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     May 5, '14


CREDIT BUBBLE BULLETIN
The gathering storm
Commentary and weekly watch by Doug Noland


How long can the markets ignore Ukraine, Russia and China? After beginning 1987 near 104, the US dollar index dropped almost 10% in nine months. From 7.5% in late-March 1987, 30-year Treasury yields surged more than 270 bps in seven months


to trade as high as 10.22% in early October.

During this period of currency and bond market instability, stocks set off on a fateful speculative run. At record highs in late-August 1987, the S&P500 enjoyed a year-to-date gain of 39%. This spectacular rise was more than wiped out over a two-week self-off that culminated on "Black Monday", October 19, 1987.

Back in 1998, an increasingly exuberant US equities marketplace was happy to ignore mounting risk of a Russian collapse ("The West will never allow Russia to collapse"). From January '98 lows, the S&P500 rallied 30% by early-August to a new record high. Completely ignoring the unfolding crisis, the US bank index (BKX) rallied 40% off of January lows to trade at a record high on July 17, 1998. But as the Russian and LTCM crisis erupted, the bank index fell 43% from July highs to October 8, 1998 lows.

More ...

Doug Noland is a market strategist for the Prudent Bear Funds.

(Republished with permission from PrudentBear.com. Copyright 2005-2014 David W Tice & Associates. All rights reserved.)






 

 

 
 



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