Historical Lessons

We have made it safe to invest in today's robust global economy by using our historical data for trend analysis. It is vital to recognize the major political and economic conditions that created trend changes during the Cold War years. The Cold War had a major impact on the business cycle in the US and Soviet Union which were both the world's major economic powerhouses. The following charts reflect the impact the Cold War had on the bonds, stocks and commodities market during the years markets peaked. This information is valuable for analyzing current trends.



The years between 1984 - 1987 reflect a political shift in the US. In October 1984 NASA's Challenger Space Shuttle exploded killing its entire crew and igniting a demand for US bonds. Furthermore, President Ronald Reagan's space program which aimed at starting a "Star Wars" (or space war) against Russia during these years of increasing tensions was brought to scrutiny. The chart shows the inverse relationship between the Commodities Index (CRB Index) and US Treasury bonds from 1985 through the end of 1987. In 1986, bond prices were rising and commodity prices were falling. The US failed to deter Russia from its planned economy. It is important to recognize the shift in politics from a "space race" to an "arms race". Meanwhile, crude oil prices, which had been in a freefall from $32.00 to $10.00, hit bottom and began to rally.

 


Since 1982 US bonds and US stocks were rallying together. However, both markets went through panic alert during 1986 because US President Ronald Reagan began looking like a lame duck president from the space race. Meanwhile, events in Germany kept US stocks rallying in early 1987. Consequently, in April 1987 the bond market collapsed forcing the US stock market to tumble. This highlights the leading indication of trend changes that the bond market has on the stock market.

 


This chart demonstrates the overall impact of the US economy during the peak of the Cold War. The US bond market crash in April of 1987 was a result of US President Ronald Reagan’s failed administration which was scrutinized by the space race. As a result, the Soviet Union led a trend change in the commodities market. The tolerable relationship between the bond and commodity markets was the main reason for the Cold War and remains in the spotlight.

Historically, the performance of the US stock exchange has set the global economy's market sentiment. This is the impact of the US dollar being the world's reserve currency. Thus, it is important to understand the historical relationship between US bonds, stocks and the commodities market to take full advantage of opportunities awaiting in today's robust global economy.