I’ve on numerous occasions here on InvestorPlace.com shown just how eerie the path correlation of the Nasdaq-100 in the year to date is to the sequence of the Dow Jones Industrial Average in 1987. It stands at, coincidentally, 0.87. I’m normally not a fan of analysis like this, but given other intermarket dynamics I see, I do believe the credit event is underway. And as I noted on Sept. 1, U.S. Treasuries are it.

https://twitter.com/leadlagreport/status/1707400160852976014

The sequence to me is clear. Treasuries are in a crash. For that collapse to stop, a collapse in stocks likely needs to take place.

How Treasuries Could Crash the Stock Market

Yields behaved like this prior to the 1987 crash, before money rushed back into the flight-to-safety trade of Treasuries as Black Monday unfolded.

Now to be clear – if I’m right about a collapse in stocks, I doubt it would happen all in one day. But yes, it does seem entirely possible a significant portion of this year’s gains in equities can be wiped out quickly on the sudden realization that the system cannot function properly when the most pristine asset in the world acts more volatile than the assets you’re leveraging against it.

Some will argue that the case for a stock market crash to shock the flight-to-safety trade back into Treasuries is misguided. I disagree from a path perspective. It surprises me that not everyone understands this context.

The drawdown in long duration Treasuries would rank it among the fourth worst for the stock market going back to the 1920s. This is not some meaningless crypto or meme play. This is the heart, soul, and life of the free enterprise system. And to argue that none of this matters and won’t be self-correcting is bizarre to me.

https://twitter.com/leadlagreport/status/1707357077943832664

The Bottom Line

Maybe I’m biased. After all, my own research papers and strategies rely on Treasuries to be the risk-off play in periods of heightened stock market volatility (because that is a factual truism even prior to the 1980s). Maybe this time is different.

For me, it’s not about being a perma-bull or a perma-bear on stocks or bonds. It is about having the occasional flight-to-safety in Treasuries – the phoenix rising for a moment in time where a single trade can define years of performance. I still think that’s coming, I still think we are at the start of the credit event. And if I’m right that Treasuries are the credit event, everything else is next to fall hard.

On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.