The Scientific theory I like best is that the rings of Saturn are composed entirely of lost airline luggage - John M. Ford

I feel much like the headline to this piece - When I say left things goes right, when I say down is goes up - the more analysis I apply the more confused I get, and coming off one week of skiing it sort of makes sense altogether;

The market is having major break from its heavy trading ranges while the market reactivates the computer models and projections, but a few things have not changed:

1. Crude prices have remained bid despite the near recesssion headlines and trading in the euro-dollar futures. Are crude oil isolated from global recession?

2. Agriculture prices remains bid and going higher - record low storages and drought, once in a lifetime weather etc, keep the demand part much stronger than the supply side.

3. Credit market continues its march higher and higher. A new day and we got higher readings of risk intolerance. Some astute investment bank notice that stocks with poor credit being performing better than good credit since January 1st, wow - thats a long, long time at least 30 data points worth of data?

The fact remains if the credit markets remains shut down, then the stock market will have to follow suit. Saw nice chart this morning pointing out that there is lead-lag of one week between credit spreads and stock market.

However I am increasingly becoming bond bear here - to me the bigger story being that of the inflation getting ready to spill-over to both margin but also the actual pricing levels, my pessimistm here is based on a number of things, but primarily the lead-lag of production/pricing channels. It takes time before the end user gets to pay "real prices" for milk, coffee, wheat, corn etc.

In some countries becasue the governments subsidies prices, which only makes things worse, and in other cases because your local Barista, decides to wait-and-see if this is not passing .....it is not and its only getting worse, now over the summer there is a number of things which will make this explode.

One thing in Europe is the on-going wage talks - in my home country of Denmark, the public sector got 12.4% over three year, with some gracious holidays and sick-leave added in - this is function of one thing only: The lack of people to hire - Denmark is in the ironic situation, not dis-similar to Germany and other old nations, that there simply is not enough people to do the actual jobs! Hence the negosiations moves to being dearer as the employees can move their business, in the case of public sector between sector creating heavy short falls of doctors, nurses, dentist', social workers etc....

This will spread to Europe - Trichet can call for as much "vigilance" as he wants on pay but the fact is demand is bigger than supply, hence there will be negative news in the next weeks and months......

I am getting ready to go outright short Fixed Income, I now have to decide about where on the curve and which countries to short first - from cyclical aspect it should be the US, as they have inflated the most, and with always presence of potential US dollar crisis, it has biggest non-linear event risk, on the other hand, as long as IG Metall and their friends still talking to ECB there is chance the market will react more aggressively in Europe, in particular as 1 year forward rates has moved just as much as the US in recent weeks.

Decision on this tomorrow after some more analysis.

Steen