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This guy is basically predicting the end of the world. Certainly plenty to disagree with him on, but makes for some good debates...
I'd like to hear your feedback, just cuz I value your opinions. How much of what this guy says is looney-tunes?
You can reply in the other thread. If you don't have an hour to listen to whole thing, try to just hit the last 30 minutes, that is where he makes most of his Nostradamus predictions.
It has been three weeks now since the Fed formally announced its $400 billion Operation Twist program on September 12th. If early indications are a sign of what's to come, however, this will be the third straight time the Fed has tried and failed to lower long-term interest rates through the Treasury market.
The chart below shows the yield on the ten-year US treasury going back to September 2008. The red dots in the chart represent each time where the Fed formally announced intentions to buy Treasuries in the open market (QE1, QE2, and Operation Twist). As shown, following each of the prior two announcements, the yield on the 10-year rose by more than 100 basis points (bps) in just a matter of months. Following its most recent announcement in September, the yield on the 10-year is already up 36 bps.
While one could argue that yield declined ahead of each of the prior announcements due to the fact that each move was widely telegraphed, at face value it appears that the Fed's attempts to lower long-term interest rates have been futile.
Short term impact of purchasing treasuries : Drives up demand and therefore lowers interest rates, drives down exchange rate.
Medium term impact of purchasing treasuries : Both the increased money supply and the lower exchange rates are harbingers of inflation, anticipation of future monetary policy to contain inflation will drive interest rates up again.
It is a trade-off between the present and the future. I first heard about this when I read Grimm's Fairy Tales - I remember a soldier who concluded a pact with the Devil. The story was also told in a slightly different way by Goethe in "Faust". Actually, any pact with the devil is nothing else than a Ponzi scheme. In some fairy tales you may escape, but you never do in real life.
-> Politicians love Ponzi schemes because they want to be reelected, their notion of the future is delimited by the election period.
-> Bank employees are influenced by the bonus period, or on a higher level by their quarterly earnings announcements.
-> The Fed cures imminent problems by going short the future, this is why after 1929 it took about 20 years for the US economy to gain grounds again
-> Economists do nothing but simply describe what is happening and call it an S-shaped curve.
The driving force behind the pact with the devil is moral hazard, also known as the tragedy of the commons. Capitalism is currently under scrutiny, although it works very well. The problem is that market mechanisms do not account for the commons, so the commons are depleted. The financial crisis was just another way to deplete the commons, and the Fed is just reducing the impact by shifting some of the repercussions further into the future.
The pendulum will bounce back and interest rates will rise.
I'm leaning towards a down day on Monday just based on the rally we had, however,
I'm still bullish until the chart tells me otherwise.
For shorts, I one play of a possible fade down to 1211 with /ES open on Sunday.
I won't be looking for a trending short until price is below Friday's action.
I will add to a short position with price below 1206.
For Longs I would like to see support around 1211 and a retest of 1220.
Insane to think about but not out of the question is a breakout above 1220.
I'm ready for anything.
Price so far is on top of the profiles 3sd. Watch for support here (1220)
through the evening for a possible breakout during London open. Lots of time still left but it's worth mentioning IMO
A break below it and look for the fade trade
Very little movement on delta so far. I would expect price to either rally upwards and re-test highs today or tomorrow, or I would expect a huge influx of new sellers to move price even lower. All I know is right now there is very little in the way of strong commitment from either side on this 30 point drop.
~1201.00 (RTH S2) to 1204.00 (weekly pivot) level is near term support. A sell-off below there could be fast and furious and take the ES to 1190.00, where I would expect the bulls to step in, en masse.
