“Saying that the market is up around 10% in two months — despite the reality of our situation — should make you shit yourself with fright.”

That may very well be. Never the less, even if your shorts were filled with scary feces, would you be inclined to call a 10% move something that had been “gaining very little”

Sorry little children, hate to ruin your day, but this looks to be nothing more than a mean-reversion (i.e. “suckers”) rally.

See you at SPX 150.

ALL BUSINESS: Bond-market rout boosts mortgage rates, undermining economic prospects

“If the meltdown continues in the bond market, then mortgage yields will soon be at levels that choke off refinancing activity,” said economist Ed Yardeni, who runs his own investment firm. “Even worse, they could abort any necessary recovery in home sales and prices.”

“The bond market is calling the Federal Reserve out,” said Mike Larson, a real estate analyst at Weiss Research Inc. in Jupiter, Fla. “Investors are saying that the Fed can’t just print money out of thin air to finance a massive deficit.”

http://finance.yahoo.com/news/ALL-BUSINESS-Bondmarket-rout-apf-15457158.html?sec=topStories&pos=main&asset=&ccode=

…If rates rise all year, it would seem pretty painful to me…will they hold on for a year and just grin and bear it?

no argument from me my friend

I’ve been having an interesting discussion with a friend about Penske’s purchase of Saturn. He contends that Penske will never build a single vehicle at the Saturn facilities, instead choosing to contract out the manufacture to others, including GM itself. I can see how this might be, even to the extend that Penske loses money on every vehicle sold, and knows and accepts this going into the transaction. Shuttering all of their Saturn dealerships might prove to be a lot more painful for them than taking a small loss on every car sold.

Similarly, the Chinese may find that taking a small haircut on their herd of Treasuries would be less painful than dumping them and allowing the largest marketplace for their exports to collapse. There is certainly a point beyond which they will not go, and I suspect that the purpose of Geithner’s visit was for them to communicate to him in no uncertain terms what they expect in the way of a dollar devaluation schedule. They might accept having the USD decline by 30% over the coming year (for example), but no more than that.

In any event, what the Chinese leadership can tolerate and what the American people can tolerate are two entirely separate things, and Obama’s difficulties are far more likely to come from a hugely unemployed population suffering under alternating courses of inflation and deflation and they attempt to micromanage their way to the goal (a second term in office).

But as the Chinese proceed with the conversion of their own domestic economy into a western-style consumer marketplace from a largely agrarian society, they will have less and less of a need for the USofA. Things cannot go on like this forever.

I suspect you are correct in your thinking, and the one thing I’ve been doing is keeping everything short term in case inflation reignites. Rising rates, at least in my lifetime, have been generally (not always, granted) bad for the markets, and I don’t see how they couldn’t be bad this time, too.

I thought the Carter stagflation was bad, and at that time actually was buying Kruggerands..but this is so distorted this time, that I am not exactly sure how it plays out. I can follow the deflation and inflation end game thesis, but markets are like a pretty woman, you know what you’d like her to do, but she can be so unpredictable…