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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hedgeless_horseman's picture

Change (regime), bitchezzz!

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.

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.

aerojet's picture

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

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



mynhair's picture

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

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

Spalding_Smailes's picture

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

Viva - Nacho Mama's

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.

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'

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 %

mynhair's picture

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

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

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!

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.


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.

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!

whatz that smell's picture

it's a parabolic bubble of liars lying!

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.

rocker's picture

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

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.

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)

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.

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!

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.

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 !

ThreeTrees's picture

 Federal Reserve imposed demand floor, bitchez!

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.

mynhair's picture

So, do the rare earths take off again?

Tic tock's picture

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

mynhair's picture

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

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.

Black Forest's picture

You were 45 hours too late to the regime change.

goldmiddelfinger's picture

Gold? Gold will be CRUSHED

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."  ................


aerojet's picture

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

Does he count 2000-2009 as the first decade?

Spalding_Smailes's picture

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



The link from Today.

Pullmyfinger's picture

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

whatz that smell's picture

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

THEN: btfd

ELSE: btfd


buzzsaw99's picture

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

whatz that smell's picture

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

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.


goldmiddelfinger's picture

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

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.

goldmiddelfinger's picture

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

Spalding_Smailes's picture

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