The Most Reliable Stock Market Indicator - Investment - Stocks and Bonds


There are many more serious issues facing the economy in the coming

months that I don't think any amount of fiat dollars will help. Seven

million unemployed, rising foreclosures, a bankrupt FDIC, FHA under

water, residential"option arms" reset in 2010, 59% of prime mortgages

in some stage of forclosure, $3.5 trillion Commercial real estate is

collapsing, $12 trillion national debt and $50 trillion unfunded

liabilities (medicare, medicaid, Social Security). these problems are

not going away.If you want to know the direction of the S&P or the markets in general,

watch the direction of interest rates. When rates move higher it makes

business less profitable, prevents business investment, job creation

and generally slows the economy.

One of the best gages of an interest rate increase is the TLT (ETF,

Lehman 20 year Treasury Bond) and the LQD (coporate bond ETF). The TLT

below 90 and the LQD on a move below 103 are warning signs that rates

are moving up and should be headed. Rising interest are a leading

indicator so there is sufficient time to position for a sharp decline

(I would also want to see some type of technical confirmation).All asset classes are in competition for capital and money goes where

it gets the highest return. So, it can be said that dividend yields are

in competition against bond yields for investor's cash. When money

market yields are below the rate of inflation (like they are today)

money moves to metals. Because of the perceived inflation (money

printing) building in the economy the only protection is in

commodities.With the S&P index trading @ 29 times next years earnings and the

Wilshire 5000 @ 30 times and yielding less than 2%, there are no more

bargains in the stock market. A 10% unemployment and a housing market

that won't recover for another 6-10 years, the market has risen on the

wings of cost cutting and government bailouts. Stock market dividend

yields must move above treasury yields in order to attract investment

capital and the only way for that to happen is for the stock prices to

fall. If the yield on long dated treasuries rise, stock prices will

fall proportionately to increase their yield and attract capital from

the bond market.





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