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As Bonds Are Proven Right Once Again, Is 400 The Next Stop For The S&P?

Tyler Durden's picture


Once again it seems Japan has a lot to teach the Europeans and Americans of the unstoppable reality that bond markets again and again are "correct in the 'end'". As risky- and 'non'-risky-assets become more scarce (thanks to a central bank bid to monetize or collateralize any and all of it), so equity (and risk) markets become more and more distorted - temporarily suspending normal market relationships - until something triggers the reversion to reality. We discussed regime changes in detail regarding gold and bonds over the past 40 years in the past, but the US and European 'survival' tactics appear to be accelerated (and larger) versions of Japan's balance-sheet-recession-fighting game-plan. Their analog, therefore, provides defensible insight into the bond market's anticipation and equity market's inevitable confirmation that it's not different this time. The question we ask is this: "when TOPIX was at 1800, and JGBs implied it 'should' be 1000 (in 1999 and 2007) - how many people said it was 'different' then?"


Japan's 10Y JGB yield vs TOPIX - hope cometh slow and fadeth fast...


US 10Y vs S&P 500 - we have seen one 'hope' era fade back to bond's reality; will it occur again?


and will the German DAX (relative to Bunds here) also revert back to reality?


We assume the answer is 'but, but, but, it's different this time'...


Charts: Bloomberg


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Mon, 09/03/2012 - 13:02 | 2757933 bob_dabolina
bob_dabolina's picture

A bond is worthless without trust, trust being a commodity losing ever more value.


Cotton Traders May Have Reneged on 20% of Contracts, WSJ Says:

Cotton traders may have reneged on or rewritten 20 percent of contracts since 2010, worth as much as $12 billion, the Wall Street Journal said, citing Terry Townsend, executive director of the International Cotton Advisory Committee.

In this day and age no one gives a shit about property rights, repaying a mortgage or student loan, or respecting contract law of any kind. It's no wonder society is denegrating to it's lowest common denominator.

Change We Can Believe In.

Mon, 09/03/2012 - 13:09 | 2757951 FL_Conservative
FL_Conservative's picture

I got "change we can believe in".  Buy PM's.

Mon, 09/03/2012 - 13:57 | 2758092 CrashisOptimistic
CrashisOptimistic's picture

They just don't have any value in the world coming.  

Oil scarcity defines the world coming.  That means food transport can't be more than a few miles.  Gold just won't be interesting to people who live farther than that from food.

I know the gold folks here are focused, but they just haven't thought it through to the post Peak world.

Mon, 09/03/2012 - 14:06 | 2758115 AlphaDawg
AlphaDawg's picture

Technical Analysis, blah blah

Mon, 09/03/2012 - 14:16 | 2758145 thepixelpusher
thepixelpusher's picture

There is no peak oil. Russia pumps the most oil out of the ground now thanks to deep well drilling. BP tried it in the Gulf and the pressure got away from them. They are trying it again in Alaska. There will be no shortage of oil, except that maybe it will be artificially held back until the oil companies get the price they want. Gold is and always will be precious in tough times followed by food and energy.

Mon, 09/03/2012 - 14:25 | 2758178 CrashisOptimistic
CrashisOptimistic's picture

You might want to study up some on Russian drilling.

Their presently producing wells have an output rate declining about 9%/yr.  That's what happens to wells that have been outputting 50 years.  They do a death spiral.  

Russia drills 6,000, repeat, 6,000 wells every year to try to cut that 9% number back.

There is a word for that drilling.  That word is "frantic".

If oil was abundant, there would be no need for Russia to do deals with Exxon to drill in the Arctic.  They could just sit back and let the presently flowing wells continue to flow at present rates forever.  The fact that they don't do that says those wells are in fact in decline.  Every one of those new 6000 each year starts to decline after just a year or three.  Those 6000 each year then start to sum all those declines and new discoveries simply can't overwhelm that summed decline.

This is what "frantic" does.

Mon, 09/03/2012 - 15:40 | 2758390 PrintingPress
PrintingPress's picture

Just print more oil!

Mon, 09/03/2012 - 17:41 | 2758740 thepixelpusher
thepixelpusher's picture

The easy to get to oil is declining, but deep well drilling will more than make up for it in the long run. Oil is not scarce and the ability to get to the deeper oil is developing. The Russians are consulting with Exxon principally because they've done deep well drilling longer than anyone and know how to handle the excessive pressures that can be expected at those depths. That cooperation is a good thing. Deep well oil is not scarce and we've not even begun to tap that. Don't react to the propaganda, the facts say otherwise.

Mon, 09/03/2012 - 17:46 | 2758752 LawsofPhysics
LawsofPhysics's picture

Sure, it will "make up" for some of the lost oil production.  But is will be exponentially more expensive.  There are numerous reasons why delivering that oil is considerable more expensive.

now tell me, what are wages looking like again?


Mon, 09/03/2012 - 17:58 | 2758771 thepixelpusher
thepixelpusher's picture

The tehnology being used on these new deep wells is incredible. The payoff and the amount of delivery far exceeds the costs. That said, I still think the oil companies will still have high costs in the near term before these technologies become more common. We are in a new era in oil production with the deep wells, but I agree for now the costs will still be much higher to our pocketbooks. 

Mon, 09/03/2012 - 15:49 | 2758426 _ConanTheLibert...
_ConanTheLibertarian_'s picture

It's not so black and white: Doug Casey on Peak Oil

Mon, 09/03/2012 - 17:49 | 2758748 thepixelpusher
thepixelpusher's picture

Doug says the "easy to get to oil" is declining. On that I agree. He's not talking about getting to the deep well oil, which is abundant but harder to refine and get to at this point. Technology and procedures will lead us to getting to more of the deep well oil. Oil is not scarce, just our abilities to get to it easily. Obviously we've picked most of the low hanging fruit and now we'll work just a bit harder to get the resources.


