With bond prices dropping and interest rates going higher on the 10-year bond, reports of inflation being too high are becoming more pervasive. Indications inflation has moved out of the Fed's targeted range of 1% to 2% suggest it must move aggressively to keep inflation in check.

However, the reality is there is little truth to that range. If you go back and look at periods of excellent economic prosperity, both domestically and internationally, such as from 1950 to 1968 and again during the 1990s, inflation averaged around 2.5%. For some reason, when U.S. inflation averages around this level, both the U.S. and international economies do very well.

What was inflation in April (the latest data point on the CPI webpage)? 2.6%. Right in line with periods of great prosperity.

However, historically, real interest rates can range from 3% to 4% for more long-dated bonds. What have real interest rates been recently, very low at 1.5% to 2.0%. Typically, adding inflation and real interest rates gives a range for long-term bonds. This would imply interest rates of 5.5% to 6.5%. Bonds have been expensive for a long time, providing little risk premia for fixed income investors.

Bonds are tremendously oversold and are worth trading for the short term. But more importantly, do not dump stocks because bond yields are going higher. Stocks are still very cheap relative to bonds. Bonds, historically speaking, are overvalued, not stocks.

March US auto sales numbers are now all out, and as expected most of the numbers came in negative territory.

Ford Motor's (NYSE:F) sales were -9% to 264,975 total US units, compared to estimates of -17.2%. Ford is actually surprising since it was the one expected to have the largest drop and may not have that much to look forward to until this summer when its 2008 Ford Taurus is reintroduced. March total sales in 2006 were also the highest month of the year in 2006.

DaimlerChrysler (NYSE:DCX) posted sales at -5%, but they were really -8% on an adjusted basis for similar number of selling days. Sales were expected to be -6.2%. Things could have been worse considering that car buyers don't know what brand they will ultimately be owning if they go for a Chrysler. If they are in a sell-off or if the brands get split up, it will be interesting to see what happens as to how they calculate sales.

General Motors (NYSE:GM) said its sales -7.7% but retail was -6.2%. Sales were expected to be -1.2%. US trucks were -11.3% and its cars were -1.4%. The bright spot for GM is its Chinese growth that Doug McIntyre discussed this morning.

Toyota Motor (NYSE:TM) was the hands-down winner at +11.8% (+7.7% adjusted for the one day extra) in sales, although estimates were expected to be +8.8%. We'll see how this does through time as trucks become more and more prevalent.

Jon Ogg is a partner in 24/7 Wall St., LLC; he does not own securities in the companies he covers.

The only way this market can get out of its funk is with a tough love pep talk from television's Dr. Phil. If he can convince self-involved narcissists of the errors of their ways, imagine what he could do to boost consumer confidence. Something needs to be done.

Consumer confidence is down from a 2 1/2 year high. Is anyone surprised? Gasoline prices are rising. Mortgage defaults are rising and there was that recent slump in the stock market. Wall Street is clearly on edge this morning as investors wait the February jobs report, an update on the trade deficit and speeches from officials from the Federal Reserve. Stock futures are trading down following a mixed day in Asia.

In corporate news:

AT&T Corp. (NYSE:T) wants to overhaul its partnership with Yahoo Inc. (NASDAQ:YHOO), according to the Wall Street Journal.

Applebees International Inc. (NASDAQ:APPB) said an activist investor group lead by former SEC head Richard Breeden rejected its off fer for two seats on the board of directors. Breeden Capital Management LLC wants four and some three-course combo meals to go.

China is forming a company to invest its $1 trillion in foreign currency reserves. According to the Associated Press, economists say Beijing might put as much as $200 to 400 billion to the new company, creating one of the world's largest investment funds. Wall Street bankers are chartering squadrons of private planes to Beijing as we speak.

Troubled subprime lender New Century Financial Corp. (NYSE:NEW) has stopped making loans and analysts are expecting the company to file for bankruptcy protection, according to Bloomberg News.

Payroll data was released at 8:30 AM with employers boosting payrolls by 132,000 in November. Unemployment rate edged up slightly to 4.5% from 4.4% in October. The payroll boost was an improvement from the October number of 79,000. Both S&P 500 and NASDAQ futures reacted positively to the data and are now posting gains.

This was also positive news for the Federal Reserve as the report is indicating the economy was behaving well; neither overheating nor weakening substantially, despite a weak housing sector. This offers additional support for Chairman Bernanke's current position of doing nothing with interest rates despite market expectations to the contrary. Don't Fight the Fed!

Doug Roberts is the Founder and Chief Investment Strategist for FollowtheFed.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.