Does WallStreet see a double-dip?

All financial-market signs now point to a return to economic contraction. The S&P 500 has dropped 9% in two weeks. American government borrowing costs are plummeting, which could conceivably be construed as a result of increased confidence in America’s finances in the wake of the debt-ceiling deal, except for three things: 1) the deal didn’t fundamentally improve America’s finances, 2) equities are tanking, and 3) so are inflation expectations. Yesterday afternoon, yields on inflation-protected Treasuries signaled a 5-year expected inflation rate of about 2.08%. That has since fallen to about 1.86%. The yield on 3-month debt is back to 0.0%, the yield on the 30-year Treasury is 3.79%, and 10-year yields are back to levels observed last August, which prompted the Fed to engage in QE2. Commodities are dropping like rocks—oil is back below $90 a barrel—except for gold, which continues to hit nominal highs. The dollar is also strengthening.