So here's the final master plan for the next few months. It will materialize to the letter and there will be no laughs when 10Y hits 10% at the end of an extended wave 5.
The question is - why do I believe that wave 5 will be extended? There is no numerically or analytically certain way to tell this with 100% confidence. I can bet my life on yields going higher, but going as high as 10% is just a speculation based on my subjective assessment of how much the market still believes in "low yields forever".
If it happens (and I'm ~90% certain about that), the stocks will react viciously. Remember that AAPL still trades at 0.62% dividend yield today. The fresh MBA-graduated fund managers, contemplating 10Y at 10% will have nothing to do but sell the stocks in order to at least partially bring the stock yields closer to the new yield baselines.
The market is designed in such way that it will keep moving the yields higher until everyone is forced to accept the idea of the secular high-yield world. Sometimes the adoption of the new market trend comes gradually during waves 1, 3 and 5. But quite often the old beliefs are so strong that the market participants only part with them during wave 5. In that case the magnitude of price action far exceeds even the most audacious targets. Considering how complacently low the yields in stocks are, I think this will be the case this time.
The selling in the stocks department will be extremely violent. AAPL may be worth 20..30 at the end of the sell-off. Other stocks will follow for sure.
As usual, no one sees this coming (as it should be), and no one alive has experienced the market action of such magnitude and speed.
The question is - why do I believe that wave 5 will be extended? There is no numerically or analytically certain way to tell this with 100% confidence. I can bet my life on yields going higher, but going as high as 10% is just a speculation based on my subjective assessment of how much the market still believes in "low yields forever".
If it happens (and I'm ~90% certain about that), the stocks will react viciously. Remember that AAPL still trades at 0.62% dividend yield today. The fresh MBA-graduated fund managers, contemplating 10Y at 10% will have nothing to do but sell the stocks in order to at least partially bring the stock yields closer to the new yield baselines.
The market is designed in such way that it will keep moving the yields higher until everyone is forced to accept the idea of the secular high-yield world. Sometimes the adoption of the new market trend comes gradually during waves 1, 3 and 5. But quite often the old beliefs are so strong that the market participants only part with them during wave 5. In that case the magnitude of price action far exceeds even the most audacious targets. Considering how complacently low the yields in stocks are, I think this will be the case this time.
The selling in the stocks department will be extremely violent. AAPL may be worth 20..30 at the end of the sell-off. Other stocks will follow for sure.
As usual, no one sees this coming (as it should be), and no one alive has experienced the market action of such magnitude and speed.
