By the magic of QE, the federal reserve became the largest buyer of US treasuries for several years running (and still are). As QE tapers, where is the money going to come from to buy all of the debt that government generates not to do special projects or anything like that, but simply to maintain the level of national consumption (including a healthy dose of corruption) that we have become accustomed to? With the fed backing off of treasury purchases, rates have nowhere to go but up. Higher rates = lower stock market valuation for two reasons:
- main reason: it increases the service on margin debt.
- historical reason which is secondary right now: higher returns on less risky assets mean people do not have to wade into the stock market in order to generate the returns needed to fund retirements.
I believe that wave 2 is in the books right now and that wave 3 is already in progress. People who don't know how to count Elliott waves will think the recent chart action is "rolling over". They will change their minds about that when the rapid 3rd wave action unfolds. The 3rd of 3rd should see some nasty gaps up that should really put some fear into the stock markets.
No comments:
Post a Comment