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Barron’s Confidence Index is Collapsing
Mark J. Lundeen
Mlundeen2@Comcast.net
01 May 2020
I haven’t written anything on the Barron’s Confidence Index (CI) for years. As since Barron’s March 30th issue the CI has been in a state of collapse, maybe it’s time to review this historic market series.
Barron’s has never properly covered or promoted their own market series, so most investors have never heard of their Confidence Index. The now discontinued Barron’s Stock Averages (BSA) were published weekly from 1938 to 1988, and except for a few articles during the early 1940s, the BSA were left to Barron’s readers to scrutinize on their own.
For the past nine decades Barron’s Confidence Index’s story is much the same, which is a pity as the story it tells about the financial markets is extremely informative.
The Confidence Index is the ratio of two investment-grade corporate bond yields:
- Barron’s Best-Grade Bonds (Blue Plot Below)
- Barron’s Intermediate-Grade Bonds (Red Plot Below)
Barron’s has published this data since 1938, but I pushed it back to 1934 by using the bond tables which at the time were also published. I noted the yield for their best-grade bonds on its first week of publishing, which I then took ten bonds with similar yields, taking an average of those yields, I reconstructed Barron’s Best-Grade Bond Yields going back to Barron’s 01 January 1934 issue.
The Intermediate-Grade Bonds Yields were easy, as Barron’s used the Dow Jones 40-Bond Average Yields which they published weekly since their 09 August 1926 issue. So, below is a record of these corporate bond yields going back to the first week of January 1934.
I inserted a table for the Barron’s Gold Mining Index (BGMI: the sole remnant of the BSA) as well as price data for gold and silver to illustrate how the 1957 to 1980 BGMI, and 1971 to 1980 bull markets for gold and silver happened in a rising interest rate environment.
As most “market experts” warn investors that rising interest rates are bad for gold and silver, it’s important to know this certainly wasn’t true in the last precious metals bull market. When these two historic bond yields once again trend higher; I expect our current precious metals bull market will have entered into a new and much more intense phase.
Why would this be so? Because since 1945 the Federal Reserve had been issuing more than $35 paper dollars for every ounce of gold held in the US gold reserves, and these inflationary paper dollars were flowing into consumer and producer prices. This was in disregard to the Bretton Woods $35 gold peg, but then “policy making” has always placed itself above the law of the land.
https://talkmarkets.com/content/us-markets/barrons-confidence-index-is-collapsing?post=260680&page=2