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Strategies & Market Trends : Bonds, Currencies, Commodities and Index Futures -- Ignore unavailable to you. Want to Upgrade?

To: Casaubon who wrote (8067)	10/16/2005 8:41:27 AM
From: vixson	Respond to of 12411

The answer is, 'sometimes.' :>)

To: Casaubon who wrote (8067)	10/16/2005 9:01:45 AM
From: Moominoid	Respond to of 12411

The common factor obviously is interest rates which if they go up, tend to push down both markets all else held constant. It is the earnings factor in stocks that can break the correlation. For large sharp interest changes they are likely to fall too... but other things can happen.

To: Casaubon who wrote (8067)	10/16/2005 9:07:53 AM
From: GROUND ZERO™	Respond to of 12411

From what I've seen, there are forces that drive these makets separately and individually, sometimes in the same or different directions... for example, there are those circumstances when economic conditions are negative due to concerns about inflation that bonds might weaken while stocks continue to rise, for a while anyway... the reverse is also true, that there is less concern about inflation, so we might see a bond rally while stocks would seem to falter due to a slow down in the economy... I'm no expert, as some lurking misspelled indian might claim to be himself, but this is what I've seen regarding your question... GZ

To: Casaubon who wrote (8067)	10/16/2005 8:34:25 PM
From: Real Man	Respond to of 12411

A sharp rise in bond yields will produce a train wreck in the economy, imho. It nearly did already, 3 times since 2003. This happened in June 2003, April 2004, April 2005 (GM & F), and now (Refco). Interest rates are the key 500 Trillion dollar derivative market. That's where all the money came from to stop severe bear market in 2002. Every time that market stumbled it was saved by extremely active printing done by the Federal reserve, printing that immidiately spilled out on other asset markets, such as stocks, causing a rally. The bond market therefore believes that the Fed will always be there to save the speculators. Eventually, I believe, 500 Trillion dollar Notional Value (now 9 Trillion real value) derivative market in bonds is bigger than everything on this planet, and extremely prone to blowing up, since the leverage in case of JPM alone is 1000:1. In a such a blow-up, stocks are likely to decline much worse than in 1930-32, and a lot faster. Most likely, it will not be allowed to happen, and the bad OTC derivative trades will be kept under the rug out of public view.

To: Casaubon who wrote (8067)	10/16/2005 9:03:16 PM
From: TFF	Read Replies (1) \| Respond to of 12411

The Contrarian - Coffin Spiral David Dreman, 10.17.05, 12:00 AM ET Military pilots call it a "coffin spiral"--when their plane is so out of control that they can't recover. That's the situation today for long-term bonds, those with maturities over ten years. The reason is that a killing turbulence of inflation is on the way, pushing bond yields up and prices down. The first sign is energy's rising price--filling up the tank is twice as expensive as two years ago--and that affects all corners of the economy. Thousands of companies are about to suffer. Higher fuel costs jack up the price of doing business not just for obvious consumers like Delta and FedEx but also for thousands of other operators, from lawn cutters to aluminum smelters to pizza delivery guys. With unemployment now below 5%, companies will also find pressure to raise wages to keep their commuting workers whole. Don't expect the current oil spike to be short-lived. History demonstrates that high oil prices do not fall quickly. During the 1973-74 embargo, oil reached a peak of $42 a barrel (adjusted to 2005 dollars), spurring double-digit general inflation and a painful recession. By 1975, with the embargo a memory, oil prices fell only 7% from their peak and stayed in this sharply higher range for the next five years. After the second oil shock in 1979-80, oil's price hit a new high of $98 (again, in today's money), dropping only 12% a full year later. Long Treasurys saw yields break 15%. Nowadays conditions are worse, not better. Both the 1973-74 and 1979-80 oil shocks occurred when supply was abundant. That is, spigots were being turned down in a manipulative way. That no longer is the case. Demand for oil and gas has fully caught up with available supply. Disturbingly, the world's oil and gas reserves continue to be depleted. Demand has far outstripped new discoveries for the past 19 years. Given the increasingly sophisticated discovery techniques employed in the last ten years, it is unlikely that huge new finds are out there awaiting drilling. Of the 20 largest fields in existence today, the last significant find was in 1979 in Tengiz, Kazakhstan. Even before the hurricane onslaught walloped the Gulf Coast's refinery system, U.S. oil-refining capacity was stretched badly. Since the early 1980s domestic refining capacity fell 10% to 17 million barrels a daily, while consumption increased 33% to 20.8 million barrels. The last large U.S. refinery was built three decades ago. Smaller, less-efficient units were closed down because of low returns and tougher federal pollution standards. Getting the necessary permits and constructing a big refinery takes ten years, so the situation is not likely to improve soon. Buyers of long bonds are living in a fool's paradise. The 10-year Treasury, at 4.2%, trades near its lowest yields in 40 years. Buying these makes little sense. With inflation, including energy costs, running at a 3.6% annual clip, your real yield is down to 0.6%. Add in taxes and your bond income is negative. Under the circumstances it is quite plausible that the interest rate on the 10-year Treasury will climb a percentage point, causing the bond's value to immediately fall 8%. A 30-year Treasury would fall 16% in value. What to do? Keep the bulk of your money in blue-chip stocks, which inflation likely won't harm, and the balance in short-term bonds (those due in a year or less).