The equity bull-run looks overdone: The S&P 500 is priced for around $75 of operating EPS, something I don't see occurring before 2012 (probably won't get the number above $43 per share for this year). This rally has all been multiple expansion — from 15x on trailing EPS at the low to around 23x now. The market is NOT cheap.
Bond selloff overdone too, notwithstanding the rush of supply (most of the Treasury auctions have actually gone pretty well, so this can't be all about supply): Through a good part of the Treasury yield run-up, private sector rates were unaffected, but now we have the 30-year mortgage rate approaching 5.5% and mortgage refinancing activity has plunged about 60% in the last two months. Mortgage applications for new home purchases collapsed at a 20% annual rate in May too. The futures market is priced for three Fed tightenings; however, historically, the Fed does not tighten and bond yields do not bottom until after the unemployment rate peaks.
On vous aura averti. L'été sera brutal.
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