow of doubt the revolutionary regime change that occurred in US (and global) capital markets with the advent of cheap credit policy in the aftermath of America's near brush with hyperinflation in the early 1980s. The chart demonstrates the "great regime change" that occurred some time in the 1980s-90s, and confirms that whereas inflation used to be the biggest threat to equity returns (and thus stock prices), as can be seen by the inverse correlation between the S&P and bond yields in the 1962-1974 period (note the UST10 yield is inverted for this period), this correlation flipped in the late '90s and and 2000s, and it has become a direct correlation. In other words, whereas before a surge in yields (and thus a drop in bond prices) would cause stocks to drop, now we see a stock market which correlates directly with yields (and inversely with prices). As Corrigan summarizes: "T-Bonds used to trade with, but now trade against equities. Growth, not inflation, is the limiting factor in the market's calculations."
We would add that growth in the past three decades has only occurred on the back of ever cheaper credit, confirming the Fed's primary role in defining risk asset prices. And since inflation is irrelevant, stocks no longer are a natural check to deranged monetary policies, and in fact welcome the deluge of endless (and virtually free) credit money. This means that Bernanke is now convinced that the only way to grow the economy, which per his earlier admission is equivalent to the Russell 2000, is to continue flooding stocks (something we have known). Yet to those who expect to see an inverse correlation between bond yields and stock prices, our apologies: you are about 45 years too late to the party.
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Change (regime), bitchezzz!
LOL
I am not surprised by the chart. It was during the 80's when Milton Friedman's economic theories moved from the academic circles into the halls of power, hence, the dismantling of the Western industrial economies had begun.
a correlation does not mean a cause consequence relation ship and Friedman opted for smaller government, but government has only grown every year of every decade. So your remark is false on several levels.
Yeah, Keynes had *nothing* at all to do with it!
Everyone is busy selling gold/silver mining stocks after the bell, this thread may take a bit to get rolling .... Turd & Harvey are getting antsy ... ( Talking about silver/$20.00 )
Turd ...? Turd ....? Get ready for liftoff NVDA, MIPS, SPRD,ARMH ... Intel numbers are good.
.... "South Florida," he said, "is working off of a totally new economic model than any of us have ever experienced in the past" according to a realtor who predicted that a land shortage will support higher prices indefinitely." ......
"Trading Places: Real Estate Instead of Dot-Coms", in the NYT.
Within a month of putting her two-bedroom house in San Francisco on the market recently, homeowner Linda Gao had five offers, each one above her asking price of $699,000. So before accepting the most-attractive bid, she threw in an extra condition: If you want to buy my house, you have to feed the squirrels.
Two weeks later, she and the buyer hammered out a contract that included feeding the backyard wildlife, which Ms. Gao has done three times a week for the past two years. "I don't think it matters if it's a buyer's market or a seller's market," Ms. Gao says. "Anyone with a good heart would feed them."
...
Indeed, when Susan Butler was negotiating to buy Ms. Gao's San Francisco property, she was resigned to the feeding schedule. "At that point, I said, 'Yeah, what the hell, I'll feed the squirrels,'" she said. She signed a contract in April, paying $815,000 -- or $116,000 over the asking price. Will Ms. Butler actually feed her new furry friends? "Probably not," says the college administrator. "I don't want to encourage other rodents." -----"In a Booming Market, Sellers Can Be Choosers" by Amir Efrati, Wall Street Journal
Available listings as of Aug. 1 totaled 9,555, up 68.9 percent from a year ago. `That's a big number,' said Portland economist Jerry Johnson.
- "Housing boom might be kaput" by Dylan Rivera, The Oregonian.
"People who talk about a bubble are blowing smoke,"
- Michael Carney, Real Estate Economist
California State Polytechnic University Pomona.
Thursday, February 10, 2005
Why are you ragging on South FL? Is that Miami or Naples?
SW FL is fine. (N of Cape Corral /int)
My buddy has a pimp place in Marco - 30ft. fishing boat. Very nice place -
Viva - Nacho Mama's
MIPS ARMH AFOP FBSR SPRD STEC all these andriod infra guys been rollin since September earnings blowouts.
