Treasuries are testing multi-month lows this morning. I believe we are reaching critical levels where higher interest rates will start to negatively effect stocks and the economy. We are not at a make or break point yet, but I believe we are getting there.
What many fail to appreciate is that we are no longer in control of our own destiny. For years China and emerging markets have had a deflationary effect on us as we imported deflation. Now that they face inflation we might import inflation even if our economy is weak.
Many are hung up on the weak jobs market here insisting that it means inflation cannot happen to us. It is not our demand leading to higher commodity prices, it is theirs and it is not our rising labor costs leading to higher costs for manufactured products, it is theirs.
I do not claim to know whether inflationary or deflationary forces will ultimately win out. But I do recognize that inflation and interest rates are a risk and we are reaching the point where they might start causing problems.