A one percentage point rise in bond yields over the last month and a half (to 3.3% from 2.3% on the 10-year Treasury) reflects rising growth and inflation expectations, which have been viewed positively by the stock market. This has been prompted by recent better economic news, from global purchasing manager surveys to the downtrend in initial jobless claims, and the somewhat surprising compromise deal to extend tax cuts and unemployment benefits in what amounts to a 'second stimulus.' This stimulus adds about $300 billion to the deficit in 2011. In the short term, we believe fears of increased government debt from the compromise are subordinate to the anticipated pickup in GDP growth of as much as one percentage point (which would help reduce the unemployment rate by a few tenths of a percentage point).

David Fuller's view I commend the rest of this issue to readers.