"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 13 hours The FANG Stock Investors Should Avoid
  • 2 days Is This The Death Of The iPhone X?
  • 2 days Is London Still The Financial Capital Of The World?
  • 2 days Is Gold Staging A Comeback?
  • 2 days The $200 Million ‘Golden Parachute’ For Rupert Murdoch
  • 2 days Bitcoin’s Breakout Is Not As Bullish As it Seems
  • 2 days Farmers On Edge As Trade War Hits U.S. Grain Shipments
  • 2 days Is Silver Poised For A Massive Break Out?
  • 3 days Meet The Hedge Fund Billionaires Club
  • 3 days The Next Housing Crisis Could Be Right Around The Corner
  • 3 days Cartel's, Pirates And Corruption Cost Mexico $1.6 Billion Per Year
  • 3 days Africa’s Fastest Growing Economy
  • 3 days The Blockchain Boom Hits The Utilities Sector
  • 3 days Why Smart Money Is Selling Off Right Before The Bell
  • 3 days Tech Giants Rally Ahead Of Earnings Reports
  • 4 days Global Debt Hits 225% Of GDP
  • 4 days The World’s First Trillionaire Will Be A Space Miner
  • 4 days How Student Debt Could Cause The Next Real Estate Crisis
  • 4 days This $550 Billion Industry Is Betting On Bitcoin
  • 4 days One Commodity Set To Soar On Russian Sanctions
One Commodity Set To Soar On Russian Sanctions

One Commodity Set To Soar On Russian Sanctions

The recent sanctions on Russia's…

Oligarch Risk: The New Red Flag For Investors

Oligarch Risk: The New Red Flag For Investors

Investors are scrambling to diversify…

Dancing with Gorillas and the Yin and Yang of Yields

As yields continue to move with all the grace and gentility of your average 800-pound gorilla, we thought we'd revisit our Pole Reversal chart we occasionally reference from time to time to see where things line up.

For those not familiar, the chart below presents the correlation reversal that took place between equities and 10 year yields after the 1998 sovereign debt/LTCM crisis. In essence, stocks went from being anchored by an inverse correlation with yields to a positive correlation. For some, this time period also represents the first salvo in a secular shift in the equity markets from long-term bull to bear.

Extending further out on the theoretical continuum, one can interpret the chart below as not only having a polarity shift, but also an offset mirrored distribution of the negative correlation cycle prior to the summer of 1998.

Pole Reversal 10-Year Yield versus S&P500
Larger Image


Think Pangaea - just with a fold along the July 1998 divide.

The interesting thing from this perspective is that the current run-up in yields would be the cycle equivalent of the blowoff in 87' where yields spiked then recoiled after the equity markets crashed. Although we have been quite impressed with the stock market's resilience to date in the face of rising yields, the apple cart might have some trouble handling another rapid move.

Judging by the now coiled symmetry of momentum typically representative of a blowoff - that just may be in the cards coming through the fall.

TNX Daily Chart
Larger Image

While we're not calling for another 1987 style crash - the continued rise in yields is the 800-pound gorilla waltzing in the room that everyone continues to stare at.

So far she dances pretty well with the music.


Back to homepage

Leave a comment

Leave a comment