Quoted from your link:

"Peak Oil doesn't mean we run out of oil – only that the cost of production, which now often runs about $40 per conventional barrel and up to $80 per unconventional barrel, all-in, is never going back down to where it was. "

Doug Casey

Mon, 09/03/2012 - 21:36 | 2759175 FMR Bankster
FMR Bankster's picture

Casy has it right. No such thing as peak oil, only peak oil at a certain price level. We're way past peak oil at $50 a barrel but not at $150. And we'll never run out, the price will simply rise to a point where it's uneconomic to use it anymore.Then we slowly (probably over several decades) move to other energy sources.

Tue, 09/04/2012 - 01:50 | 2759447 Freddie
Freddie's picture

BP tried it in the Gulf and the pressure got away from them. They are trying it again in Alaska.

Stuxnet for the islamic to shut down drilling in the Gulf for his Saudi backers.

Mon, 09/03/2012 - 14:16 | 2758151 FL_Conservative
FL_Conservative's picture

And how are you going to pay for your oil?   Uh....Uh....Uh....   Yeah, I thought so.

Mon, 09/03/2012 - 14:27 | 2758185 CrashisOptimistic
CrashisOptimistic's picture

Pay for it?

Why would you pay for something you cannot have?

Mon, 09/03/2012 - 14:38 | 2758198 vast-dom
vast-dom's picture


Mon, 09/03/2012 - 15:20 | 2758316 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Yes but...yes but...if the prices of both (equity and FI) are manipulated and fixed by central planning, then which is more reliably "right", or at least "right" on the ZH timeframe? With ZIRP/NIRP, bonds could be "right" for a long time to come. But equities, for the moment anyway, are bid by the Chairsatan.

Going higher in the capital structure has been the traditional response...except if you're a GM or Greek bondholder that is.

Christ I think I'm concluding that I should dig up my front lawn and plant potatoes...

Mon, 09/03/2012 - 17:31 | 2758723 LawsofPhysics
LawsofPhysics's picture

Don't dig up anything.  trash can potatoes are much easier.  Take an old trash can, put about eight inches of soil in the bottom with a spud, water and add soil as the spud grows.  withing six months you will have a trash can full of potatoes.

Mon, 09/03/2012 - 17:36 | 2758734 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Potatoes? Go with soybeans. The Chinese are in dire need.

Mon, 09/03/2012 - 17:56 | 2758768 RockyRacoon
RockyRacoon's picture

Trash can taters -- great idea.  With some caveats, hints, and suggestions:

Mon, 09/03/2012 - 18:03 | 2758778 akak
akak's picture

We should have guessed that your ears would perk up as soon as the talk turned to food in garbage cans, you trash night curbside hooligan you!

Tue, 09/04/2012 - 22:36 | 2763070 RockyRacoon
RockyRacoon's picture

Sho 'nuff!  Best of both worlds!

Mon, 09/03/2012 - 13:34 | 2758027 Arnold Ziffel
Arnold Ziffel's picture
UPDATE 3-Chinese buyers default on coal, iron ore shipments-trade


May 21, 2012|Reuters
[BTW, this was also reported here on ZH.]
Mon, 09/03/2012 - 17:32 | 2758726 LawsofPhysics
LawsofPhysics's picture

Shit gets real when real goods and services stop crossing borders.  Same as it ever was.

Mon, 09/03/2012 - 13:45 | 2758071 Quinvarius
Quinvarius's picture

There is a lot more there than the WSJ would put out.

Some of these grower hedges and contracts were probably written by now dead or BK people thanks to Monsanto. 

Mon, 09/03/2012 - 23:34 | 2759338 Bananamerican
Bananamerican's picture



 The Vidarbha Janandolan Samiti farmers advocacy group has approached the local state Govt. of Maharashtra to arrange a high level probe of all complaints received from farmers of west Vidarbha where more than 10,000 cotton farmers have committed suicide since June 2005 after the introduction of the killer Bt cotton seeds in this region.    Monsanto officials beaten up by Cotton farmers as Bt.cotton seed failed


"When news of a Monsanto senior official's arrival from Mumbai reached the nearby village of Munjala, cotton farmers of the village Karanji, about 140 K.m. from Nagpur located the Monsanto official and took him to their field where a complete failure of ‘Paras Sudarshan’ Bt cotton seed was shown to him.

When the Monsanto representative failed to admit the lapse, he was severely beaten up by the farmers.

It was reported that even a local agriculture officer did not come to his rescue."


es verdad?





Mon, 09/03/2012 - 14:31 | 2758190 LMAOLORI
LMAOLORI's picture



Here's your change 



Kroft: Why have no banking executives been prosecuted?;storyMediaBox

August 19, 2012 

The case against Lehman Brothers



CONVICTED: Bush 1300+, Clinton 1000+, Obama 0.0 (+/-)


Mon, 09/03/2012 - 16:20 | 2758522 sessinpo
sessinpo's picture

I agree with you except for the last line as I don't see the tie. I would agree that Obama reinforced the lost in trust and rule of law through various acts such as the GM bankruptcy bailout. But I can't say that wouldnt' have happened if Obama wasn't President. That would be making the same FALSE argument that democrats use saying they saved  X number of jobs with the GM bailout. But you can't prove that, you can't prove a negative. Who is to say that if GM had gone through a normal bankruptcy, some other company wouldn't have bought the assets and hired many of those workers and dispensed with the pensions that could still take the company down. And I am totally against Obama. Never voted for him, never will.

