Monday, August 16, 2010

Bond Market 1, Stock Market 0

Recently some have observed that the US stock market and bond markets have rallied together - an unusual condition. The Economist/Buttonwood blog wrote:
This reminds me a bit of the late 1990s when, as a tech sceptic, I wondered why the stockmarket kept surging to stratospheric valuations. Whatever the headlines the market went up. Good news on the economy meant profits would be strong while bad news meant that central banks would cut rates, and thus profits would eventually be strong.
Fast forward to 2010:
[T]he bond market is surely betting that the Fed's actions won't work and that Japan is the template; the equity market is betting that the Fed will be successful and the Goldilocks economy will return. 
Recall James Carville's famous comment that he wanted to be reincarnated as the bond market so that he could intimidate everybody - that’s because the bond market is usually right. In light of last week's market action and the appearance of the Hindenberg Omen, the bond market seems to have scored.

Incidentally, I see that Barry Ritholz at The Big Picture also commented on the stock vs. bond market tug of war by calling the bond market "adult supervision."

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