Weird cross-currents remain in the market today. Commodity currencies remain in reasonable demand on the notion of global reflation. At the same time, the market has to contend with a dramatic back-up in US yields which is extraordinarily bad news for the linchpin of the global economic collapse, the US housing market. Higher mortgage rates will further complicate any recovery. As Gerry wrote this morning, these two world views cannot co-exist: One will be proven disastrously wrong.

My view is that flows into riskier assets will abate as some of these were probably in the pipeline before the US rate spike accelerated.Once the orders are filled there won’t be many more to behind them to keep the ball rolling.

In the markets, they say the trend is your friend. Now we are in the difficult position of choosing between the long-term trend toward deleveraging or the short-term trend toward reflation. If bond yield stay elevated, the long-term trend will likely return, an eventuality the market has only just begun to recognize. The dollar could see another spike like we saw in July/October time frame and the December /March period. The set up is eerily similar to the December?March decline as inflation jitters took center stage, only to have the rug pulled out from under it from a downdraft in the broad economy.