John Ransom

Despite the mixed signals that the economy is flashing, the stock market at least believes that finally the economy is starting to recover.

So does the bond market.

And that’s the problem.

Just after making record low yield in the spring near 1.50 percent, the Ten Year Treasury note did an “about face” and has nearly doubled just in 8 months with rates closing on Christmas Eve at 2.80 percent.

This is significant because if means that the bond market either thinks the economy is gaining steam or it means bonds are predicting inflation. Bond rates tend to go up as the market gains steam in order to contain inflation.

In either case, the stock market looks to be moving higher short term.

Dow 20,000 in 2014?

Not likely, but… if, if, if, voters, politicians and lobbyists can get their act together and do something to HELP the economy, there certainly is enough money to get a large portion of the way to Dow 20,000.

In order for that to happen, we’ll have to see GDP normalize at 3 percent or higher AND inflation to remain in check.

That’s a tough thing to manage, especially with oil and other commodities trading like financial assets rather than commodities.

Bonds look to me like they are betting on inflation.

But inflation isn’t the only thing that stands in the way of the economy and the stock market.

In 2014, many of the headwind provisions of Obamacare will ramp up again. Given the type of dislocation that Obamacare has already had on the economy, there are some predicting 2014 to be worse as the more strenuous parts of Obamacare are contemplated, if not fully enacted.

And despite the lame duck status of Obama, I think that any meaningful changes to Obamacare—including even repeal, are largely up to the president.

He seems however content to go down with the SS Obamacare, taking both women and children with him.


John Ransom

John Ransom is the Finance Editor for Townhall Finance.