Figure B-16

July 11, 1984

The background of investor psychology is very suggestive of an important bond market low [see
Figure B-18]. In fact, if this were the only measure I followed, it would appear that bonds are the buy of
a lifetime. The news media, which all but ignored the rise in interest rates until May 1984, has been
flooding the pages of the press with "higher interest rate" stories. Most of these came out, in typical
fashion, after the May low, which was tested in June. During second waves, investors typically relive
the fears that exited at the actual bottom, while the market demonstrates an understanding, by holding
above the previous low, that the worst has passed. The last five weeks have demonstrated this
phenomenon vividly.