I think we are pretty close. The recent bottom of green C/red 2 could have been blue 5. But that might have just been 5 of 3, same as Avi is counting for gold.
The simple play here is to buy the inclining double bottom that is still in place here at 1.30 with stops at 1.26 knowing there is a reasonable chance you could get taken out. If taken out, then ODDs indicate that the real LIKELY bottom would be blue 5' as shown below to coincide with the bottoming of all commodities. Perhaps this is when Yellen says she still sees too much risk to raise rates - this is what I expect to happen. She does not want to be blamed for raising rates and crashing the economy. But then the bond market will raise rates without her and the world will see that the fed doesn't actually control jack shit. This will cause a loss of confidence in the con men and the stock market will react negatively as the cost of margin debt rises with the rising interest rates that the fed can no longer talk the market into accepting. With this, the confidence game begins to collapse in a broad manner.
This is a very long standing view of mine and it will be interesting for me to see if my world view turns out to be correct in this matter. The one thing I know for sure is that there is no easy fix for the economy. The only choices are "very bad" and "much worse". It's a debt Ponzi folks, pure and simple. Ponzis do not go on forever nor do they plateau. No, it won't be different this time.
Captain,
ReplyDeleteYou probably knew I'd come out of the woodwork once the topic of interest rates came back up again. You are of course on the side of the market setting the rate, and I'm of the opinion that the central bank sets a general target and then allows a certain range of float through manipulating the quantity of bonds available relative to bank reserves and general operations of the bond auctions.
At the time of our last back and forth (http://economati.blogspot.com/2015/02/on-facts-and-fiction-fed-and-interest.html) the 10 year was yielding about 1.97% and now the rate is sitting around 2.20%. The Fed seems determined to raise rates in September, so under your parameters they must see something pretty substantial shaking out in the markets in the tea leaves and are getting out in front of it. It would seem to me that if the market is going to force the Fed's hand, then we are going to see rates start to jump with some real gusto. We're talking like in the neighborhood of 180 basis points at the very least. The reason I pick that number is because in April 2010 the 10 year interest was at 3.85% and the Fed didn't even blink at that. They maintained consistently that they were keeping rates where they were, and had no plans to raise them. Will we see that rate spike before the next FOMC meeting? Like you say, time will tell. They might even push the rate increase out until December.
Always a pleasure,
Chance
Chance,
ReplyDeleteThe fed never gets out in front of anything. It tends to be a fast follower, The charts from Prechter over periods of many years clearly showed that.
Yes, rates are up 10% since last we debated even though Yellen did not raise anything. I cannot say that I am surprised very much. The market is behaving as expected. It grows weary of getting zero interest in a growing environment of global risk (as measured by falling JNK).
The last time there was a run on the dollar in late 2008, the fed doubled the promises on FDIC limits and then threatened congress with martial law if it did not do the bail out. No political will exists to repeat that, of this I am quite sure. The people will not be afraid this time because last time the people paid up and still lost ground while the rich partied on to all new levels of income inequality.
The herd is turning conservative and conservatives do not intimidate and scare as easily as liberals. Libs choose flight, conservatives choose fight. From a herd survival perspective, neither is a 100% winning strategy and thus good and bad labels do not apply. But it is going to be a lot more difficult to scare a conservative leaning population than a liberal leaning one.
BTW I don't see the fed as "determined" to do anything except for to continue conning people who will listen to them. Why anyone listens to them at all these days is beyond me. They've moved the goal posts a couple times on interest rates already even after making such bold statements about when they would be raised. Look at DIS stock. I wrote long ago that it was an indicator that breakdown was getting close when DIS broke down and DIS has broken down badly. I'm now watching IBB for signs of same.
We should know a lot more on the future direction of rates this week. The models are getting to the point where the market has to decide to break out or break down.