Top Secret - Secular Shifts

By: Erik Swarts | Wed, Jan 11, 2012
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Top Secret - Secular Shifts

Last spring, the early 1980's drew my attention - primarily because of the comparative price structures of the secular low made in the U.S. dollar and the secular tops made in the precious metals markets. Further comparisons can be made to today of the impact a strengthening U.S. currency had during the 1980-1981 time period that structurally broke the CRB Index from its cycle high and had a negative impact on the equity markets for the better part of 1981 and 1982. This was also the time period where the interest rate cycle peaked.

In essence, the equity markets were range bound for more than two years while very large secular shifts were made in the currency, commodity and interest rate environments.

Sound familiar?

Look familiar?

US Dollar and Silver

SPX 1980-1982

SPX and CRB 2010-2012

And while we are currently on the flip side of the interest rate cycle, a similar reflexive impact will be felt as market participants grapple with what a change in the longer term interest rate paradigm will mean for asset prices going forward. History shows us that tops in the rate cycle are much swifter pivots, while lows have been more of a trough transition from low to higher yields. It would appear to me that it is not as clear cut as rising interest rates are necessarily bad for equities while declining rates are good - in as much as it is the change itself.

Government Bond Yields and Commodities 1800-2012

Clearly, this early 1980's transitional period had a strong influence on the movie Top Secret - which came out directly after these shifts. I believe they explain the anxiety well:

"Things change, people change - hairstyles change...interest rates fluctuate - who knows?"



Erik Swarts

Author: Erik Swarts

Erik Swarts
Market Anthropology

Although I am an active trader, I have always taken a broad perspective when approaching the markets. I respect the Big Picture and attempt to place each piece of information within its appropriate context and timeframe. I have found that without this approach, there is very little understanding of ones expectations in the market and an endless potential for risk.

I am not a stock picker - but trade the broader market itself in varying timeframes. I want to know which way the prevailing wind is blowing, where the doldrums can be expected and where the shoals will likely rise. I will not claim to know which vessel is the fastest or most comfortable for passage - but I can read the charts and know the risks.

I am not a salesperson for the market and its many wares. I observe it, contextualize its moving parts - both visible and discrete - and interpret.

I practice Market Anthropology - Welcome to my notes.

Erik Swarts is not a registered investment advisor. Under no circumstances should any content be used or interpreted as a recommendation for any investment, trade or approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This is strictly for educational and informational purposes only. All opinions expressed by Mr. Swarts are subject to change without notice, and the reader should always obtain current information and perform their own due diligence before making any investment or trading decision.

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