There's a correlation between the 10 year US Treasury and the S&P 500, which represents the 500 largest US companies. Prior to 2008 they moved in tandem when graphed against each other. Take a look at the graph below from 1999 to 2008.
You can see that the orange line tracks the black line very well for much of the last 10 years up until 2008. This was when quantitative easing started. Quantitative easing artificially inflates the price of stocks (along with most everything else) since the stocks are priced to reflect the new, lower valued US dollar.
Since that point the two lines diverge. The question is, when will they re-converge? And will it be because interest rates are rising or because the stock market, represented here by the S&P 500 index, comes down? Its an important question because if rates are held down by the Fed through continued through operation twist, then the index needs to fall from 1,400 to 400!!!
You may recall from my previous post, Three Graphs Explaining When to Dump Gold and Buy Stocks, that I am looking for the Dow/gold ratio to decline to close to 1:1. What these two concepts have in common is that US stocks, whether represented by the broad index of the S&P 500 or the more narrow index of the Dow, will have to decline for these to ration to "revert" back to normal in the case of the US Treasury and to complete an 18 year cycle in the Dow/gold ration.
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