Monday, May 24, 2010

Our most important post EVER

Just to elaborate more on our twit from May 2nd on the 10 year bond When many commentators, including Pimco’s head Bill Gross, were calling for rates going above 4% we suspected that there would be one more “flight to quality” as thing once again got “more bad”. Again, the reasons why this happened are obvious now after the event.

Sometimes an Elliott Wave count can give you much more market insight without ever looking or listening to news. This is why we also recommend that client avoid news when making trading decisions if they are unable to distinguish between what is important from the noise.

If you had listened to the biggest bond trader in the world you would be down 20% since the yield was at 4%. Our Elliott Wave count was that the first major wave up began in Jan. ’09 and ended in April. We expected a wave Two, ABC correction to take place and last for a few months as indicated in the above twitpic. Our target levels were between 2.75% and 3.25 % (basic Fibonacci retracement levels). It now looks like we could get to below the 3% even though this looked like an unlikely event only a few weeks ago.

We then go into the most impulsive wave and this is where the meltdown will occur. First the media will say a rise in rate is due to the economy become “less bad” and there is again a demand for risky assets. However the real reason will be that investor realised they jumped out of the frying pan and into the fire. Nobody will want the long end of the US curve and what happened in Greece is just a precursor to how quick and impulsive wave 3 can be.

Heaven knows what interventions Governments will try so it may be difficult to make money on this demise. Of course if you own this product at these yields get the hell out. However, most are held by institutions in our hard earned pension funds. This is where “Joe Public” really gets ripped asunder.

Rates on T-bill MAY remain low as the second last flight to quality. It won’t take much of this bond money to drive the price of gold and silver into the mania bubble phase we discussed here and here

It’s not a pretty picture but now is the time to batten down the hatches and stop listening to all those “experts” and “economists”.