Is This The Pause?

This may be the pause that so many have been predicting. My trader email this afternoon is full of the following quotes: "profitable trades coming off", "raising cash again," "certainly starting to get more sellers," "people taking profits." Volume is heavy for the third day in a row.

The poor 30-year auction has caused a second leg down in stocks. The rally, which has seen the S&P move up nearly 5 percent this week alone, was showing signs of pausing this morning, when for the second day in a row traders sold the rally right at the open.

When Treasury announced they had to pay 4.28 percent for the new 30-year bonds at about 1 PM ET, the yield curve immediately steepened, the dollar rallied modestly, and the Dow dropped about 60 points.

Two obvious problems:

1) It raises questions about the ability of the government to keep rates low to facilitate the recovery, and

2) It creates new confusion among investors. Remember, from November to March many investors pulled money out of stocks and put them into bond funds.

There is a real question about whether a tipping point has been reached and these investors should a) go into short-term corporate or bond funds, b) go to cash, or c) go back into stocks.

Commodity rise continues; inflation hawks get their feathers up. The CRB Index, a basket of commodity stocks, is within a fraction of its highest level in 2009. Oil is at its highest level since November, copper is holding its gains, even natural gas is starting to climb out of its long slide.

Commodities have come off their highs since the 30-year bond results, but the commodity debate has not gone away.

As Peter Boockvar and others have pointed out, Mr. Bernanke said that he expects inflation to be quite contained over the next couple of years while at the same time expecting the economy to start growing by year end. If the economy does indeed start growing by then, it may be tougher to contain inflation.



Questions? Comments?