Mon, 09/03/2012 - 13:03 | 2757937 ar01
ar01's picture

Holy shit. 

1) S&P 500 will never hit 400. We'd be crtl+p'ing it back up. Whatever it takes -- too much money is tied to S&P500 performance. 

2) How much worse than 2008 would this be? Who on the street would even survive that much of a fall?

Mon, 09/03/2012 - 13:10 | 2757952 LoneStarHog
LoneStarHog's picture

It certainly is possible, and much lower.  If the U.S. Peso collapses there will be a panic to pull all remaining so-called money from the markets and put it into hard assets.  It won't matter if Bernanke is Ctrl+Peeing himself to multiple orgasms.

Mon, 09/03/2012 - 13:12 | 2757960 ar01
ar01's picture

...thanks for the imagery! I still think Tyler's "Federally-Issued Toilet Paper" is both the most derogetory and clever way to describe the "US Peso".

Mon, 09/03/2012 - 14:12 | 2758132 ozziindaus
ozziindaus's picture

I dont' get it. So you're saying assets collapse and people start pouring more good money after bad? How did that work out during the recent housing crash? I think your argument is based on the bad assumption that the FR will destroy itself in the process. 

The Great depression was a good time to have cash and a great time to buy assets WHEN THEY BOTTOMED.....but it took about 20 years and a WW to recover. I see the same scenario unfolding. 

My target is a '94 512TR for <$40k. If that's not the bottom, at least i'll be a happy cruiser. 

Mon, 09/03/2012 - 14:22 | 2758171 LoneStarHog
LoneStarHog's picture

Where did I say that "assets collapse"? I said the collapse of the U.S. Peso, which will mean any paper so-called asset, which are not hard assets.  No matter what happens to the U.S. Peso a hard asset will always have value, just not denominated in U.S. Pesos.

During The Great Depression the U.S. Dollar was backed by gold, and people knew and understood this; even though it was no longer convertible as of April 1933.  People understood gold and understood that their money was backed by gold.

Mon, 09/03/2012 - 14:41 | 2758213 ozziindaus
ozziindaus's picture

Don't you think there will be a correlation between the equity markets and hard assets (assuming you mean houses, gold, silver, toilets etc). Given enough time, there always is. 

Between 2006-20011;

40% housing crash

50% S&P dump

50% Silver smack

25% Gold crush

So what remained resilient? USD, US bonds. What has recovered since? Equities and a light sprinkling of Ag and Au. Do you think you will be better off repeating the same mistakes? 

PS Gold backing means nothing. $'s can still be devalued and the so called treasury gold (really FR gold) is never in the publics possession. 

Mon, 09/03/2012 - 14:51 | 2758240 LoneStarHog
LoneStarHog's picture

Why do you assume that there will be "equity markets", or formal markets of any kind? Why are you attempting to use historical data that would possibly have no relevance to such a unique situation as a total collapse of the Reserve Currency? The U.S. Dollar did not collapse in The Great Depression. Why do you reference the "crush" of gold, which was paper gold?  If the U.S. Peso collapses, all the paper gold, derivatives gold, etc. will have no value.  Physical gold would finally be freed from all the paper fraud. Silver the same.  The point being that one must stop thinking PAPER.

Mon, 09/03/2012 - 15:19 | 2758314 ozziindaus
ozziindaus's picture

I think you're making the biggest assumption here and that is the USD will collapse. I totally disagree with you there but that's OK. 

Convertibility of physical assets is still important in regard to valuation. Your one ounce of gold and silver is still that but how do you evaluate its value? Unless you plan on holding them forever and risk another beating (only my opinion), then they will need to be converted (liquidated) some day otherwise they will always remain weights and masses. 

Mon, 09/03/2012 - 15:23 | 2758318 LoneStarHog
LoneStarHog's picture

It is what you either don't understand or refuse to acknowledge:  Gold & silver are money

Mon, 09/03/2012 - 15:42 | 2758402 ozziindaus
ozziindaus's picture

In what world? Trust me i understand the concept of money but more importantly, I understand the real market. Again, one day you will need to convert it and I don't see any time in the near future where "the market" will accept gold and silver as an equitable means of exchange. It's only my opinion. 

Don't get me wrong, I'm not a proponent of big government or the FR but I've come to the realization that it's too big to fight....for now. I think I also understand and accept it's objective and that is self preservation and protection of it's member banks. A USD collapse will wipe it out and I see no evidence that it's on its way to do so. IMO, the FR will destroy everything in its way to preserve it's largest asset, FRN's. 

Mon, 09/03/2012 - 16:06 | 2758478 Tinky
Tinky's picture

China and India are already using gold to buy oil from Iran, and you don't see it as being thought of as a means of exchange "any time in the near future"?

Mon, 09/03/2012 - 16:18 | 2758516 ozziindaus
ozziindaus's picture

Iraq, Libya, Syria, Iran......all had the same idea. Will US go to war with India and China?, maybe or better still, collapse their economies from inside out. As much as I hate the status quo, I think it will still be here for a long time to come. 

Mon, 09/03/2012 - 16:09 | 2758489 LoneStarHog
LoneStarHog's picture

There is an old saying of which I know you are cognizant:  Timing is everything.

The Federal Reserve was established in 1913 with a one-hundred year charter.  It expires next year and unless it is renewed the Federal Reserve goes into history's dustbin.

