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Will the Bond Vigilantes Create Chaos?

Kevin Cook here to start the week off for Steve...

While investors try to sort out the impact of QE's twilight, "fear of the unknown" prevails as Steve pointed out on Friday. What happens to the economy without Fed bond-buying? Are large institutions selling stocks now every chance they get?

At the center of the uncertainty is one glaring price move that doesn't seem ready to stop: the 10-year Treasury yield has soared over 55% since May 1. And it really got rolling last week after Bernanke appeared to take one foot "off the gas pedal" and put the other "out the door."

This caused the 30-year fixed mortgage to jump over 20 basis points to nearly 4.25%. Now that we know the end game for QE - even though the spigot hasn't even been turned a bit - the bond vigilantes have basically said to the Fed, "We'll take over from here."

Volatility Spells Opportunity

The economy will likely be fine without QE. And rising rates are not bad for it or stocks in the context of decent growth - especially from such historically, ridiculously-low levels.

But the pace of this rise will create volatility and shifts in all asset classes in a vicious cycle. And that should produce some nice buying opportunities in stocks this summer as the market tests support at 1550 and maybe even 1500. I can hope, can?t I?

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