Some observations now that I'm back in the saddle...
* Bonds have been rallying for a couple weeks now ... despite stronger-than-expected inflation news. That raises an important question -- Why?
*I'd point to the subprime mortgage carnage. Things are NOT getting better there ... they're getting worse. Indices that measure the cost of credit protection on high-risk mortgage loans are blowing out (meaning, credit protection is getting much more expensive to buy) and more lenders are going under daily.
Moreover, the Wall Street Journal has a story today (subscription required) making the point I laid out for you several days ago: If home buyers with bad credit can no longer get the riskiest subprime mortgages, it will impact overall home sales at the margin, and prolong the housing slump. That, in turn, could weaken the economy and push the Fed toward easing rates at some point down the road.
* What else is noteworthy out there? My "loose money" indicators continue to go bonkers. Gold surged almost $22 an ounce in one day last week. The yellow metal has been steadily climbing since early January, and the only significant technical resistance left is at the old May 2006 high around $730.
At the same time, the biggest-ever leveraged buyout -- $45 billion -- was just announced. And "carry trade" currencies like the Australian dollar and New Zealand dollar are running. Both are closing in on fresh multi-year highs against the U.S. dollar.