All polling of the American people indicates that they want the Federal Reserved abolished, even though the vast majority can not intelligently explain it nor its so-called monetary system. There is no way that Congress can renew its charter. So, is it not interesting that we find ourselves in this monetary crisis with the U.S. Peso hated around the world and residing on the abyss?  Is it also not interesting that for all practical purposes the Federal Reserve is bankrupt, its balance sheet a friggin' disaster?

The point being is that this was all contrived/planned long ago.  The owners of the private corporation known as the Federal Reserve are well-positioned for its demise.

Timing is everything and the end of 2012 has been their target for one-hundred years.

Watch for a total collapse in October with a "postponement" (i.e. cancellation) of Elections 2012.

Just my opinion...

Mon, 09/03/2012 - 17:37 | 2758737 Backspin
Backspin's picture

"All polling of the American people indicates that they want the Federal Reserved abolished...There is no way that Congress can renew its charter."

What, do you think Congress actually does the will of the people?  Nice thought, but....

Mon, 09/03/2012 - 18:06 | 2758786 LoneStarHog
LoneStarHog's picture

It was stated in the context of a U.S. Peso collapse.

Mon, 09/03/2012 - 17:45 | 2758749 cxl9
cxl9's picture

Much silliness in one post. First of all, there is no expiration date for the Federal Reserve "charter". Go read 12 U.S.C. § 341 for yourself. Even if it did have an expiration, Congress would surely renew it. The Federal Reserve isn't going anywhere in 2013 or anytime soon. Second, I would guess that you haven't done very much international travelling, because the U.S. dollar is not "hated around the world". In fact, it's gladly accepted in many countries alongside the national currency (for example, in the country where I am living). It's also used as the national currency of some other countries such as Panama and Ecuador, as well as the unofficial currency in others. Significantly, it was the U.S. dollar that the Zimbabwe economy turned to using when their native currency collapsed in a hyperinflation. Yes, the dollar's purchasing power is being steadily eroded, and sooner or later it may collapse and become worthless. But to say it is "hated" around the world now is simply false. You can exchange a fistful of dollars for goods and services in more places on Earth than any other currency. I am no fan of the Federal Reserve, nor of the U.S. government, and I do hold physical PM, but truth is truth whether you like it not.

Mon, 09/03/2012 - 18:04 | 2758783 LoneStarHog
LoneStarHog's picture

1) There is much discourse by many authors, not forums/chatrooms, as to whether or not there is a 100-year expiration. Some claim that there have been so many amendments that it is not all that clear.

2) Under the circumstances of a collapse, to which I alluded, Congress would probably not go against the wishes of an extremely upset public with real potential for violence

3) I don't care if you can purchase something from a merchant in a foreign country, and it has been well-documented with reports that many foreign businesses are refusing dollars.  I am referencing the hatred at the geopolitical level (e.g. Russia, China, where decisions are made. America has abused its duty as holder of The Reserve Currency, and from that comes the hatred in wanting to replace it.

In the case of Zimbabwe, while the government turned to the U.S. Dollar, it was well documented that many refused to use it and demanded physical gold for transactions.

Try looking beyond YOURSELF!

Mon, 09/03/2012 - 18:01 | 2758775 Winston Churchill
Winston Churchill's picture

The US dollar was not the worlds  reserve currency in the depression.

The pound sterling still was,even after going off the gold standard

in 1925.Uptil WWII is still was,with a captive Empire to keep it so.

The dollar became the de facto reserve currency in 1939 and it was

formalised at Bretton Woods.

The debts of wars,WW! to start,and WWII finally killed it.Plus the demographic

shifts caused by losing an entire generation on Flanders fields.

Sound familar, or is it just rhyming.


Mon, 09/03/2012 - 14:51 | 2758245 Western
Western's picture

government shill alert.

why would gold and silver get smacked this time around?

Mon, 09/03/2012 - 15:00 | 2758267 ozziindaus
ozziindaus's picture

you calling me a shill? just relax with that bully tactic and read what i'm saying.....and if you think gold and silver are not manipulated, then maybe you should speak to jesse.

Mon, 09/03/2012 - 16:00 | 2758463 Western
Western's picture

Wow I couldn't ask for a more tangental, scarecrow response. Never said Ag/Au weren't manipulated, but thank you for proving my point that you are desperately trying to hide yourself as a "pro PM poster".


yeah I am calling you a gov't shill because you're peddling a dangerous piece of info -> hold US bux.

Mon, 09/03/2012 - 17:40 | 2758744 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Black Swan=liquidity crisis.

Mon, 09/03/2012 - 15:40 | 2758391 earleflorida
earleflorida's picture


FDR had pegged the new value of gold at $35 oz. and at the time, while the entire Nat'l Debt was ~ $22.5 bn. [no off-balance sheet ?]

Fast forward to 9/2012 and our Nat'l Debt is ~ $15.9Trillion! ... with an off-balance sheet of ~ $100 Trn +/+!!!

During the past 79 years, our Nat'l [1933-2012] Debt regarding 'Physical Gold' has increased from $35 > $1700... or as I demonstrate here using simple arithmetic with my sole inference being directly correlated to '1933/ $22.5bn' vs. '2012/$15.9tn' --- a 707 times increase *[$15.9tn/$22.5bn] which would make the true intrinsic value of physical gold roughly worth ~$25k/oz., rather than the measly $2k/oz they predict.

But, that's me? This will never, ever happen,... but physical gold could easily hit $5k/oz in realistic terms once the EU and BRIC's start to unravel.


thankyou tyler

Mon, 09/03/2012 - 13:43 | 2758067 Dr. Engali
Dr. Engali's picture

S&P 400 has been my target since this mess began. We have 30 years of debt based growth we have pulled forward. Now it's time to pay the piper.

