Business

Image via CrunchBase

Pundits are calling for a new tech bubble. 

IPOs are going off at the top of their ranges.  LinkedIn now has the highest Price/Revenue ratio of any company, anywhere.  At LinkedIn's valuation, Apple would be worth over $3 Trillion dollars.

So, clearly all is well in the financial world.  Right?

The Canary in the Coal Mine?

Greek stocks tumbled to new 14-year lows last week, as Greek bond yields rocketed to new all-time highs.

The risk premium says something.

The Daily Reckoning asks why investors are fleeing Greek stocks and bonds faster than a chambermaid flees an IMF Director’s hotel room? 

With tongue-in-cheek (and based on 'exhaustive' research), they conclude that investors prefer the securities of solvent entities over those of insolvent entities. But note investors cannot always differentiate correctly between solvent and insolvent.

So, will a worsening sovereign debt crisis in Europe harsh our mellow? 

Have the underlying conditions really changed?

Wouldn't it be great if a simple number told you whether it was safe to bet on the market going higher?

Crossing Wall Street posted a chart that suggests the stock market does very well when the monthly inflation rate is under an annualized rate of 5.3%.  Conversely, the market has done poorly in months when inflation is above that 5.3% annualized level.  The chart shows the the monthly return above and below that level of inflation.

The data goes back to 1871; and it is surprising how well this relationship has held up over 140 years. During this period, monthly inflation has been above the 5.3% annualized level about one-third of the time.

Wouldn't it be great if a simple number told you whether it was safe to bet on the market going higher?

Crossing Wall Street posted a chart that suggests the stock market does very well when the monthly inflation rate is under an annualized rate of 5.3%.  Conversely, the market has done poorly in months when inflation is above that 5.3% annualized level.  The chart shows the the monthly return above and below that level of inflation.

The data goes back to 1871; and it is surprising how well this relationship has held up over 140 years. During this period, monthly inflation has been above the 5.3% annualized level about one-third of the time.