TNX update: interest rates should begin to take off starting tomorrow.

TNX is the ETF that tracks the 10 year treasury.  Yellen has told us that she will both taper AND expects interest rates to stay low.  I call bullshit.  The fed doesn't control interest rates by decree.  They want people to think that they do but they don't.  Interest rates are set by buyers of government debt.  If, all things told, the interest rates are too low, savings will be invested elsewhere.  While price inflation was low and while the US government's "full faith and credibility" held any water, the US treasury seemed like a good place for people to park their money in turbulent times even if the interest rates were low.  But as the government loses credibility, the national debt, which requires the buyer to trust the government to repay, becomes less desirable to hold.  the result?  Buyers demand higher interest rates in order to convince them that it is a good deal.

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:

1. main reason: it increases the service on margin debt.
2. 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.