Bonds Vs Stocks - What Happens Next?

Tyler Durden's picture

Typically bond and stock prices are inversely correlated - providing what your friendly local asset allocator/wealth manager calls diversification or balance. However, at times of crisis, things get a little out of hand. In the last 6 years, there have been two instances of extreme high correlation between stock price returns and bond price returns - the first was at the peak in stocks in 2007 and led to a calamitous plunge in equities and rally in bonds; the second was amid full crisis mode in the fall of 2010 when QE2 was announced to save the world (followed by an equity and bond price rally). So, this time, with correlations running high, what happens next?



It seems the consistent message from a high correlation between stocks and bonds is bonds rallied.


Charts: Bloomberg

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
UK debt marsh's picture

Still, most of the time, no correlation.

ie SELL stocks AND bonds

Muppet of the Universe's picture

This is VERY unrelated. Classical ZH format.  I'm looking to meet people, specifically people for a relationship, who are awake, and aware.  but in the m'fing land of m'fing muppets, its like I'm looking for a needle in a haystack.  Can someone whose beeen down this road offer me some advice?

Muppet of the Universe's picture

Hey man.  If you have skype add me 'pacobrahson'. kk?

flacon's picture

If you tell me that 'stawks' are going higher from here I think I'm going to chew my hands off. :P

underman's picture

Ballard sees more monthly QE.  $100B???

knukles's picture

And Ballard's one of the few partially sane ones left!

Croesus's picture

@ Muppet of the Universe:

Most women who are actually aware of what's going on are usually saddled-up with some dumbass who isn't. My last serious girlfriend was an example of someone who had a clue about what was happening, but was more concerned with her social life, as opposed to gardening, or anything of any real use in a SHTF scenario.

Long Amish Dating!

Muppet of the Universe's picture

How did you meet this person?  Random encounter?  through another aware friend?  why isnt there a dating site for non-dumbasses?

Croesus's picture

@ Muppet ot Universe:

I met her in a local bar downtown; I don't know how old you are, but you can't approach ANY woman with: "OMFG, We're ALL FREAKIN' DOOMED"......nobody wants to hear that shit.

Just feel them out, nice and slow. One of my strong points in life, is being able to "read between the lines"; the point is, if you're trying online, on one of those dating websites, read the profiles for clues:

Useful skillsets in TEOTWAWKI are good clues. In other words, the "quiet/shy babe" who likes to read a lot, likes gardening, camping, cooking, quiet evenings at home.

The people who prefer "quiet evenings at home" are usually that way because they're disgusted by the overall lack of quality dating material that's out there. (and that's true in the case of both men and women)

Put yourself in their shoes: Most of the "men" women encounter are: whiny, lazy, addicted to- video games, sports, drugs, alcohol, and generally obsessed with dumb shit. They want someone like Daddy, not a clueless dumbass. 



ultimate warrior's picture

 but you can't approach ANY woman with: "OMFG, We're ALL FREAKIN' DOOMED"......nobody wants to hear that shit.

Well that explains a wonder I'm single. 

Croesus's picture

@ Ultimate Warrior:

HAHA, I can't write that approach off completely....what if you were trying it on a girl who's in a Doomsday cult? It might work on one of them....


Maos Dog's picture

Look at the bottom of your screen. ZH has chatrooms, and I have met some nice people there already. Never met any of them in real life yet though. 

ShrNfr's picture

If you are into anal sex as a bottom, Bernanke might be available if you email him.

Croesus's picture

@ ShrNfr:

The Bernank is busy with the American People. Getting your money out of the system, and buying various metals are essentially the same as hanging an "Exit Only" sign around your ass, in this sense.

Savyindallas's picture

Bernanke likes Gerbils up his ass. That should be illegal-but Gerb-anusist lobby is very powerful.  

Michelle's picture

Muppet, I think you dated one of my friends. She isn't clueless but thought that you were just a bit too intense for her but thought very highly of you in the physical realm. Most people aren't looking for someone to change their reality and finding like-minded souls may mean hanging out at the shooting range or similar venues that attract the type of person you're looking for. As for facing the worst, maybe some people just figure that they just don't survive. Few people will, that's a certainty.

Muppet of the Universe's picture

Why would you say you think you know me?

Michelle's picture

Paranoid? No, I don't know you but you remind me of my friend's ex-boyfriend that was a big time prepper and had every detail worked out, with the exception of how he could get to his sustainable bunker located over 100 miles away with short or no notice. Nice guy but believed he could survive. The bigger question is, why would you want to if things got that bad and had to face life and death situations almost daily? That kind of existence would suck and the only ones that would survive are the unsavory types anyhow.

