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The Dow & Rising Interest Rates

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COMMENT: Between the early 1960s to 1982 the Dow was basing with an overhead resistance of approx. 1000. The prime interest rates during those 20 years varied from 5% to a high of 21.50% in 1980. In 1982, the Dow broke out. In eight years, the Dow increased ten fold while interest rates were declining. Then, the Dow resumed basing for ten years. Can you reconcile your statement that booms unfold with rising  interest rates with what happened during the period of 1982 to 2000? Rates did rise from 1975 to 1980. Did that rise unfold the 1982-2000 boom?


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REPLY: Your perspective is seriously flawed. The market based in dollar terms only. It did not crash with rising interest rates. From the international perspective, the US share market rose, it did not crash. When you look at the Dow in Swiss francs, you see the rally which is why there was no meltdown despite rising rates. Even the sharp correct into 1974 was mitigated by the rise in the dollar. You review is one-dimensional and that is what prevents you from seeing reality.


Your dates are seriously off. You ignore the fact that rates rose from the 1960 low into 1966 which was the first major high at 1000. Rates nearly doubled from 1960 into the second high 1968. Your very broad assessment is highly misleading.

The peak in rates was 1981 not 1982, and the low 1986. The breakout began when the ECM shifted from Public to Private in 1985. Rates began to rise from that point and the market exploded. Your analysis is questionable at the very best.

DJIA Earn-Book 1937-1982

The breakout in the Dow came with the turn in the ECM major wave starting in 1985. That was the beginning of the Takeover Boom for price relative to book value reached historic lows by the end of the Public Wave.

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The low on the 30 year bond (high in rates) was 1981 and the peak (low in rates) was 2012 – 31.4 years. That ended the peak in government and we have seen the 10 year crash this May and the short-end will be October. The Dow turned up with the ECM in 2011 and we warned it would make new highs. Barron’s even reported that forecast. Yet long rates have moved up and the 30 year bonds peaked starting their decline (rates rising) as the market rally to new highs.


The problem with your attempt to argue reveals your one-dimensional perspective and glossing over critical correlations and ignoring the complexity of the currency. The world economy is not as simple as traditional economists portray or the talking heads on TV. You must realize that both are the world’s worst analysts. It is like Einstein says. You cannot solve the problem with the very same line of thinking that has created it. This is WHY the majority must always be WRONG. They are the FUEL that propel the swing into the opposite direction.

So no problem. We always need someone on the opposite side to trade against. That is what makes it all work. Rising rates are a reflection of inflation for if they are not greater than inflation nobody will lend. You will see the negative rates now become the new peak in short-term and rates will then rise with inflation and so will share prices. With a rising dollar, foreign investors will be pouring into the States just as they did into Japan between 1987 and 1989.