The always intellectually provocative Howard Simons had a great column in Real Money today dealing with the question of can stocks decline in a rising economy. The answer of course is yes, sometimes violently, see 1987. The truly intriguing aspect of his column however dealt with the correlation, or lack thereof, between the stock market and GDP. There are periods when they track closely and periods when they diverge. The question is whether or not the lack of correlation can be explained. If the failures are caused by random factors, one would not expect there to be any pattern in the residual between stocks and GDP. He posted a fascinating chart that showed exactly the opposite. Over a roughly 40 year period, the residual traces out a clearly cyclical or sine wave pattern that would make any trend follower drool. Following a long period when stocks outperformed in the great bull market, we are now in one of the underperforming periods. He promised to provide an explanation for this pattern next week. He did appear to rule out interest rates or currency factors as causes, since they did not trade freely until the middle of this period. I have never been a big fan of inter-market analysis, but I can hardly wait for his conclusion.