AS STOCK prices continued their low-key ascent in January, you've probably missed a seething drama on Wall Street.
Stock market investors are pleased with success. In the bond market, it's another story.
Beginning last fall, most analysts bet that interest rates would rise in 2004, eroding the value of bonds and other fixed-income investments.
That forecast will come true someday. But January has witnessed a surprise rally in bonds. The yield on the benchmark 10-year Treasury note fell below 4 percent last week for the first time since early October.
Bond market vigilantes - traders and pundits who hitch up and ride in search of inflation - are confused and angry.
They're annoyed at President Bush for overseeing huge federal budget deficits. They're sore at Federal Reserve Chairman Alan Greenspan for failing to pre-empt future inflation and curb market speculation.
This week's two-day meeting of the Federal Reserve's interest rate policy committee presents another chapter of the soap opera.
With stocks and bonds rising in unison, it's hard to feel sorry for bond traders who bet wrong. But their story is a page-turner.
James Bianco, at Bianco Research in Chicago, notes a series of strange conditions:
The nation's money supply, as measured by commercial bank deposits and money-market funds, has plunged for three months, despite efforts by the Federal Reserve to prime the economy with cheap money.
"Money supply hasn't done this kind of contraction in 60 years," Bianco said. "We haven't seen anything like this on a sustained basis since the Great Depression."
On the other hand, an array of inflation proxies, including gold, industrial commodities and currencies, points to an inevitable surge in inflation.
Gold gets the headlines, but "everything is trading like gold," Bianco said. "There's only been a handful of times in 17 years when we've seen these markets trade like this."
Most measures of U.S. employment indicate significant hiring growth. But the Labor Department's monthly nonfarm payroll survey of employers - the principal jobs statistic - shows persistent weakness.
"We've never seen anything like this," Bianco said. The paradox has political as well as investment overtones. He is convinced the Fed won't raise interest rates until payroll growth expands.
Statistical anomalies are at least conversational. But William Gross, the mostly widely quoted bond trader, sees metaphysical dangers. "We are a country in the beginning stages of what can best be described as hegemonic decay," he told The Washington Post.
Stephen Roach, the always gloomy chief economist at Morgan Stanley, told Bloomberg News, "The problem with holding rates low in this kind of environment is it's a breeding ground for more asset bubbles."
Could it be that the bond vigilantes simply can't take "yes" for an answer?
"Everyone's got bubbles on the brain," said Timothy Rogers, chief economist for Briefing. com. "The economy is booming, and money is going where it should go, especially to the corporations that are churning out huge profits."
Bill Barnhart is a financial columnist for the Chicago Tribune, a Tribune Publishing newspaper. E-mail him at firstname.lastname@example.org.