Market Anthropology: Magnetic Fields

Monday, March 12, 2012

Magnetic Fields

As many of us try and grasp the ever growing divergence/conundrum between the equity markets and the Treasury market, I went off on a tangent and created a chart exhibiting the correlation “pole reversal” that took place between the SPX and 10 year yields after the 1998 sovereign debt/LTCM crisis. In essence, stocks went from being anchored by an inverse correlation to yields to a positive correlation. The reversal neatly marks what many perceive to be the break point of the secular bear market our brave monetary handlers continue to fight today. 

If history rhymes, whereas the bust is commensurate with the boom – we may need to find two additional dislocations before we are truly free of this bear’s grasp. 

With that said, file this firmly in the theoretical cycle files – although I suspect that goes with most work attempting to explain the Treasury market these days. 
Extending further out on the theoretical continuum – by coincidence or design (the age old question), one can interpret the above chart as having a north to south correlation polarity and a mirrored distribution from east to west of 1998. 
Interestingly, each number corresponds to roughly the inverse balance of its mirror. Think Pangea.

As always – stay frosty, and remember intervention or not – the very long term chart of yields still point to a lower low sometime in the years ahead. This of course would dovetail into the charts above and remind us all that as mighty as our monetary handlers resolve appear at the moment – it is in fact Man versus Nature in the end.