Ray Dalio’s “Big Debt Crises” discusses the correlation between short term Treasuries and stock market tops

by Power80770M

Ray Dalio’s Big Debt Crises (the cover of which looks like the market in the past week) says that the short term Treasury interest rate tends to peak a few months ahead of the stock market peak.

Here’s a chart showing 2 year Treasuries vs SPX in the 2000 crash. Ray was right – short term treasuries peaked just around the same time the stock market peaked.

Here’s 2 year vs SPX in the 2007-09 crash. It’s about 6 months from 2 year treasury peak to stock market peak there.

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Here’s 2019-2020. Short term yields peaked in late 2018, nearly 15 months ago. It looked like the market was going to collapse early in 2019, but instead it rocketed to all time highs, while the short term yield continued to melt down.

The discrepancy between the market and short term yields became enormous by January 2020, and now we can see they’re both crashing lower. Although we’ll probably rip higher this week (mainly to crush the put holders), I believe the bear thesis is fundamentally correct: short term yields have been pricing in a crashing economy for 15 months now, and stocks are JUST NOW getting the memo.

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Stocks will likely crash 50% or more by the time this is all said and done.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.

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