Muppet of the Universe's picture

I know.  I just wanted to find someone and leave 'civilization'.

Kirk2NCC1701's picture

What MFer bought up the Precious Bullion, when I went to get moar cash!?

Bullion dealer tells me it was "The usual suspects, who love it for jewelry."

Kirk2NCC1701's picture

In the same Rickards blog (, in his interview with Kitco ("Roubini Doesn't Understand Gold"), Rickards examines Roubini's six-prong analysis, which is the premise of Roubini's call for $1000 gold and further significant price drops...

$1000/oz?  Whatever.  They can, and probably will drop the paper price of AU even lower, but the street price for bullion will be set by supply/demand and pipeline margins.  In other words: They can drop it to "$20/oz", but good luck at getting it.

Case in point:  When the PM price was whacked last Monday, PM bullion was still available on Thu in the established shop near me.  Since then, it's all on "back-order only", with 3-4 week wait times.

Midasking's picture

Rising Rates will blow this fake economy sky high and take the currencies with it... welcome to the inflationary depression..

Belrev's picture

Is this supposed to be an analytical artical? What am i missing?

What if stocks really plunge, beyond correction, where will bond yields go?

Seems like recent bond sell off is just margin calls liquidations, once it's over, bond prices may go back up.

fonzannoon's picture

This article is what brought me here. Market based analysis. I miss it. It's too bad we are just arguing whether the to pull the plug on the braindead market or not. No real chance of reviving it.

Non Passaran's picture

In order to rescue the free market, we had to destroy it...

Hope PMs stay low or lower until next paycheck...

YC2's picture

Since you edited, I do agree with the second half. If yields rise we will have Armageddon, so I am inclined to believe equity takes any hit coming

However, you don't find this useful? It's intuitive but always good to confirm empirically.

Belrev's picture

I was opening this page hoping for a long and well written analysis to give me some insight. Instead I get some chart and a sentence.

RockyRacoon's picture

Slow news Saturday -- a space filler.  I see about as much correlation here as sneezing and shitting one's pants.  Sometimes ya do... sometimes ya don't.  Other factors must be considered to develop true correlations, like how many burritos you inhaled the night before.

"Bonds Vs Stocks - What Happens Next?"  Depends.  (Pun intended.)

knukles's picture

One of my golf buds ate a "breakfast" burrito yesterday on the third or fourth hole and by the back nine was looking for a log to hang himself over.  Never seen anyone waddle so quick in my life.
As you say Rocky, Correlation is not Causation.
But then again, Seattle's Best, Detective Holder would say; "Damn Linden, you lookin' that pretty with no man, yo?"

The shit hits the fan, margin calls get spiked, economy is weak enuf like little bee stings cause anaphylactic shock, world markets they collapse and all's the central banks knows is to rally stocks and lower rates.
How many bonds they not gonna buy when they gotta essentially monetize everything not walkin' upright?
Bonds will rally.
Try Japan March 2006 announce end of QE.  10 yr JGB qt 0.5% goes to 1.91% and now back to 0.8% after they've recently backed up, too.  Decent paradigm for Liquidity Trapola.


"Damn Linden, you lookin' good, momma"

fonzannoon's picture

We just entered the next phase. Bonds rally a bit next week but not much while stocks get beat up.

The trend for yields is still higher. Not enough to have a ton of fun shorting. But noisy enough to kick everyone's ass a bit in stocks and bonds this summer.

RSloane's picture

For me right now, the only question is where are the yields headed. I think we will know in the next couple of weeks what the channel trajectory is and our position on it. I responded to you in the other thread re PIMCO and the 'bond kings'. I'm going to be watching them like a hawk.

valley chick's picture

Agree RSloane.  In a normal environment I would have looked at the fundamentals but not anymore. 

fonzannoon's picture

I will be watching them with you RSloane. This could go either way.

sorry for missing other post. out and about right now. will check back later. enjoy the day.

Ribeye's picture

The Kung Po Credit Crunch happens,

That's what,

tryinsohard's picture

Bonds rallied?  Or were propped up.

falak pema's picture

two for the see-saw?

Wanton1's picture

What we've got here is a tribe of inbreed reptiles with a manic craving for property, power, and control.

This tribe is determined to have front row seats at the last battle for human survival. 

After most of the birds, fish, animals, crops, atmosphere, and people are gone, these reptiles will slither undeground and devour each other.

Spastica Rex's picture

At least you give hope for a happy ending.

knukles's picture

When I wake up once in a while I see the Lizard People, too.
They're everywhere till you wrap yourself back in the denial again, for safety's sake.
Red pill's the bitch, bitchez.