Continue reading...In the first part of this article Return of the Bear – Part One we looked at secular patterns the stock markets move in and the current state of the Bull Market.
The Monetary Background I?ve always believed that the ?rate-of-change? (ROC) of interest rates is more important than the actual level of interest rates. If levels are so important, how can one explain the extreme economic weakness in the 1930?s when rates were in the basement compared to relative prosperity in the 1970?s and 1980?s when rates were in the stratosphere?
caption: Chart 8. Vertical lines show when ROC crosses above +30, stocks become more risky.
To prove this point, Chart 8 compares the annual change in the level of the Discount Rate to the S&P Composite. The vertical lines show that when the ROC initially moves up to the +30% level, this almost invariably spells trouble for equities. The only exception we can find going back...
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