I will be taking some time off next week. I will still be blogging every morning, but I plan to spend the rest of each day doing some resting and recreating. There are a number of issues I want to think more deeply about before reengaging, and this will give me a chance to do some long-deferred reading and thinking.

I had the chance yesterday to be a guest on the Bloomberg Radio program Taking Stock, which was an awful lot of fun. The hosts, Pimm Fox and Carol Massar, are both smart and well informed, and the other guest, Kevin Divney, had some very interesting views and was a pleasure to bounce ideas off of.

Over the past week or so, I’ve had the chance to sit down with several groups to discuss how the economy and the financial markets are evolving. Each time, I’ve laid out many of the arguments, along with supporting data, that I’ve made here on the blog. Briefly, the real economy is improving, and growth can reasonably be expected to accelerate for the rest of the year; interest rates are going to remain volatile and increase over time, although they may drop back a bit in the short term; and stock markets are overvalued and risky.

But what if I’m wrong?

I’m meeting with the investment committee of one of our advisor groups this morning, and, in preparation, they sent me a list of very good questions they want to discuss. We’re also planning to start an “Ask Brad” section of the blog to address common questions. With both of these pending, and a couple of questions on everyone’s mind right now, I thought I’d start out with the big one, which is, of course, What are interest rates going to do?

Interest rates have moved higher again over the past week. What is driving the current spike in rates, as I’ve written before, is price discovery. As the Fed moves closer and closer to tapering away its bond buying, the market will increasingly be driven by supply and demand factors. In recent weeks, foreigners have been selling bonds, as have domestic banks. When and if the Fed starts to taper, demand will decrease even as supply is likely to continue to increase from the increased selling. When demand goes down and supply goes up, prices drop. In the case of bonds, this means yields go up.

August has been tough for the stock market. We’re now down a bit over 3 percent, even as interest rates continue to tick up. Based on the last time tapering hit the markets, we may have more downside risk ahead.

As more or less promised yesterday, let’s talk about the market. Yesterday, we saw two interrelated events: interest rates ticked up again, and the stock market declined. Why? Will it continue?

First, we’ll look at the rise in interest rates. I use rates on the 10-year Treasury bond as a proxy for rates as a whole, as many other financial instruments use the 10-year Treasury as a basis off which to price. This is common in the market.

Looking for new news today is hard. There are a lot of good economic stories—Europe’s economy has started to grow again, initial unemployment claims have come in at a six-year low, consumer borrowing has picked up again, among other stuff—but I’ve written about that several times over the past couple of weeks.

I could talk about the drop in the stock markets this morning or the uptick in interest rates, but I’ve also covered those topics multiple times lately, most recently yesterday. No doubt I’ll return to them again in the next couple of weeks—maybe even tomorrow, depending on how the market closes today.

Several advisors have called me over the past couple of days, asking about various doomsayers predicting various forms of calamity. A dollar collapse is one popular theme; another is a collapse of the stock market, of “up to” 90 percent, according to one reported expert.

Make no mistake: I’m concerned about stock market valuations, as I have written extensively. It’s entirely possible we will see a correction, quite possibly a significant one. In fact, at some point, a significant correction isn’t just inevitable, it’s normal and even healthy. Let’s look at history.

Several pieces of good economic news have come in that are worth highlighting. The most important is U.S. retail sales, which is up 0.2 percent. That might not seem like anything to cheer about, but this is a case where it’s important to look at the underlying figures rather than just the headline.

The overall figure was dragged down by drops in auto sales and building material sales. While not positive, both of those figures are still at very high levels, and, even with the slight decline, growth rates remain at levels consistent with faster growth overall. Gasoline sales increased, which was a positive factor, but this is counterintuitive, as it depends to some degree on higher gas prices, which are actually harmful to the economy as a whole. These three series are also volatile, to the extent that there is a separate statistical series that excludes them in order to provide a better indicator of underlying consumer demand.

One interesting trend recently has been the outperformance of the U.S. and other developed markets over emerging markets. A number of factors are behind this, notably capital flows, but shifting relative growth rates have been a primary driver. In this post, I want to take a look at the basic sources of growth to see how this trend might evolve over the next couple of years.