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November 4, 2005

Measured Pace

The recent market spike slowed to a measured pace today, as the S&P 500 was up marginally, and the Nasdaq gained less than a half percent. Today's action has the feel of simply a pause in the action in the midst of a continued rally. Nothing in particular stood out today with the exception of the 10-year Treasury yield moving up to 4.66%. It has been creeping up at its own measured pace, but has yet to take a toll on equities.

Long rates will eventually take a toll on broader markets since its yield is widely used as a hurdle rate for other investments. The higher the hurdle rate, the lower assets are priced. Therefore, our recent spike indicates that a tremendous amount of liquidity still exists in the system and, as of today, the people who control that liquidity aren't believers in the upwards trend of long rates.

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