BTW coooold south Fl today. Boat's tied up. Golf clubs on lockdown.
Ya my bud said as much he just came home. I hate golf, I suck.
Tablets cannibalizing laptops in a few years they will be in the dust bin' of time. ARMH geez who knows how high that will go .... I will look into the others, thanks. Wait till it hits overdrive in the summer with all the new tablets coming online, also the new smartphones w/4G ... The new LG Revolution is pimp'
its cold today, but the warm tought that everywhere is much colder warms me up.
We will be in 70+ by the weekend.
And as for the market in South Florida... down 67 %
Just keep the snow birds away. Don't need anybody down here that didn't live thru Charley.
As a resident of SF (In the Mission) I can only laugh at the additional condition of feeding the squirrels. How very San Francisco! LOL
I received my undergrad from Cal Poly and always thought that Carney was full of shit (had him twice). Thanks for the quote!
The Bernank told a panel Thursday afternoon he is "optimistic" and expects the U.S. economy to grow at a healthy pace of between 3% and 4% this year. The Bernank also said the key U.S. jobs situation is improving.
The current version of the Ben Bernake also told CNBC that he "did what he did to help the most people possible." Ben Franklin had a rebuttal, and an illegitimate child.
It is time that academia create a degree higher than PhD for the sake of good writing and student loans.
The current version of the Ben Bernake also told CNBC that he "did what he did to help the most people possible."
Wowsers! That's the biggest lie evah!
it's a parabolic bubble of liars lying!
Its a lie derivative= a scam
He's living in a world with not a lot of people in it.
You, me... we don't mean anything to people like him.
And when he talks about "as many people as he could" he meant: All his fishing and golfing buddies. Yes as many as he could.
In the Bernanke's world. People have a minimum of 10 million dollars. All others are Peons.
We are the collateral that gets damaged in Ben's world...and ten x's so for the poor of the world set to starve due to Merica's massive exportation of inflation.
Are you questioning my memory of a CNBC bumpber advert? Or whether the Ben Bernanke has something solitary to gain from printing a $500 bill? (face TBD)
Are you questioning my memory of a CNBC bumpber advert?
not at all. it takes a mighty big whopper from the bernank to catch my attention. this is like late stage zombie fascism propaganda from some undead central bank specimen jar. egad.
INTC rev is bullish. They sold something.
Sealy is a big miss: people aren't sleeping very well.
But Consumer Reports CONfidence is high!
I'm wondering how much the R&D tax credit helped.
Taxes 24% vs 31% expected. Nice little 7% save on taxes.
...... & deliberately ignoring the DEPRESSION. deliberately ignoring poverty in this country. it's all psychological. wasn't that LARRY SUMMERS into management of perspective economics (m.o.p.e.) bigtime ? it's all about giving the illusion that everything is O.K. The percentage of people left in this country that can afford to live a decent life is getting smaller & smaller............. this isn't going to end well for anyone !
Federal Reserve imposed demand floor, bitchez!
an even bigger Soviet Union.
the problem with brain-dead competition, uh capitalism, is the same, inertia with a different set of clothing on the cronies.
So, do the rare earths take off again?
Let's Celebrate Rare Earth !
http://www.youtube.com/watch?v=QZsppOw2Mxk
Yeah, but you think the thieves know anything past their own noses.
God damn it, the best year ever! Get bullish, you realists!
Oil, gold, silver AND the dollar dropped today. Does that make sense? I think inflation is up. hmm.. maybe I've flipped and it's time to invest in inflation.
You were 45 hours too late to the regime change.
Gold? Gold will be CRUSHED
The GDP forward print of 4% taking its toll .... The godfather is OUT !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
.............. " Gold is “ overdue for a rest ” and probably will fall after a decade of uninterrupted gains that sent prices to a record, said Jim Rogers, the chairman of Rogers Holdings who predicted the start of the global commodities rally in 1999.
While gold “may go down for awhile,” the metal is “going to go over $2,000 in this decade,” Rogers, who owns gold, silver and rice, said today during a presentation to business executives in Chicago. Gold touched a record $1,432.50 an ounce in New York on Dec. 7. The price closed today at $1,387." ................
