Eighty Seven and Two Zero Zero Seven

Today's FSO Market Wrap is a must read for all. Market commentator, Ryan Puplava has written a wonderful piece called, Revisiting the '87 Crash

• All of the events in 1987 (Japanese and US stock bubble, higher commodity prices, cheap bonds creating high interest rates, falling dollar) created the market crash in 1987. I would say the highest contributor had to have been a US government bond yield of 10%. How does the 1987 market crash resemble our current market today? You’re probably already linking some of the traits I see in the market today: over-exuberance in the Chinese stock market, rising commodity prices, a falling dollar, and rising interest rates.

Spooked? Ryan's closing remarks.

• All the buzz this week has been about falling bond prices. The higher rates caused by the fall in bond prices have helped shake stock investors a little and propped the dollar higher. Bond prices are oversold and a rally is a high probability from here. The head and shoulder pattern in the 30-year US treasury bond has resolved itself with a price target of 105 from the neckline at 110. Even with a yield over 5% in both the 30-year and the 10-year bond, we’re in a period of relatively low interest rates. The problem, of course, is that the U.S. is a lot more susceptible to a housing market decline with a lot more double mortgages and a lot more adjustable rate mortgages today than in 1987.
  
  The trend thus far this year has been an economic environment consisting of explosive growth in the Chinese stock market, rising commodity prices, falling dollar, and falling bond prices. Some of that looks to be reversing this month as the Chinese market has weathered a second significant correction. In addition, commodity prices (except for energy) have corrected and interest rates have made a break for higher ground. I feel that it’s too soon to make any bearish or bullish predictions over stocks, commodities, or bonds. It does look however, that China’s government is taking steps to apply the brakes to speculation in their stock market, and those steps could reverberate through commodity and stock prices.
  
  Mark Twain said that history doesn’t repeat itself, but it does rhyme. While today may not be repeating the ’87 crash, this year is starting to rhyme like it.