Something’s Gotta Give

The insanity is stronger than usual this morning. The establishment survey reported an increase of 204,000 jobs and so the bond market crapitulated and the stock market reversed to the upside, emulating the proverbial scared rabbit. Even BLS acknowledged that the survey was badly distorted by the government slowdown but markets treated it as gospel, apparently.

Anyway, the more interesting number this morning was once again the PCE price index which continues to show inflation at a 1.2% annual rate. This makes bonds look pretty cheap, especially after the most hated asset class received its usual shellacking this morning. ECRI’s view makes bonds seem even cheaper. But that’s OK.

We’re going to have higher interest rates (lower bond market) or a higher stock market. But not both. Although lower rates and a lower stock market are mutually compatible. Something is going to give, and I suspect it will be the stock market.

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