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Chart Of The Day: The Great Regime Change

Tyler Durden's picture


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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Thu, 01/13/2011 - 17:19 | 874295 hedgeless_horseman
hedgeless_horseman's picture

Change (regime), bitchezzz!

Thu, 01/13/2011 - 17:33 | 874378 shushup
shushup's picture


Thu, 01/13/2011 - 17:42 | 874413 Dont Taze Me Bro
Dont Taze Me Bro's picture

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.

Thu, 01/13/2011 - 18:10 | 874527 pcrs
pcrs's picture

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.

Thu, 01/13/2011 - 18:12 | 874532 aerojet
aerojet's picture

Yeah, Keynes had *nothing* at all to do with it!

Thu, 01/13/2011 - 17:33 | 874301 Spalding_Smailes
Spalding_Smailes's picture

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



Thu, 01/13/2011 - 17:56 | 874470 mynhair
mynhair's picture

Why are you ragging on South FL?  Is that Miami or Naples?

SW FL is fine.  (N of Cape Corral /int)

Thu, 01/13/2011 - 17:59 | 874483 Spalding_Smailes
Spalding_Smailes's picture

My buddy has a pimp place in Marco - 30ft. fishing boat. Very nice place -

Viva - Nacho Mama's

Thu, 01/13/2011 - 18:17 | 874545 goldmiddelfinger
goldmiddelfinger's picture

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.

Thu, 01/13/2011 - 18:29 | 874574 Spalding_Smailes
Spalding_Smailes's picture

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'

Thu, 01/13/2011 - 19:07 | 874702 PicassoInActions
PicassoInActions's picture

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 %

Thu, 01/13/2011 - 19:15 | 874729 mynhair
mynhair's picture

Just keep the snow birds away.  Don't need anybody down here that didn't live thru Charley.

Thu, 01/13/2011 - 18:25 | 874566 Missiondweller
Missiondweller's picture

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

Thu, 01/13/2011 - 18:51 | 874650 Logans_Run
Logans_Run's picture

I received my undergrad from Cal Poly and always thought that Carney was full of shit (had him twice). Thanks for the quote!

Thu, 01/13/2011 - 17:14 | 874307 Selah
Selah's picture


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.


Thu, 01/13/2011 - 17:29 | 874360 wisefool
wisefool's picture

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.

Thu, 01/13/2011 - 17:41 | 874412 buzzsaw99
buzzsaw99's picture

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!

Thu, 01/13/2011 - 18:02 | 874494 whatz that smell
whatz that smell's picture

it's a parabolic bubble of liars lying!

Thu, 01/13/2011 - 18:30 | 874586 Implicit simplicit
Implicit simplicit's picture

Its a lie derivative= a scam

Thu, 01/13/2011 - 19:00 | 874682 Sudden Debt
Sudden Debt's picture

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.

Thu, 01/13/2011 - 19:30 | 874764 rocker
rocker's picture

In the Bernanke's world.  People have a minimum of 10 million dollars. All others are Peons. 

Thu, 01/13/2011 - 19:47 | 874799 hambone
hambone's picture

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.

Thu, 01/13/2011 - 18:10 | 874526 wisefool
wisefool's picture

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)

Thu, 01/13/2011 - 18:35 | 874598 buzzsaw99
buzzsaw99's picture

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.

Thu, 01/13/2011 - 17:21 | 874325 mynhair
mynhair's picture

INTC rev is bullish.  They sold something.

Sealy is a big miss:  people aren't sleeping very well.

But Consumer Reports CONfidence is high!

Thu, 01/13/2011 - 18:20 | 874551 papaswamp
papaswamp's picture

I'm wondering how much the R&D tax credit helped.

Taxes 24% vs 31% expected. Nice little 7% save on taxes.

Thu, 01/13/2011 - 17:22 | 874330 lynnybee
lynnybee's picture

...... & 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 !

Thu, 01/13/2011 - 17:23 | 874337 ThreeTrees
ThreeTrees's picture

 Federal Reserve imposed demand floor, bitchez!

Thu, 01/13/2011 - 17:23 | 874342 kevinearick
kevinearick's picture

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.

Thu, 01/13/2011 - 17:24 | 874343 mynhair
mynhair's picture

So, do the rare earths take off again?

Thu, 01/13/2011 - 17:41 | 874408 goldmiddelfinger
goldmiddelfinger's picture

Let's Celebrate Rare Earth !

Thu, 01/13/2011 - 17:24 | 874344 Tic tock
Tic tock's picture

Yeah, but you think the thieves know anything past their own noses.

Thu, 01/13/2011 - 17:26 | 874350 mynhair
mynhair's picture

God damn it, the best year ever!  Get bullish, you realists!

Thu, 01/13/2011 - 17:28 | 874357 Pullmyfinger
Pullmyfinger's picture

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.

Thu, 01/13/2011 - 17:48 | 874439 Black Forest
Black Forest's picture

You were 45 hours too late to the regime change.

Thu, 01/13/2011 - 17:35 | 874385 goldmiddelfinger
goldmiddelfinger's picture

Gold? Gold will be CRUSHED

Thu, 01/13/2011 - 17:45 | 874406 Spalding_Smailes
Spalding_Smailes's picture


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."  ................


Thu, 01/13/2011 - 18:18 | 874546 aerojet
aerojet's picture

Which decade?  Was he saying this in 2010 or in 2011?

Does he count 2000-2009 as the first decade?

Thu, 01/13/2011 - 18:36 | 874591 Spalding_Smailes
Spalding_Smailes's picture

He said it today. I posted this video last month & you could tell his feelings then ...



The link from Today.

Thu, 01/13/2011 - 17:43 | 874419 Pullmyfinger
Pullmyfinger's picture

What an odd image. Would that happen if the Chinese government fell on it?

