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Thursday, May 1, 2014

Stocks vs Bonds

I was talking to a friend recently about TLT.  We were in agreement that TLT looked bullish.   However, we were in a disagreement about how that would affect stocks.  My friend thinks it would be positive while I think it would be a negative.  I think his reasoning is that low rates are just plain bullish.  My reasoning is two fold.  At this juncture falling rates means weakening economy which seems unlikely to be good for stocks.  The other reason is past behavior.  Check out the monthly chart of SPX vs TLT.

I connected the significant peaks and valleys of TLT with blue lines.  I marked the same time periods in SPX with yellow lines.  Is it my imagination or is the reality that when TLT trends higher SPX usually trends lower?  There are a few periods in time where they move up or down together, but those tend to be of short duration.  We currently seem to have that situation.  How long will it last and will one of them reverse?


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