David Neubert Homepage

I always enjoy historical graphics comparing historic market crashes to similar chart formations in the present. Usually an author predicts an impending repeat and the market disaster nearly never happens in the same way.   Such comparisons are always interesting, usually educational but all too often they miss scale or only pick up on a few of the many factors the precipitate a major market shock.  In this case worth reading, US Market Blog writer Eddy Elfenbein submits that one of the classic signs of an overheated stock market are rising interest rates and rising gold prices.  He compares charts before the 1987 market crash and now. 

His warning that rising gold prices together with rising interest rates is a bad sign should be heeded. But these price movements are not the alarm of an approaching crash they are a forewarning of inflation.  Inflation is never good for the stock market when it starts, and if the Fed really puts the brakes on the economy by raising rates fast there could be a long and big market decline.  But a stock market decline is a secondary consequence.  His point that money is leaving bonds for gold is an interesting one but not exactly correct.  The world is awash in paper assets due to an excess is savings.  Thus, excess money is driving up the price of every store of value. Eventually, all this excess will play out in more inflation and that is what the gold and bond markets are predicting.

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