Thu, 01/13/2011 - 17:41 | 874409 whatz that smell
whatz that smell's picture

IF: inflation(x) and deflation(y) and yield(z)

THEN: btfd

ELSE: btfd


Thu, 01/13/2011 - 17:43 | 874420 buzzsaw99
buzzsaw99's picture

the bernank can't help you if you don't buy stocks.

Thu, 01/13/2011 - 17:50 | 874447 whatz that smell
whatz that smell's picture

praise be the bernank! may the stocks be with you.

Thu, 01/13/2011 - 17:42 | 874418 AGoldhamster
AGoldhamster's picture

of topic - but this comment over at turds blog made my day:

Thu, 01/13/2011 - 19:26 | 874753 Blano
Blano's picture

Hahaha that was cute.

Thu, 01/13/2011 - 17:45 | 874424 RobotTrader
RobotTrader's picture

Reason for the violent selloff in PM stocks this afternoon:

Gold broke a key trendline and support level in many foreign currencies.$GOLD:FXE,$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.


Thu, 01/13/2011 - 17:47 | 874433 goldmiddelfinger
goldmiddelfinger's picture

Gold is making an ugly head and shoulders under the trend line it BROKE A WEEK AGO!

Thu, 01/13/2011 - 17:51 | 874455 Spalding_Smailes
Spalding_Smailes's picture

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.

Thu, 01/13/2011 - 17:54 | 874460 goldmiddelfinger
goldmiddelfinger's picture

I'll pay $980 for an ounce of gold.

Thu, 01/13/2011 - 17:56 | 874471 Spalding_Smailes
Spalding_Smailes's picture

I'll give you $ 12 for the rest of your Silver Wheaton ....

Thu, 01/13/2011 - 18:03 | 874493 goldmiddelfinger
goldmiddelfinger's picture

Too late. sold December 7th a little over $40. Same day  sold my gold and silver coins to a fool coin dealer

Thu, 01/13/2011 - 18:17 | 874509 Spalding_Smailes
Spalding_Smailes's picture

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 ...

Thu, 01/13/2011 - 18:23 | 874557 goldmiddelfinger
goldmiddelfinger's picture

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.

Thu, 01/13/2011 - 19:33 | 874770 tmosley
tmosley's picture

This is what a circlejerk looks like.

Thu, 01/13/2011 - 18:47 | 874639 andia
andia's picture

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 ?



Thu, 01/13/2011 - 19:31 | 874769 Hulk
Hulk's picture

Gold down because Trichet says Europe is all skittles and rainbows...

Thu, 01/13/2011 - 17:53 | 874462 RobotTrader
RobotTrader's picture

ES and NQ flying after hours...

Thu, 01/13/2011 - 17:59 | 874480 mynhair
mynhair's picture

and NEM.  Do you ever take your own advice?

Thu, 01/13/2011 - 18:07 | 874511 whatz that smell
whatz that smell's picture

IF: ES and NQ flying after hours...

THEN: so what?

ELSE: email CNBC


Thu, 01/13/2011 - 18:03 | 874499 neutrinoman
neutrinoman's picture

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)


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.

Thu, 01/13/2011 - 18:39 | 874616 Pure Evil
Pure Evil's picture

Nope again.

Regime change took place in 1913.

Take a look at the chart in this article:

Thu, 01/13/2011 - 18:12 | 874531 rapier
rapier's picture

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.

Thu, 01/13/2011 - 18:14 | 874536 the rookie cynic
the rookie cynic's picture

 Interest rates, currency value, and stocks all go up in a real, fundamentally driven economy.

Things go all wonky in a fake one.

Thu, 01/13/2011 - 18:20 | 874553 Jerry Maguire
Jerry Maguire's picture

Corrigan's great, but sometimes I just don't understand him.

Homeless America - now that I understand:


Thu, 01/13/2011 - 18:36 | 874603 Horatio Beanblower
Horatio Beanblower's picture

An enjoyable watch (by the way, fuck you!)...


F**K Political Correctness! -

Thu, 01/13/2011 - 18:49 | 874647 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

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?

Thu, 01/13/2011 - 18:54 | 874659 lawrence1
lawrence1's picture

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. 


Thu, 01/13/2011 - 18:58 | 874670 Spalding_Smailes
Spalding_Smailes's picture

Dollar denominated debt is the answer to everything and the peg.

Thu, 01/13/2011 - 19:30 | 874765 Blano
Blano's picture

Or the Pelosi Hedge, or the Biden Hedge, or the Reid Hedge, get the picture.

Thu, 01/13/2011 - 20:46 | 874946 lawrence1
lawrence1's 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?


Thu, 01/13/2011 - 19:08 | 874706 hugovanderbubble
hugovanderbubble's picture

Excellent post,


Thu, 01/13/2011 - 19:38 | 874786 Strom
Strom's picture

Had an interesting idea today. What if, once public opinion over bank bailouts was negative enough, everyone maxed out their credit cards here:


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.

Thu, 01/13/2011 - 19:40 | 874792 faustian bargain
faustian bargain's picture

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.

Thu, 01/13/2011 - 19:48 | 874805 CitizenPete
CitizenPete's picture

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.  

Thu, 01/13/2011 - 19:44 | 874800 Bankster T Cubed
Bankster T Cubed's picture

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

Thu, 01/13/2011 - 19:51 | 874808 Arkadaba
Arkadaba's picture

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:

And I love Kinder Eggs - first start up I worked at we had a competition as to who had the coolest Kinder Egg toy.

Mon, 01/31/2011 - 23:53 | 922756 strannick
strannick's picture

Guess I can stop looking at my watch. No sense waiting for the Bond vigilantes to show up at this party

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