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October 16, 2008
The Dow-Nikkei Convergence Trade
Staggering stuff going on tonight in Asian markets, with the Nikkei off 10.5%, taking it back to levels last seen when Ronald Reagan was in the White House. Equally interesting, in a macabre way, is how the Nikkei and Dow created (I'm kidding, sort of) the mother of all long-term convergence trades: the ratio between the two indices was once 14x, and it's now 1.0 -- the Nikkei and the Dow, in other words, are at roughly the same level.
To save anyone the inevitable effort, please don't write in to explain the many ways in which the two indices are different, from capitalization to how they are constructed. I know, I know.
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