Mon, 09/03/2012 - 23:29 | 2759331 Xanthias
Xanthias's picture

I can only guess here, but many people have observed the similarity of the present situation to Japan's in the 90s, with artificial gov't stimuli, the lack of true growth, and subsequent collapse of equities.  I've felt that we've been running on fumes for too long, and I don't see how it can continue.  Maybe the chart to look at is the Nikkei.

Mon, 09/03/2012 - 16:25 | 2758537 sessinpo
sessinpo's picture

1) S&P will hit 400, the question is when. Never say never. It's like all those Ph.D. economist that missed the housing bubble and think a depression could never happen again.

2) It will be much worse obviously. People would survive. I suggest you do a little history research on the last depression. The very same sentiment appeared back then - it can't happen, then it does. It will last forever, how will we survive.

It's all cycles.

Mon, 09/03/2012 - 13:04 | 2757938 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Someone please shoot bearish Tyler.

[In reference to the movie, not litterally of course]

Mon, 09/03/2012 - 13:38 | 2758046 Atomizer
Atomizer's picture

Just ignore the tough crowd. Some of us have a unique DNA gene sequencing fingerprint. We’re not well liked.. LOL


Just for shits and giggles.. You’ll see desperation ensue at levels you never imagined.. Grab your popcorn

Branded - Trailer 

The system will eat itself..

Mon, 09/03/2012 - 16:26 | 2758543 sessinpo
sessinpo's picture

I'll be one of the sttongest advocates for Tyler since I'm one of the biggest assholes on this board and he hasn't band me yet.

Mon, 09/03/2012 - 16:31 | 2758553 akak
akak's picture


I'll be one of the sttongest advocates for Tyler since I'm one of the biggest assholes on this board and he hasn't band me yet.

That is only because you are a sedentary birdbrain and not a migratory one.

Mon, 09/03/2012 - 18:04 | 2758782 RockyRacoon
RockyRacoon's picture

That's funny, Akak.  At least you've been able to maintain your sense of humor.  Mine is wearing thin these days.

Tue, 09/04/2012 - 05:33 | 2759548 akak
akak's picture

Evidently, you haven't seen some of my recent bitchslap responses to AnAnnoyingMouse. Talk about patience wearing thin! He is truly an infuriating parangong of hypocritizenism.

Mon, 09/03/2012 - 22:11 | 2758864 TheFourthStooge-ing
TheFourthStooge-ing's picture

akak said:

I'll be one of the sttongest advocates for Tyler since I'm one of the biggest assholes on this board and he hasn't band me yet.

That is only because you are a sedentary birdbrain and not a migratory one.

In Mutual of Omaha's Wild Thingdom, a new TV show about the creatures and vermin which inhabit Wall Street, one of the Tylers will be playing the Marlin Perkins role as the show's host.

Tue, 09/04/2012 - 03:22 | 2759498 akak
akak's picture

When they run the episode showing the wild AnAnnoying Mouse of China in its natural roadside habitat, please let me know in advance.  I understand that it is quite a parangong of offuscationalizingisticalism and animalistic shitizenism, and is the only creature known to exist solely on algebraic coconuts.

Mon, 09/03/2012 - 13:09 | 2757947 ar01
ar01's picture

Is the implied correlation between the two the risk-on/risk-off nature between stocks and bonds... i.e., if markets go down, yields should go down since money is leaving equities and going into bonds and vice versa? 

Mon, 09/03/2012 - 13:15 | 2757964 taniquetil
taniquetil's picture

At least in a world without money supply shocks. Because people have an aggregate risk tolerance, some of that money has to go to different places, and the price of those assets has to reflect supply and demand.


Of course, with the Fed in the mix buying up bonds, there is a demand in-balance as even people with low risk tolerances can't buy US TSY because of negative real yields.

Mon, 09/03/2012 - 13:17 | 2757971 bob_dabolina
bob_dabolina's picture

You're referring to a parallel universe in which invisible hands aren't pulling puppet strings in an effort to centrally plan prices and economic activity.

In the world we live in, a central bank can buy a sovereign nation's bonds AND by extension via primary dealer proxy also buy, or support, equity prices. The side-effect of such action is excessive liquidity which finds itself in areas it wouldn't normally be, for example energy or food prices.

As much as people have this visceral hallucination that we live under a capitalistic paradigm, nothing could be further from the truth. 

Mon, 09/03/2012 - 23:33 | 2759336 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Chaos theory suggests it is not possible to predict the lay of the land following the crash.

Mon, 09/03/2012 - 13:08 | 2757948 RiskAverseAlertBlog
RiskAverseAlertBlog's picture

It could be different this time. With Germany and the U.S. you're getting to the core of the trans-Atlantic banking system. So, with "open ended" central bank intervention on everyone's lips an ultimately rising rate environment only eventually should bring equities to be crushed. Yet probably not right away, as the reflex "risk on" should take stocks still higher notwithstanding rising rates, the likes of which mightl be explained away a la "risk on." Rising rates certainly have been the initial result of QE1 and 2. Yet in an "open ended" intervention environment, once physical decimation brought about by higher rates sets in (bond vigilantes), the equity index targets you've indicated should be a slam dunk.

Mon, 09/03/2012 - 13:11 | 2757954 ar01
ar01's picture

>Rising rates certainly have been the initial result of QE1 and 2.


QE1 and QE2 bought bonds, dropping T-rates.. 

