Jul

6

The cross classification of moves in interest rates and stocks are always fascinating, always a web, but always changing. In the last several weeks, the bonds are way up, and the stocks are way down. As a foundation for considering these changing webs of who eats whom, and who must even out one's positions, and how they do it, I looked at a 4 by 4 classification of bonds and stocks during the same period ( no forecasting and no lags) with following results over last 2 1/2 years, the times when cronyism has been influencing the food web the most.

Given a big rise in stocks , the concurrent bond moves are evenly distrtributed. For a big decline in stocks, the concurrent bond move was 2.5 times as likely to be a rise as a big decline.

I also note there were an equal number of big rises in stocks as big declines, in a period when stocks roughly declined by 40%. This shows that given that there was a big move in stocks, the big declines were much more severe than the big rises.


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8 Comments so far

  1. Michael F. Martin on July 6, 2009 2:13 pm

    Suggests a slowly driven interaction dominated thresholding in stock rises — like earthquakes, there is slow dynamical process that results in price increases and a fast dynamic process that takes hold (infrequently and suddenly) inducing relaxation.

  2. Anton Johnson on July 6, 2009 6:06 pm

    Test: S&P 3-week weekly close direction = DDD and concurrent US 10-year T-Bond yield= DDD

    Data range 01/02/1962 – 07/03/2009.

    All results are for S&P

    Stats for 2-week Period T+2 through T+3 when test conditions are met
    N=33
    UP=69.7%
    Mean R=1.42%

    All periods when 3-weeks S&P = DDD, irrespective of T-Bond yield direction.
    Stats for 2-week Period T+2 through T+3
    N=273
    UP= 57.5%
    Mean R=.37%

    Random Expectation 2-week period
    UP=58.3%
    Mean R=.30%

  3. Gangineni Dhananjhay on July 7, 2009 9:41 am

    Yesterday,July06,2009 is a big day in Indian markets. Union Budget is announced by the Finance Minister with harmonic moves in bond and equity markets. Bond yields shot up on fears of heavy government borrowing with stock market Index ( NIFTY) going down by 6%. Whatever proximate causes journalists and amateur observers of markets may ascribe this fall, readers of this forum can see the beautiful harmony. Coincidentally , yesterday I am searching and reading this site for posts on economic announcements. I have noted down many summaries of articles including

    1. Deceptive rallies and declines just before a pending economic news announcement.
    2. Disruptive move just before the release of economic announcement
    3. Decoy signals
    4.Unleashing the weak from their positions

    The movement in Indian Stock market exemplifies all the characteristics described above.

  4. Craig Bowles on July 8, 2009 7:26 am

    Leading inflation indicators picked up and are outpacing the economic indicators in the ISM surveys. I do an index that includes the services indicators and it moved positive in June and is increasing similar to the leading economic index rather than lagging as normal. Yen has the most economic support now with Japan long leading indicator strength and strengthening leading inflation index. Stocks do best with weak leading inflation indications and individual investors showed a big jump in their allocation to stocks. It was the biggest jump in allocation since June 2003 after the market had already had a retest. Growth rates show individuals have corrected the huge push into cash and bonds from stocks. While 57% stocks is below the normal 70% worry mark, it seems individuals are moving a little fast into stocks. The 2002-2003 market recovery saw individuals stay close to 50% longer.

  5. Christopher Tucker on July 8, 2009 11:24 am

    The only way to trade is the way that is right for YOU. Yes, some people need the harsh analysis, that is how they think, that is how they work. And I think Mike Martin's comment exemplifies the cross pollination ideation that is the mantra of this group.

  6. Anton Johnson on July 8, 2009 11:58 am

    Perplexed pseudonym spews vulgar rubbish.

  7. vniederhoffer on July 8, 2009 4:10 pm

    Yes, as always Mr. Martin is sagacious, Mr. Johnson's comments are beautiful and valuable and one will remove the source of [their] disennui. vic

  8. douglas roberts dimick on July 8, 2009 10:45 pm

    Crime Scene Integrity Considering one's assumption… "the times when cronyism has been influencing the food web the most." True, the Clinton-BushII Era of quasi-governmental political-economic degradation "may appear" to (initially) apex these past 2.5 years. However, analysis of the rules-based derivations — therefrom seeding and harvesting that "food web" for the primary perpetrators — leads us back to Clinton's delegation to R. E. Rubin, who in 1997 "strongly opposed" regulation of derivatives along with Greenspan — some ten not two years ago. During the final hours of the Clinton Administration, with one foot still dragging within Treasury and one implanted onto his new helmsmanship at Citigroup, Rubin repealed Glass-Steagall. These two acts, perhaps as much as the ensuing (en toto) "hands off" approach of GW for (non)regulation of markets, fueled the feasting of traders and investors during years preceding our crisis. What is the 2.5 year demarcation so implied with one's statistical classifications? Albeit this ripeness issue (or the "food web" being moot in that the real offenses occurred some ten years ago), the current market gestation within the smorgasbord of "flavors of the favor" perhaps defies like-kind digestion similar to a curry rice dish. dr

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