Morning Note: Funding all the fun...

I'll say it again, the U.S. central bank (the Fed) has backed itself into the worst of corners!

The 10-year treasury yield is up for the 6th straight day, and it's no wonder.

Think about it; the CARES Act was good for $2.2 trillion of government spending, then the $900 billion the other day, now another trillion very soon if Congress gets its way (it will).

You just might think that, 1: there'll be a boost in activity that might suggest that real interest rates below zero just don't jibe with a recovering economy. And, 2: that that much fuel on top of supply chain headaches galore, and in anticipation of infrastructure spending to come (galore!), well... at minimum, inflation expectations ought to be on the rise.

Make no mistake, the utterly fragile edifice (built with debt and unrelenting Fed intervention) that supports today's economy in no way shape or form can hold up against sustainably rising interest rates.

So you can absolutely dismiss any financial media narrative that would have you believe that rising rates are no issue right here, that they're simply the confirmation that the economy is on the verge of breaking out in a big way.

Then there's the dollar! Which is as big, if not bigger, a challenge, as I've been preaching herein for months.

Higher U.S. interest rates make the dollar more attractive vs lower-rate currencies. Hence the spike we've seen the past few days. Plus there's that short-covering I wrote about yesterday.

Now, a rising dollar does help in terms of the massive amount of government yet to be issued debt needed to fund all the fun going forward, as it inspires foreign buyers of treasuries to come to market. 

However, once the debt's been bought, a rising dollar becomes problematic for its issuer. If foreigners like a rising dollar because it translates their holdings into more home currency, well, it in effect has the reverse impact on the borrower. Or you can simply think of it in terms of a rising dollar, by definition, doesn't allow the government to "inflate away" its debt. 

Speaking of borrowers, there's an estimated 13 trillion worth of U.S. dollar-denominated debt whose borrowers have foreign domiciles. A rising dollar is hugely problematic for them, as they have to generate more of their home currency to convert to dollars to service that debt. And of course that scramble for dollars exacerbates their upside -- a problem for the Fed.

And, not to mention, a rising dollar makes U.S. exports (think of all that technology we sell globally, for example) more expensive to foreign customers.

Bottom line, a rising dollar and higher interest rates are massive risks when we consider today's fragile risk/reward equity market setup.

Hence, the Fed will pull every conceivable string to keep both at bay!

Asian stocks leaned green overnight, with 10 of the 16 markets we track closing higher.

Europe's having another rough go of it this morning, with 16 of the 19 bourses we follow notably in the red thus far.

U.S. major averages are positive to start the day: Dow's up 82 points (0.26%), SP500's up 0.17%, Nasdaq's up 0.36%, Russell 2000's up 1.19%.

The VIX (SP500 implied volatility) is down 2.33%. VXN (Nasdaq i.v.) is down 2.66%.

Oil futures are up 1.49%, gold's up 0.01%, silver's up 1.55%, copper futures are up 1.58% and the ag complex is up 0.19%.

The 10-year treasury is down (yield up) and the dollar is down 0.06%.

Led by oil services, energy, banks, silver and financials, our core mix is up 0.44% as I type.

Think about my long intro as you read this by Nietzsche:

"...we are fundamentally inclined to maintain that the falsest opinions (to which the synthetic judgments a priori belong), are the most indispensable to us, that without a recognition of logical fictions, without a comparison of reality with the purely imagined world of the absolute and immutable, without a constant counterfeiting of the world by means of numbers, man could not live—that the renunciation of false opinions would be a renunciation of life, a negation of life.

To recognise untruth as a condition of life; that is certainly to impugn the traditional ideas of value in a dangerous manner, and a philosophy which ventures to do so, has thereby alone placed itself beyond good and evil."

Have a nice day!
Marty