Mon, 09/03/2012 - 13:28 | 2758004 HpDeskjet
HpDeskjet's picture

Wrong, QE = rising rates! Why? ==>> In market perception, this is positive for growth/inflation so people sell bonds, buy stocks. Yes it is counterintuitive, but this is what happened (and will happen).

Mon, 09/03/2012 - 13:32 | 2758021 ar01
ar01's picture

Interesting.. thanks for clearing that up. 

Mon, 09/03/2012 - 14:01 | 2758097 Orly
Orly's picture

Exactly correct.

"Free money" has investors dropping bonds to get in on the ramp in equities.  The whole idea is to have the market raise rates for the Fed, so they don't have to look like the Ogre, making Mom and Pop's savings worth less and less.  Jawboning will work...until it doesn't.

Only now, the US ten year yield has turned her nose back toward sub-1%.  I don't know if this scares the bejeesus out of Dr. Bernanke but he sure acts like he's horrified of that consequence.  Unfortunately for him, he's correct in that he's getting less and less bang for our bucks in the Risk category, as he has stated repeatedly over his last ten speeches.  He knows he's got one bullet left and he had better be right on target.


Mon, 09/03/2012 - 14:07 | 2758120 CrashisOptimistic
CrashisOptimistic's picture

Well, what you said was right except for the comma.

QE1 and 2 bought bonds.  Rates fell.  Not necessarily connected as evidenced by no QE for 15 months now and rates keep falling.

Rates are falling because of zero growth induced deflation and abject European terror looking for safety.

Mostly it's the absence of growth -- induced by relentless and grinding oil scarcity.

Mon, 09/03/2012 - 14:44 | 2758224 Orly
Orly's picture

That's true, too, that rates are generally falling.  It is a deflationary world, after all.   Bonds know this, so the Fed tosses them a balloon once in a while to entertain themselves (QE...), hoping that bond yields won't crater too fast.  As even Bernanke has said, the relative entertainment value of said balloon bopping is losing its appeal.

In the immortal words of RadioHead: gravity always wins.


Mon, 09/03/2012 - 17:18 | 2758684 falak pema
falak pema's picture

have a low hanging apple to keep the doctor away; then make the others into tarte tatin. You will be surprised, gravity feels less leaden-healed with tarte tatin as desert. 

Mon, 09/03/2012 - 13:18 | 2757975 Crimedog
Crimedog's picture

Very interesting chart Tyler(s).  Do you have a view of the US 10Y v S&P500 that goes back farher than 1999?  I would be interested in seeing if this "catch-up" to bonds has been "normal" behavior over a longer time period.  Is the reverse possible, i.e. US 10Y catching up to the S&P 500?

Mon, 09/03/2012 - 13:22 | 2757984 ar01
ar01's picture

Definitely... wish I had access to a Bloomberg terminal. 

Mon, 09/03/2012 - 13:57 | 2758091 ptoemmes
ptoemmes's picture

Undoubtably got some PM content in them.

Mon, 09/03/2012 - 13:23 | 2757987 The Count
The Count's picture

While I agree in principle, I would not bet on when the 'return to normal' will happen. Could start any day now, or could take 5 more years. In this game you really can't win, prefer to stick my money in tangilbe assents. 

Mon, 09/03/2012 - 13:24 | 2757989 oldfruit1
oldfruit1's picture

tyler i think the previous poster has made an important point re why do you believe when doing relative value analysis between asset classes, that one is correct and the other incorrect? it could well be that bonds are wrong and equities are right? in my experience equities are quicker to price in new information just because they are more liquid & more people trade equities.    

Mon, 09/03/2012 - 13:27 | 2758002 Tyler Durden
Tyler Durden's picture

that's funny

Mon, 09/03/2012 - 13:31 | 2758016 HpDeskjet
HpDeskjet's picture

Indeed.... Fixed Income is always, i repeat always, right. Why? Those investors are in general 1) more quantitatively skilled, and therefore are better in doing analysis 2) have a better macro view 3) the fixed income markets are way bigger than the equity markets, at least double the size.

Mon, 09/03/2012 - 14:02 | 2758103 Ancona
Ancona's picture

I wonder who the anonymous coward is that trolled through and down arrowed every post?

What a loser.

Mon, 09/03/2012 - 14:09 | 2758124 AlphaDawg
AlphaDawg's picture

t'was I

Mon, 09/03/2012 - 14:46 | 2758229 Orly
Orly's picture

You have insulted me.

Mon, 09/03/2012 - 14:21 | 2758169 The Count
The Count's picture

An @-hole ! Haha, the jokes on him though.

Tue, 09/04/2012 - 05:43 | 2759555 akak
akak's picture


I wonder who the anonymous coward is that trolled through and down arrowed every post?

What is this, an anonymous coward is trolling ZeroHedge?

You don't say!

Mon, 09/03/2012 - 14:03 | 2758107 ozziindaus
ozziindaus's picture

Absaf#ckinlutely but it's actually about 3x

+1 for you

Mon, 09/03/2012 - 14:51 | 2758241 kito
kito's picture

Ha, yes bond prices are absolutely right.....the u.s. is a f-ckin rock of fiscal stability, a beacon of balance sheet beauty....a real AAAAAAA rated country with near zero risk.......and therefore its 10 year yield is clearly reflective of that.............heres an idea....ALL THE MARKETS ARE WARPED, RIGGED, MANIPULATED AND NOBODY KNOWS WTF THEY ARE DOING ANYMORE..........

