Magnetic Fields

By: Erik Swarts | Mon, Mar 12, 2012
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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.

Pole Reversal - Correlation polarity between TNX.SPX
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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.

10 Year Yields (TNX) SPX
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Interestingly, each number corresponds to roughly the inverse balance of its mirror. Think Pangea.

inverse balance of its mirror

As always, stay frosty and remember that, 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.

10-Year Yields

 


 

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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TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/