Stocks and Bonds Rising...Really?

confused stock traderOne thing is for sure, history shows us that stocks and bonds tend to run as an "inverse relationship." However, as of lately, we have seen the phenomenon of both stocks and bonds running in the green. The idea is very perplexing when breaking down the fundamentals of each of the investment strategies. Bonds are looked upon as a more conservative play and get more attention during "distressed" times where speculation grows in the stock market. Stocks tend to flourish when economic outlook is strong and people are looking towards riskier investments for larger potential returns. These conditions tend to rarely coexist, so to see success with both instruments brings many questions.

My first belief is manipulation. Readers of this site know of my strong belief in market manipulation. I believe there has been billions, if not trillions, of government funds thrown into the market throughout the past several months. On top of that, we know that The Fed continues to be, by far, the #1 buyer of US Treasuries and has been very active in buying them lately, despite the record amount of debt the US Treasury has been issuing. On top of that, stocks continue to rise, despite record amounts of insider trading, which is usually coupled with a downward trend in the market. With this government intervention, we are seeing both markets get love.

With manipulation, another factor that is contributing to this phenomenon is the weakening dollar. Considering the dollar is very appealing to foreign investors, we are seeing a lot of shorting of the dollar, due to increased concern of its weakness. As The Fed is expected to keep interest rates at basically 0% during the upcoming meeting, some feel the strength of the dollar remains at risk. Usually, such a result would also bring down gold and other commodities, but that relationship has also been terminated.

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It is evident that the market is moving at very abnormal levels. I do not expect this to continue for long. By the way, the last time we saw such a phenomenon in the stock market was during the early 90's, which was during one of the worst real estate recessions since the Great Depression. We also so that time period followed by a spike in interest rates. Indeed I see those same problems heading right for us. Happy Trading.


  1. Anonymous Says:

    FF. What evidence or date do you have to support the Government intervention of equities. I would love to believe you and find many trading days very strange even before the rally got really going, but need some evidence to consider.Hard to believe the Government would have hundreds of billions or trillions to buy S&P's. Also would not someone have found out about this by now, if this is true. Love to hear your thoughts.. One thing for sure stay out of the way of this thing for now. November and December Puts are cheap though.

  2. Anonymous Says:

    I don't buy into the theory of gov't manipulation of the equity markets.

    However, he's right on about treasuries - the fed has been buying these like crazy as well as FNM and FRE mortgage-backed securities. The money allocated for this activity is about to run out. Will be interesting to see if the program gets extended or not.

  3. Finance Fanatic Says:

    Government intervention remains a "theory" as of course, tangible evidence would be severely damaging to the investment markets. However, I have enough friends involved in market movers whom are completely convinced that government manipulation exists. The PPT is a belief that has a lot of evidence to back it up, and because of what happened during the Great Depression, I would believe the government is very careful.


    Bonds are overvalued