The US Federal Reserve is about to lose control of the bond market. Stocks will suffer.

The Bernanke Put was a verbal guarantee from Helicopter Ben that he would support the markets with low interest rates until the economy picked up.  Well, the economy has picked up for rich people but for poor workers it has only gotten worse since 2009.  This is the expected result of the bailout for the rich known as quantitative easing whose only real goal was to keep housing prices up so that the capital ratios of banks would still look good, albeit artificially.

The hubris of Bernanke was that a con could last forever when it has never been the case before.  All con jobs, even the best of them by people like Bernanke and Greenspan, eventually fail.  It either happens because the patsy gets fleeced so badly that he has nothing left to take or because the Patsies and Marks get wise.  I think it is a combination of the two this time.

The measure of the progress of the con is and always was interest rates.  With the US economy in negative growth in Q1 of 1% (which is soon to be revised downward to 2%) you would think that the all powerful (cough cough) federal reserve would be pushing interest rates lower.  But instead we will see interest rates begin to move up rapidly, at least according to my chart model of the TNX ETF.  I trust it a LOT more than I trust the liars, thieves, con men and yes, traitors at the federal reserve.  Prechter has proven with data over a long period of time that the fed does not really set interest rates.  The bond market does.  Then the fed lowers or raises the rates with great fanfare in order to fool people into thinking that the Wizard of Oz is something other than a con man hiding behind a smoke and mirrors machine.


This view is counter intuitive because we have been indoctrinated into the school of thought that central management of the economy is possible and that the fed has "mandates" to do this and that and the other, car in every driveway, chicken in every pot blah blah blah.  But the mood of the herd is what runs the show, not some little self important bureaucrat. 

Interest rates are heading up right now and the fed will probably step up and proclaim loudly that they will raise the rates for the good of the economy.  But just a few months ago they said they would hold rates low "for a protracted period" until the economy got better.  But the economy is NOT better.  Fast food workers are marching on their employers demanding a living wage.  Does this sound like a good economy to you?  The lower ranks are getting screwed big time and guess what folks, they are the majority of us.  There can be no real, lasting prosperity with the middle and lower classes collapsing economically.

So there is no way the fed should be raising rates by now.  The only problem is that the fed's balance sheet is full to the brim with sheet.  The shock absorber is fully compressed.  Taking on any more sheet will cause loss of confidence in the fed and the lower classes who do not receive any benefit from this intervention but whose gasoline and milk prices are skyrocketing because of it will have something to say about it.  This is why Brat is in and Cantor is out.  The trend will continue.

So, while the fed should in no way be considering raising rates, they will raise them.  Not because they want to but because they do not want to be viewed as impotent and out of control of their own con.  Unfortunately, rising rates will kill the margin-laden stock market gamblers.  Expect the markets to react badly to the higher rates that will soon unveil themselves.  When the ten year bond creates a higher high, the market is going to know that the fed has lost control of the bond market.  No amount of speeches saying that they are doing it on purpose in their omniscient world view will make any difference.  Gamblers do not care why the rates are going up.  They only care that rates are going up.  They will have to de-leverage and that is going to crater  the leveraged markets.