The Federal Reserve is puzzled. So are we. The Fed is puzzled that Treasury bond yields are soaring. We are puzzled that the Fed is puzzled. Of course bond yields are soaring! Why wouldn’t they be?

If you happen to be the world’s largest debtor, and you happen to need another $2 trillion of credit from the rest of the world, you should not be surprised that your creditors demand a higher interest rate on the funds they provide. And yet, some members of the Federal Reserve are perplexed by this result.

“The Federal Reserve is not really sure what is driving the sharp rise in long-dated bond yields,” Reuters News reports. “Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit?…Or does the steepening yield curve mean investors are worried

The global banking system is not going to collapse, and many equities now look fundamentally cheap, from Japan to resource stocks and some emerging markets like Brazil. We saw real distressed selling last week, with margin calls hitting everyone from hedge funds to Russian oligarchs, classic signs of the capitulation I’ve been predicting since August, as equities were in my view dangerously overvalued versus credit markets; that valuation gap has now closed. Following the UK move last week to recapitalize its weakest banks, and guarantee interbank lending, the Eurozone countries have this weekend followed suit, leading to British PM Gordon Brown making the biggest comeback since Britney Spears. I expect the US to finally accept the efficacy of these measures, which I and many other independent observers have advocated rather than the complicated and opaque TARP scheme, and as a result interbank lending rates should begin tumbling over coming …

Both presidential candidates want to crucify SEC Chairman Cox for failing to control our creative financial institutions. But rumor has it that Congress specifically excluded the devilish derivatives from SEC purview. Let’s fire the right bunch of “poips” for a change!

Scary markets are brought about by many factors, some normal, and some not so normal. It’s often helpful to look backwards before getting too paranoid about the present. The S & L crisis of the early 80s might be an appropriate starting point.

Later that decade, a multi-year rally had its head lopped off by high interest rates, high inflation, and a computer loop. Ten years later, another soaring market was toppled by economic factors. The turn of the century witnessed the bloody demise of the no-value-at-all dot-com illusion.

A profit taking strategy during the rally days was all that was …