Which decade? Was he saying this in 2010 or in 2011?
Does he count 2000-2009 as the first decade?
He said it today. I posted this video last month & you could tell his feelings then ...
Jim Rogers Part 4 REUTERS 2011 INVESTMENT SUMMIT
http://www.youtube.com/watch?v=6wX4tGO8KHw&feature=related
The link from Today.
http://www.sfgate.com/cgi-bin/article.cgi?f=%2Fg%2Fa%2F2011%2F01%2F13%2F...
What an odd image. Would that happen if the Chinese government fell on it?
IF: inflation(x) and deflation(y) and yield(z)
THEN: btfd
ELSE: btfd
RETURN
the bernank can't help you if you don't buy stocks.
praise be the bernank! may the stocks be with you.
of topic - but this comment over at turds blog made my day: http://marketcyclesresearch.blogspot.com/2011/01/this-comment-in-turds-blog-made-my-day.html
Hahaha that was cute.
Reason for the violent selloff in PM stocks this afternoon:
Gold broke a key trendline and support level in many foreign currencies.
http://stockcharts.com/freecharts/candleglance.html?$GOLD:FXE,$GOLD:FXY,$GOLD:FXC,$GOLD:FXS,$GOLD:FXA,$GOLD:FXM,$GOLD:FXB,$GOLD:FXF|D
Looks like everyone is piling into chip stocks after the bell.
Gold is making an ugly head and shoulders under the trend line it BROKE A WEEK AGO!
Rogers is out. Those charts are brutal, you will see the mother of all selloffs/waterfall martin armstrong like ---- > below $1,340 - $1,350 ....
Dollar up, gold down, stocks up all year, who would have thunk it but ill keep beating that drum.
I'll pay $980 for an ounce of gold.
I'll give you $ 12 for the rest of your Silver Wheaton ....
Too late. sold December 7th a little over $40. Same day sold my gold and silver coins to a fool coin dealer
Hey, if I had the real stuff I would sell 80% and come 2018 buy back in at $300.00 ... take some profit. But if you bought at the top over the last 4-5 months, your fucked ...
Man, doez guyz at William Blair kinda smart ...
Miners were a great trade in just a few months. Many micro-caps still are. Bot MS65 Morgan dollars in the mid 1990s about $65 and sold for $125. Silver coins are terrible. 15 years for a double not my style.
BTW coin dealers must 1099 your sales beginning 2012.
This is what a circlejerk looks like.
By the way, Martin Armstrong will be out of jail in 3 months. In one of his recent essays he said he knew how to rescue US economy in few minutes. Maybe he thought about ending the FED ?
Gold down because Trichet says Europe is all skittles and rainbows...
ES and NQ flying after hours...
and NEM. Do you ever take your own advice?
IF: ES and NQ flying after hours...
THEN: so what?
ELSE: email CNBC
END
This regime change didn't happen in the 80s, but the late 90s -- the chart itself shows it. Inflation was still the limiting factor until the mid-90s. That's when then great credit inflation started, thanks to Greenspan's discovery that "globalization = flooding the world with cheap dollar credit." It's more or less exactly datable to Q4/1994-Q1/1995 (look at the Fed monetary aggregate series).
*The change in 1998-2001 was the ending of the secular bull market in stocks, while the secular bull market in bonds just went right on.*
c. 1951 - 82: secular bear market in bonds: rising inflation and rates -> also harmful to stocks, eventually ->
c. 1973 - 82: secular bear market in stocks
c. 1966 - 82: secular commodity uptrend also (accelerating inflation)
But:
c. 1982 - 2010: secular bull market in bonds: falling inflation and rates -> also helpful to stocks, at first ->
c. 1982 - 2000: secular bull market in stocks: bonds and stocks both rising, but stocks win
c. 1982 - 2001: secular bear market in commodities: falling inflation
And finally:
c. 2000 - ????: secular bear market in stocks: bonds win (demand for fixed-income assets outstrips supply -> easy credit era)
c. 2002 - ????: secular bull market in commodities (emerging market demand; radical rich country credit easing after 2007)
What's next? My guess:
c. 2010 - ????: secular bear market in bonds: default risk high now, possibly inflation risk latter
c. 2010 - ????: secular bull market in commodities (continues until rising supply ends it - the cure for high prices is high prices)
c. 2013(?) - ????: secular bull market in stocks: the search for growth and dividends in rich countries, growth in emerging markets
The immediate to medium-term risks in fixed income are default and write-downs, not inflation.
