Tuesday, December 13, 2016

Burt White, your statistical error is obvious

Burt wants to show a regime change when the ten year hits a boundary of around 5%.  But the is estimating an option price amid a trend, and he forget to adjust.  The ten year is down, continually since 1980, It would be normal for the ten year to drop as we progress through our monetary cycle. The new number is not 5%, closer to 2.5%, as is obvious, we are stuck there.

Market Watch: Burt White, chief investment officer at LPL Financial, made that point in a Tuesday note, then took it further. White, in the chart below, explains that, historically, when the 10-year yield is below 5%, the correlation between stocks and bonds has been positive. Above 5%, the correlation turns negative.

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