Intermarket Analysis
Profiting from Global Market Relationships
Chapter One
A Review
of the 1980s
To fully understand the dramatic turns in the financial markets that
started in 1980, it's necessary to know something about the 1970s.
That decade witnessed a virtual explosion in commodity markets,
which led to spiraling inflation and rising interest rates. From 1971 to 1980,
the Commodity Research Bureau (CRB) Index-which is a basket of commodity
prices-appreciated in value by 250 percent. Bond yields rose by
150 percent during the same period and, as a result, bond prices declined.
Figure 1.1 shows the close correlation between the CRB Index and the
yield on 10-year Treasuries between 1973 and 1987. Long-term rates rose
with commodities during the inflationary 1970s and fell with them during
the disinflationary 1980s.
The 1970s were not good for stocks, either. The Dow Jones Industrial
Average started the decade near 1,000 and ended the decade at about the
same level. In the middle of that 10-year period of stock market stagnation,
the Dow lost almost half its value. The 1970s were a decade for tangible
assets; paper assets were out of favor. By the end o ... read full excerpt from Intermarket Analysis: Profiting from Global Market Relationships ebook
