Pick your poison

On the same day Treasury Secretary Geithner said “It is the policy of the US and it will remain the policy of the US to remain committed to a strong dollar” and that it will “remain the principal reserve currency,” the $ index is back below 80 and a close here would be the lowest in a month and its a further 11% drop from falling to a record low. The S&P 500 is also at a one month high, implied inflation expectations in TIPS are at a two week high, the 10 yr bond yield is at a 3 week high and the CRB index is at a one week high. This reflation trade has reignited over the past week on the 2nd half growth hopes around the world, better than expected earnings releases and combined with ZIRP and QE policy and deteriorating government finances. What this highlights is any recovery we experience will come with higher inflation and higher interest rates. Throw higher taxes on top at all levels and the US economy will be hard pressed to reach its growth potential of 3%+ (1% population + 2% or more productivity). Pick your poison.

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