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When you get down to the financial heart of the world economy, it’s all about credit.

The stock market – despite its enormous importance – is kind of the icing on the bond market cake, in terms of economic clout.

Look to Bonds

That’s why it makes sense to look at the stock market’s recent gyrations, in light of what’s happening in the big, ‘boring’ bond market.

Let me say, first, that big turning points in the stock market are often triggered by rising negativity on the question of central importance to bondholders: will I get my money back? Think back to 2008. The stock market meltdown was precipitated by fears that the collapse of Lehman Brothers and a cascading chain of failing IOUs would bring down the banking system.

Other credit collapses, including the wave of bank failures in the 1930s, had a similar equity impact.

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