Nope.
http://www.youtube.com/watch?v=QTcL6Xc_eMM&feature=related
Nope again.
Regime change took place in 1913.
Take a look at the chart in this article:
http://www.lewrockwell.com/rep2/if-fed-had-never-been-created.html
Correlations between markets can persist but they can always switch sign. In the very long term I can posit that Treasury yields could rise well above AAA corporate or perhaps private equity paper. With stocks following the latter. This is actually the capitalist dream come true. The submission of the state to capital.
You may like the idea or you may hate it but there is nothing you can do about it. If the pass off gets too messy anarchy could reign.
Interest rates, currency value, and stocks all go up in a real, fundamentally driven economy.
Things go all wonky in a fake one.
Corrigan's great, but sometimes I just don't understand him.
Homeless America - now that I understand:
http://strikelawyer.wordpress.com
An enjoyable watch (by the way, fuck you!)...
F**K Political Correctness! - http://www.youtube.com/watch?v=GTQoRGohSrQ&feature=sub
Wasn't it the expectation in days of old that high inflation would bring about higher rates(higher bond yields/lower prices) to control it from central banks,now that expectation is no longer there(ZIRP) so that the growth in stocks now mostly comes from inflation and not organic growth in earnings,is this not what the authore of the piece was trying to say,or am I SHOWING MY AGE HERE?
Tyler, could you do a ZH for Dummies like some guys above offering opinions without supporting arguments, probably baiting, in order to get some attention? Call it the Palin Hedge and discourage reasoning and the pollution of opinion with facts. And some suggestively violent graphics to spice it up.
Dollar denominated debt is the answer to everything and the peg.
Or the Pelosi Hedge, or the Biden Hedge, or the Reid Hedge, or......you get the picture.
Not a fan of either Pelosi, Biden or Reid. No, someone REALLY stupid and ignorant like Palin... like saying N. Korea is our ally and that seeing Russia from her poorch is international experience... stuff like that, true Bush the Twig ignorance, someone who can repeatedly put their foot in their mouth so that the rest of the world wonders how this person could have been elected ... get the picture?
Excellent post,
Had an interesting idea today. What if, once public opinion over bank bailouts was negative enough, everyone maxed out their credit cards here:
https://www.pay.gov/paygov/forms/formInstance.html?agencyFormId=23779454
And then refused to pay their credit card bills? Could we fix our budget problems?
Keep in mind that I am not advocating this. Just an interesting thought experiment.
I'm sure it's just a coincidence that I just found out today that my horoscope sign is actually not what I thought it was. My whole life up 'til now has been based on a lie.
Wow that's a bummer...
but don't worry, since your thoughts are based on your biased beliefs, you'll never experience free will anyway.
Growth, not inflation, is the limiting factor in the market's calculations.
market? calculations? market calculations? oh? up up up up up up up up up all together and then ... oops crash all together, that is the scheme. We don't have an honest foundation to the economy because that was looted by the master bankers and axiomaticly spineless scum in DC. All that's left is ponzi supported by heavily propagandized farce. Looks to me like a product of orchestrated inflation of ALL financial assets, stocks and bonds, together has been the ruling dynamic, with the associated orchestrated collapses. All designed to maximize centralization of wealth and control, etc
This may be a little OT but I'm not sure ... all topics lead back to economics and/or money.
In any case, do you want to know what your border police are up to? Protecting America from Kinder Eggs! I kid you not:
http://www.thestar.com/news/canada/article/920600--surprise-border-officials-seize-canadian-woman-s-kinder-egg
And I love Kinder Eggs - first start up I worked at we had a competition as to who had the coolest Kinder Egg toy.
Guess I can stop looking at my watch. No sense waiting for the Bond vigilantes to show up at this party