Here is how it played out last time…
Keep in mind, these things do not happen in a vacuum. We had the bank stress test/recapitalization take place which helped set off a massive rally in the equity market. The economy was in the midst of a major shift in the inventory cycle from draw-downs to rebuilds …The risk trade was all the rage and the thinking was the worst had passed and the reasons to hold low-risk dollars were less compelling. Along the way, US yields soared toward 4% at the end of 2009 from 2.45 when QE was announced….
Hopes for a quick economic rebound ran high in 2009 but are now very low as we get into the latter stages of 2010. It is a bit different this time….
