Bill Gross proves that he cannot read a stock chart.

Before getting into the story about Bill Gross,  I want to take a short tangent.

Bob Prechter, amazing though he may be, makes a lot of good calls but does not always make the right call at the right time on things. I think many of his theories on human herding and socionomics are spot on.  Where Prechter takes his biggest hit in the public eye is simply failing to stress these 3 points:

• The world is only chaotic to those who do not see all of the data in perfect resolution in real time.  That would be all humans.  Only God knows the full order of the universe.
• EW is a fundamental principle of the universe but since we do not have all the data in perfect resolution nor do we have the mental capacity to process it in real time, the human application of EW is all about odds and not certainties. 
• While EW is useful in predicting possible futures, it's main benefit to the trader is to tell you when you are wrong.  Personal note on that just from today.  I got into JDST @$12.12 yesterday believing that it would begin the a-b-c counter-trend rally (gold pulls back and thus juniors go down).  I got a big pop in the AM and was hoping for a good deal more.  By the time I woke up, all of that gain had been given back in 5 waves down.  Still, the wave count was not confirmed because that move up into 11:30am looked, at the high level, like 5 waves, not a 3 wave retracement.  Knowing that it could go either way and wanting to sleep in a bit more on my first day of 4th of July holiday, I set my stop for $12.40 which is just below the 10:58am low.   That is a bit more than I paid but at a point which would tell me that my model was wrong.  As I slept, the ETF went over a cliff by $1.50.  That is a damned healthy swing for a $12 equity in 1.5 hrs.  But I didn't get hurt by it, I still booked a profit because I used the wave count to help me know where to set my stop.

 
All of this is a lesson that Bill Gross of PIMCO will soon wish he had learned because he is showing me that he does not understand how to apply EW to the problem of selecting good entry and exit points for trades.

Today, Bill Gross of PIMCO is out loudly talking about investing $200 million of his own fortune into bonds because he thinks interest rates will stay low forever.   Unfortunately for him, he's completely clueless about what the stock charts are pointing to which is higher rates coming right around the corner.

For the record, Gross doesn't care about the interest rate - he's not holding these for the interest payments.  He hopes to make money by flipping them the the next greater fool at lower interest rates than today for a capital gain.  Here is a web link to read if you don't understand how this works but in general if you buy a bond at a given price today then you don't pay the face value of the bond but rather whatever the market thinks they are worth at the time given all of the market factors.  In the case of bonds, the main factor is what the next bond buyer will have to pay relative to face value to get the same real interest rate of return that you got.  If interest rates go down, new buyers will have to buy more bonds in order to get the same real rate of return that has already been promised to existing holders.  In other words, they are grandfathered in.  Thus the market price of their bond goes up. The inverse is also true. 

To summarize, if you buy a bond and then want to flip it before maturity, you are going to make money on the round trip if interest rates go down since you bought and you will bleed cash if interest rates go up since you bought.  Bill Gross is buying $200 million worth of bonds which still sit near record lows and he is talking up his own book by saying interest rates are headed down.  He is hoping that some greater fool will want to relieve Gross of his stupid investment at a profit to Gross.  He is doing this as the Fed continues to taper. When rates begin to skyrocket, Gross will be Grossly wrong and significantly poorer.  I've been posting the TNX wave model for some time now:

Today, just as Gross made his big proclamation, TNX broke out of resistance.  The current value of TNX is at the red 1 (which is 1 of 3 in the new bull market in interest rates).  If it breaks back below the down-sloping line and stays there then I will have to admit that this model is flawed.  But at this point the chart is telling me that, despite public bravado from Gross, the market is disagreeing with him about the future direction of interest rates.  I think whether or not he ends up making money that it was a bad gamble because the EW model says that the odds, Mr. Gross, the ODDs are stacked against you.