Another Week

The equity market got the turn around it needed yesterday morning but the movements in the bond market have really got me scratching my head. I fall pretty squarely into the inflation and dollar worry camp so I have a really hard time seeing why the long end of the yield curve has gotten as low as it has. Yesterday brought a pretty strong reversal there but other than saying that the market woke up to reality I don't really see the cause. If that is indeed the case the long-end has a fair bit of selling ahead of it to get back in line with the rest of the markets.

A few thoughts I have in here:

• The bond market and dollar need to retest their highs while I would not expect commodity markets to challenge their lows.

• I have never really known the Fed to leak a whole lot, but Brad DeLong writes, "The word from inside the Federal Reserve is that Alan Greenspan is *not* optimistic about the dollar and *not* unconcerned about the U.S. budget deficit: that he was trying to express concern without triggering a dollar sell-off: that his words have been misinterpreted by markets as being more optimistic than they were intended to be."
  

• The strong metal bounce and chorus of strong overseas markets could very quickly swing the pendulum towards inflation fears. With many commodities still nearer multi-year highs than lows there is a very real threat that the U.S will experience cost push inflation inspite of a weak labor market and slack capacity.

• U.S. equities may provide a safe haven from inflation but better real returns will be offered in foreign equity markets.

• Japan looks like it is almost done consolidating its gains from late last year.