Mon, 09/03/2012 - 15:42 | 2758406 HpDeskjet
HpDeskjet's picture

It's not about the fiscal situation, just a matter of supply and demand in a deflationary environment with ample liquidity... Inflation (and growth) are low and will be low for the foreseeable future (at least a few years), so rates should be low even if there was no central bank intervention. Actually i think the 10y yields would already be below 0,5% if central banks had not acted at all... Too much money chasing too little "safe" assets. Yes, US is sort of broke, but other countries are more broke or dont have enough bonds to absorb the liquidity... (check rates of safe havens denmark/sweden/finnish/suisse/etc.). It's an ugly contest and US is (for now) not winning...

Mon, 09/03/2012 - 15:42 | 2758408 HpDeskjet
HpDeskjet's picture

It's not about the fiscal situation, just a matter of supply and demand in a deflationary environment with ample liquidity... Inflation (and growth) are low and will be low for the foreseeable future (at least a few years), so rates should be low even if there was no central bank intervention. Actually i think the 10y yields would already be below 0,5% if central banks had not acted at all... Too much money chasing too little "safe" assets. Yes, US is sort of broke, but other countries are more broke or dont have enough bonds to absorb the liquidity... (check rates of safe havens denmark/sweden/finnish/suisse/etc.). It's an ugly contest and US is (for now) not winning...

Mon, 09/03/2012 - 13:37 | 2758033 Dr. Engali
Dr. Engali's picture

I'll bet you think Santa Claus is real too.

Mon, 09/03/2012 - 14:01 | 2758099 CrashisOptimistic
CrashisOptimistic's picture

Your experience is the old normal.

The new normal has no volume to speak of and what there is comes from HFT computers.

Nothing gets priced in other than the computer's deisre to defeat the opponent's computer.  

Mon, 09/03/2012 - 14:05 | 2758113 I am more equal...
I am more equal than others's picture

We live in a ±1 skewed system.  +1 equities on hope -1 bonds.  Color me -2.

Mon, 09/03/2012 - 13:24 | 2757996 Aristarchus of Samos
Aristarchus of Samos's picture

In the end game, when every debt instrument which hasn't defaulted is owned by some government, are they still worth anything at all?

Mon, 09/03/2012 - 13:26 | 2757998 Boilermaker
Boilermaker's picture

How many times can this story be re-ran here?

Mon, 09/03/2012 - 13:56 | 2758039 Conman
Conman's picture

Uhm - about as many times as there are new data points. Those pretty pictures are called graphs. I'm assuming commentary will continue until the trend/correlation breaks/converges.

Mon, 09/03/2012 - 14:26 | 2758181 Boilermaker
Boilermaker's picture

OK, SPX 400.  Got it.  Roger that. 

Mon, 09/03/2012 - 14:40 | 2758209 Conman
Conman's picture

You can draw your own conclusion. Just saying as long as the world keeps going and we keep following a calendar, these graphs will be updated with commentary to follow. It is not the SAME info since new data points are added.

Mon, 09/03/2012 - 13:32 | 2758011 Arnold Ziffel
Arnold Ziffel's picture

"This time is different."


"Housing prices have bottomed."


"I am 100% confident I can control inflation." [Ben]


"Trust me, I'm a virgin."



Mon, 09/03/2012 - 13:55 | 2758088 e-man
e-man's picture

My favorite is:

"It's only a temporary tax."

Mon, 09/03/2012 - 13:42 | 2758035 Cult_of_Reason
Cult_of_Reason's picture

It is genetic -- repeating same mistakes.

Most people tend to learn from their mistakes and avoid making the same blunder twice. Now research reveals a genetic mutation that helps to determine the extent to which certain people are doomed to repeat history.

Drug addicts, alcoholics and compulsive gamblers (and Wall Street banksters) are known to be more likely than other people to have this genetic mutation, which leaves them with fewer receptors of a certain type in the brain. These receptors — called D2 receptors — are activated when levels of the neurotransmitter dopamine drop.

Dopamine is responsible for signalling fun and pleasure in the brain. But dopamine also helps us learn. When we make a pleasurable decision, dopamine is a chemical treat, urging the brain to repeat the choice. Being deprived of such a treat should theoretically activate D2 receptors and encourage people not to make that same decision again.

Mon, 09/03/2012 - 13:39 | 2758045 saycheeeese
saycheeeese's picture

it's always different till proven to the contrary.....

Mon, 09/03/2012 - 13:41 | 2758059 DonutBoy
DonutBoy's picture

Seriously?  Does anyone believe the treasury market is revealing anything other than the yield curve the Fed wants to feed zombie banks unearned profits?

Mon, 09/03/2012 - 13:43 | 2758064 e-man
e-man's picture

If we are to believe the gold/dow ratio will revert to the mean, this can't bode well for gold prices in the short term.  I tend to look at it as how much printing will occur after a reset, not leading up to it.

Mon, 09/03/2012 - 13:55 | 2758086 yogibear
yogibear's picture

Way too many mutual funds created over the last 30 years caused by all that credit expansion. As with the banks.

Both mutual funds and the number of banks need to be reduced substantially. What happens when you financialize the economy and you don't produce anything except transactions.

Mon, 09/03/2012 - 14:10 | 2758128 Cyclerider
Cyclerider's picture

If one picture is worth a thousand words, then three pictures must be worth at least three thousand words.

Mon, 09/03/2012 - 14:14 | 2758141 nscholten
nscholten's picture

Looks like S&P 1500 first

Mon, 09/03/2012 - 14:23 | 2758175 tawse57
tawse57's picture

Call me  Mr. Thicky, but I do not see how you get from bond prices to S&P 400? Is there a HUGE chunk of the article missing?

