Inflation, Anyone?

Stocks on US indices closed lower again on Tuesday following a lackluster performance to open the week's trading. While investors hunt for bargains, search for insight and generally take whatever profits are available, many were glued to the bond bourses, which pushed yields to recently-unprecedented levels. The 10-year note closed with a yield of 5.248%, up more than 100 basis points from yesterday.

Dow 13,295.01 -129.95; NASDAQ 2,549.77 -22.38; S&P 500 1,493.00 -16.12; NYSE Composite 9,724.49 -117.24

As interest rates rise, so do inflation fears, or vice versa, depending upon which side of the fence you're so inclined. Consumers have watched energy - and to some extent, food - prices climb without pause for the past six months, and the pain at the pump is finally spreading to stocks and bonds.

It's little wonder that bond yields are rising. They've been at or below the level of inflation for years. The current upticking indicates a number of thorny issues are about to slap the US economy in the face: a slumping housing market, stagnant wages, China's floating of the Yuan and the twin deficits produced by the government in trade and budget, to name just a few.

The price increases in just about everything, juxtaposed against a weak dollar, are making investments in US stocks somewhat difficult to swallow for foreigners who must fund US excess or watch as the entire global economy dissipates into the ether. They don't have much of a choice, but there are moments - like the past few weeks - in which they take stock, pause, and sell. It isn't perfect science, but it does make as much sense as any other explanation for recent market ups-and-downs.

Today's dip certainly cannot be laid at the feet of the oil barons. The price of their filthy, slimy lucre actually declined by 62 cents, though it's still a pricey $65.35. The mini-rally in metals was cut short as both gold and silver gave back much of yesterday's gains.

Tracking the internals, today's market losses were indeed as bad as they looked. Declining issues overwhelmed advancers at nearly a 5-1 rate. New lows were over the top at 236 as compared to the paltry number of new highs: 124. Not to worry. We've been down this particular road before and won't become concerned until the new lows reach and remain above 320.

Relax, we're in an adjustment/consolidation phase.