After selling off for much of the past two weeks, prices of long-dated treasuries have rallied the past two days. Recently higher yields and the specter of renewed Fed purchases of U.S. treasuries are responsible for the rally. Even better-than-expected retail sales data couldn't stop the rally. Nor did it spark an equity rally.
The markets have accepted reality. The reality is that although a double-dip recession is not the most likely scenario, neither is a v-shaped broad economic recovery. Welcome to a world of consumer deleveraging and repenting for the sins of past excesses. I think David Semmens of Standard Chartered Bank said it the best today when he stated:
"This will see them (consumers) emerge from the recession in significantly better shape than they entered it but the pain in the meantime still needs to be borne."
There you have it. A return to traditional growth and consumption. A developed economy cannot experience emerging market type growth without consequences. We are experiencing those consequences now.
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