Thursday, March 19, 2015

Total crunch time for [$TNX.X]

In the backlink I provided the model below.

We did get a solid bottom at approximately the expected location and now the question is whether that was 3 down that is part of a larger slide or just the normal C wave of the expected a-b-c following a 5 wave motive move up.  My top pick remains that this is a C wave and I think the count just tipped its hand in agreement with me.  This looks like 5 small wave up to me.  There are a couple of different options here but I won't take the time to document them until I think that they become more likely.

IFF this count is correct, Yellen could be about to lose control of the bond market.  At this time, nobody believes this is possible.  For example, read the recent post by Jared over at 10th man which explains why Yellen might want to raise rates but cannot raise rates and how she will magickly be able to make endless excuses into the future for keeping rates low.

Jared is a smart guy with real Wall st experience.  I give him props for that.  I do not have his pedigree.  But I have learned in life that sometimes the pedigree can blind a person to things that are obvious to those who learned what they know by attending Screw U and then getting an advanced education at the School of Hard Knocks.   Jared has never called what is happening by its real name - a US-led Global Debt Ponzi.  Importantly, he thinks the fed controls interest rates and that the fed is omniscient and omnipotent simply because it has appeared to be so since its inception in 1913.  I do not subscribe to this theory.  I think that the global herd followed the lead of the Wizard of Ozt as long as it believed it was in its own best interest to do so but that the deal just keeps getting less and less good for everyone else while the USA appears to avoid any real hard times. 
  • We here in the US simply do not know what hard times really are.  We think we are on hard times with 11-12% real unemployment.  A day of reckoning is coming for the US where everyone gets a real enrollment in the school of hard knocks.

I think that the US has slacked off in production and excelled in consumption and I think we got away with it because everyone else in the world was fooled into chasing our fake green paper as if it were real money.  We also conned everyone into using it in oil transactions between other producers and consumers such that even though the US was not a part of the transaction done in Petrodollars, the US got a cut of each deal through the magick of inflation.

So while I agree with Jared that Yellen wants to raise rates but cannot do it without getting blamed for crashing the economy, the bond market is not under her control.  It has a mind of its own and when it asserts that it requires higher interest payements in order to hold US debt, Yellen will have one of two choices:
  1. Continue claiming that she will not raise interest rates in order to avoid being blamed for the collapse.  In this case, she will sacrifice the credibility of the fed because when interest rates move up without her permission, the world will see that the curtain has been pulled back and the emperor is naked.
  2. Save the credibility of the office of the federal reserve by reversing her stance on infinite ZIRP (Zero Interest Rate Policy).  Doing so will collapse the stock market and the economy and Yellen's legacy will be as the fed which brought America down.  She will be personally attacked and probably throw out of office and under the bus.
So IFF my model is right (and we should know shortly) the fed is between a rock and a hard place with little wiggle room.  In that case, at the very least it will be gratifying to see the con men squirm under the growing pressure.

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