Friday, January 20, 2012

Rates about to implode…wheels are going to come off...

I make no apologies for my call on this rally. When I am early I am early. Given the judgments of the market, I have been early. However, I am looking at the bigger picture and that picture is shown in the charts I posted in this post and my previous post. 

An analogy: When you have a fairly manageable money supply and system it is equivalent to having a short string. That string will be immediately responsive to stimulation. Like a musical instrument even. So, a tight string will vibrate controllably or break. However, when you lengthen the string (like adding tons of uncontrolled liquidity as the central bankers have been trying to do) that string will oscillate try to manage its oscillations you need to tighten it more every time is is lengthened. This is the part that the Fed and ECB are unable to do. Therefore, what is happening with the markets and the whole financial system is that the oscillations are becoming greater and greater with each extension of the string. Hence what you see in the markets is behavior that is equally unmanageable and volatile. Any little movement extends further than one would ordinarily expect. Especially the equity markets which are attached to this string and are vibrating even more outrageously. But by my way of looking at it...these levels, yes the ones over the last few weeks, are the places that mark the beginning of a waterfall decline that will hang off this weak, long and untaught string that the illustrious central planners have strung. 
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