Why suddenly mention this now - has something happened in the last 24 hours to make such an S&P crash close?

Mon, 09/03/2012 - 14:44 | 2758219 Atomizer
Atomizer's picture

The answer is pretty simple. If the lemmings don't buy the shit globalist’s are off loading, investors sell off the shares due to poor upcoming sales forecast. It has a rippling effect on the entire globalization infrastructure. 2 + 2 always equals 4.

One: Happiness Machines

Mon, 09/03/2012 - 14:49 | 2758236 Orly
Orly's picture

Yeah.  It means reality sets in.


Mr. Thicky.

Mon, 09/03/2012 - 15:15 | 2758301 tawse57
tawse57's picture

Thanks for explaining that.

Mon, 09/03/2012 - 14:42 | 2758215 buzzsaw99
buzzsaw99's picture

The correlation (bullish bonds, bearish stocks) is a transitory and artificial phenomena which can persist for decades (or not exist for decades). Bonds have been rising since the late 1970s, stocks along with them for first thirty years. I could argue that if bonds were crashing that too would be bad for stocks in this present environment. There are no markets, all are manipulated, therefore there can be no meaningful correlation. What you are looking at is merely a central bank induced mirage.

Mon, 09/03/2012 - 14:55 | 2758254 ozziindaus
ozziindaus's picture

I hear you. The worst part is that we have average Joe "non professionals", otherwise known as 401K "dumb money", is forced to speculate in these phony markets. Once that tap is dry, the game is over....until they forcefully "tax" ya and call it retirement contributions. 

Mon, 09/03/2012 - 15:16 | 2758305 oldfruit1
oldfruit1's picture

I think you're right on this dude. bonds and equities correlation can converge and diverge for long periods of time. Additionally remember that the FED is buying treasuries as part of qe so bonds prices are obviously going to continue to rise. The fact that stocks are also rising is unsurprising since money injected by fed as part of qe is finding its way into the stock market. So Tyler we are not operating in normal market conditions, in a qe driven environment surely this behaviour is to be expected and we can not simply take it as a signal that bonds are right and equities are wrong and that a correction is imminent unfortunately. Wild appreciate your view on this Tyler (noted your amusement at my previous comment lol the reason I'm interested in this is that I used to do multi asset research in a previous job and looked at credit vs equity markets .. v dangerous in my opinion to make market calls on this basis)

Mon, 09/03/2012 - 15:24 | 2758322 buzzsaw99
buzzsaw99's picture

Interestingly enough this action actually does indicate an underlying weakness in the equities market. Central bankers drive bond rates lower in an attempt to support stock prices. What TD implies as a correlation when stock prices eventually nosedive is actually just reality finally winning out.

Mon, 09/03/2012 - 15:40 | 2758392 oldfruit1
oldfruit1's picture

When qe ends I'm sure equities will fall, the question is when will qe end? If benanke does qe3 mid September the stock market will surge and bonds yields will be squeezed even tighter .. this could keep on running for a while.

Mon, 09/03/2012 - 15:49 | 2758423 buzzsaw99
buzzsaw99's picture

...this could keep on running for a while.


imo this is a very accurate assessment. may not, but could.

Mon, 09/03/2012 - 14:50 | 2758237 scatterbrains
scatterbrains's picture

.. but anyway (off topic) Will there be or is their now (for those that prefer to secure their savings in gold but who, like the "American Pickers" tv show for example need cash occasionally to buy and flip assets) lenders against gold collateral in this 0% rate world ?  Some folks want to borrow short term against gold to buy and flip but then quickly retire the loan and get their gold back less the fees/rate on the loan. You would think there would be a market for loans some where between 0% treasuries earn and the 60% pawn brokers charge no? Maybe these business already exist?


Mon, 09/03/2012 - 14:54 | 2758253 The Count
The Count's picture

Why do I get the feeling there are one or more complete morons trolling ZH today dishing out minuses willy-nilly?

Mon, 09/03/2012 - 15:05 | 2758279 The Count
The Count's picture

Gotcha! We know who you are. 

Mon, 09/03/2012 - 15:13 | 2758298 magpie
magpie's picture

ECB PR Sturmabteilung ?

Mon, 09/03/2012 - 14:56 | 2758260 css1971
css1971's picture

Looks like 2 more years of hope to me.

Mon, 09/03/2012 - 15:20 | 2758313 jabba_67
jabba_67's picture

The charts shown make sense. The only "little" difference I see today is that we now have to face lunatics like BB and Draghi. 


Mon, 09/03/2012 - 15:30 | 2758342 monopoly
monopoly's picture

"bonds....."are correct in the end". The end being the key words to this post. Not if, but when. Not before November, that is for sure.

Mon, 09/03/2012 - 19:01 | 2758887 Seek2survive
Seek2survive's picture

Nothing is "for sure".

Mon, 09/03/2012 - 18:55 | 2758870 deez nutz
deez nutz's picture

I am shocked, just shocked, absolutely shocked that this time wouldn't be different.  Shocking.

Mon, 09/03/2012 - 21:18 | 2759139 roadsnbridges
roadsnbridges's picture

Bullshit.  Major Bullish.  Like before Peter North does his thang.

Tue, 09/04/2012 - 06:44 | 2759583 Munkey
Munkey's picture

I don't really really have anything to add, just wanted to see if I get a random minus rating or if the culprit has been worn down by the banality of their actions.

Mon, 09/17/2012 - 00:58 | 2802312 Cyclerider
Cyclerider's picture

Really interesting charts.  Please update them periodically so we can see how the prediction is playing out.

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