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Boy oh boy, we have some interesting times coming. At least the "inflation" trade is winning the deflation vs. inflation battle. The whole key for Ben Bernanke is finding the sweet spot, where he can stoke prices but not to a point that it disturbs long-term rates. Otherwise that would stop the whole refinance game / house ATM.

Myself, I am hoping for $3.50 gas, $100+ crude while I hear talk of green shoots. And yes secretly I love seeing the market overwhelm the Very Visible Hand. Ok, not so secretly.

Here is what the bulls are going to say - the jump in commodities is bullish as it forecasts a return to global growth, blah blah blah. I say that works nice in an expansionary economy. Not so nice in a contracting economy. This will lead to my stagflation thesis i.e. 1970s redux.

I was just pinged that mortgage rates are already up from last week's 4.70%ish to 5.20%ish. Let's watch the refinance reports next week. p.s. this will hurt the title insurers as Doug Kass correctly forecast. And it will hurt the entire home complex trade. I am really surprised Bernanke did not bring out the bazooka earlier this week to keep rates suppressed. Mortgage rates at 5.5%-6.0% ruins this whole "consumer is back" story.

There is no way this is bullish unless you are a believer in the Goldilocks economy - just enough inflation to signal "a return to global growth" but not enough inflation to stagger the increasingly unemployed populace of the world, and the U.S. in particular. Enough inflation to "signal" great things coming down the pike, but not enough to cause disconcerting looks from U.S. consumer as he goes to buy food, energy, and the like.

But this is what the spin is and will be. Because it's not Main Street; it's Wall Street. I don't believe in this fairy tale with unemployment still on the rise (in reality in the low teens headed for mid teens) and a struggling consumer who is using tax returns, house ATMs, and the like to spend. But I look forward to hearing the fairy tale of Goldilocks return....

Via WSJ

  • The benchmark 10-year Treasury yield climbed to new record highs for 2009 in Friday morning trading, as stocks picked up a little from an early slide. Investors offloaded long-dated government bonds in volumes that could set new trading ranges despite the best efforts of policy makers to keep a lid on benchmark borrowing rates for consumers, homeowners and small business.
  • Strategists see the 10-year hitting its next potential ceiling at 3.25%. Investors remain focused on the heavy freight of new government bonds coming next week, when a record $71 billion refunding by the Treasury kicks off.

Funny, just in the middle of last week people were talking about 3.1% as the ceiling; now it's 3.25%. I did not remember to reload my TLT short post Fed meeting like I had planned to do. Bugger. [Apr 28: Bookkeeping - Covering Most of iShares Barclays 20+ Year Treasury Bond Ahead of Fed]

Make no mistake folks - unless you are of the belief the U.S. is about to enter a V shaped recovery, this a bearish situation for Main Street even if one thinks the abandonment of safety and return to risk is "bullish" from a Wall Street view.

Speaking of food (reinflation) - [my favorite long term theme is agriculture] see our old friend DBA which just took off like a rocket the past 2 sessions (aka post Fed meeting): this is wheat, soybeans, corn (and to lesser degree sugar). Boo Yah consumer.



Disclosure: Short iShares Barclays 20+ Year Treasury Bond in fund; no personal position

Source: Ten-Year Bond Surges 3.2%: Where Are the Green Shoots?