Eric Fry comments on the incongruity
- Meanwhile, the bond market continues to rally as if the
economy is about to curl up in a ball and take a 10-year
nap. The 10-year Treasury note soared yet again yesterday,
pushing its yield down to 3.19% - ever closer to the
unthinkable, Japan-style yield of 2.99%.
- One of these two financial markets - either the Nasdaq or
the bond market - would appear to "have it wrong." If the
US economy is on the rebound, interest rates should be
rising, not falling. On the other hand, if the economy is
still mired in a recessionary, deflationary bog, then the
stock market should be slumping, not soaring. Something
isn't right with this picture.
- The simultaneous stock/bond rally is a financial marvel
for many reasons, not the least of which is the fact that
energy prices remain stubbornly high...and rising. This
trend imposes a de facto "energy tax" on American
enterprise, while also squeezing profit margins. In other
words, rising energy prices aren't a good thing for
corporate profits...and neither are they a heaven-sent gift
for the bond market. Rising energy prices, all else being
equal, contribute to rising consumer prices, which, all
else being equal, contribute to MUCH lower bond prices.
- But the bulls on Wall Street rarely contemplate such
troubling thoughts. They amuse themselves, instead, with
happy thoughts of ever-rising stock and bond prices. They
don't worry about the fact that corporate revenues are not
growing, that energy prices are rising, that the dollar is
falling or that a housing boom is the only thing holding up
the economy. |
