I find this chart striking considering the tremendous negative sentiment coming from all angles. Wouldn't most people argue that the U.S economic condition is worse than abroad? Why is the Fed lowering interest rates at the fastest pace in its history while the ECB has kept rates at current levels? What does the bond market know that the stock market doesn't? These are all extremely interesting questions.
The graph comes courtesy of Bespoke Investment Group and they make the interesting comment that decoupling indeed seems to be playing out but in reverse.
Here are my thoughts:
1. We are in a consolidation/bounce phase of a longer-term downtrend in U.S. equities
2. The ECB will be forced to lower interest rates as recoupling with the U.S. becomes apparent. This is USD positive. Add that to the fact that inflation concerns (one of the main drivers of the USD slide) are overblown. Deflation is a bigger issue in the next 2 to 3 years as housing prices fall 25% from their highs. I haven't double checked but I believe we have seen housing prices fall 11% thus far.
3. China, India, and Hong Kong clearly have had hot, fast money that left. What about Germany, France, Japan, and the U.K.? Why are their markets down significantly more than ours when they are in a comparitively better economic situation?
Interesting questions...Interesting times...
