BofA: “If Bonds Are Right, Stocks Will Drop Up To 20%”
by Tyler Durden
ZeroHedge.com
Jun 6, 2017
uickly skimming the front pages of the financial press in recent days reveals one recurring, and puzzling, story: the diverging and contradictory signals being sent by the bond (deflationary) and stock (inflationary) markets.
Attempts at an easy reconciliation are doomed to fail as this paradoxical divergence has stumped everyone, including the person who is allegedly in charge of the US economy, Trump’s top economic advisor, former Goldman COO Gary Cohn, who last week made the “embarrassing” admission that over the long run, the bond market – with its bearish signal – will be right. Recall the following exchange last Friday captured by Pedro da Costa:
CRAMER: What do you make of the fact that rates are going down so precipitously? Is it that trading partners keeping their currencies down and causing money to come here, or are the bond market right and we just saw a peak in employment and maybe even earnings?
COHN: I don’t think there’s a simple answer or a simple factor here, but remember the bond market takes a longer-term view of what’s going on. I think people are taking a longer-term view on our economy, our economy growth, and where they think policy’s going.
Also last Friday, Mohamed El-Erian noted just this “quandary”, and when referring to the divergence said “this (simple yet powerful) chart from @zerohedge warrants a PhD thesis in Finance”
The Rest…HERE
