How could Bonds rise to these levels, given the possibility of a contemporaneous Dollar devaluation – perhaps in half?
Both scenarios suggest a response to a single problem – a housing market disaster. With over a trillion dollars of adjustable rate mortgage debt about to reset for the first time in 2007, as teaser rates come home to roost, with little interest to buy real estate at current price levels, it isn’t hard to see the looming disaster. If housing prices fall due to supply exceeding demand, Banks and mortgage-backed security holders are at risk. Homeowners are at risk. If you were the Working Group, a.k.a Plunge Protection Team, what would you do? Answer is, devalue the dollar so that the real value of debt is diminished, and buy Bonds so long-term interest rates are low enough to act as an incentive for another round of payment-reducing mortgage debt, which of course would stimulate housing demand and support prices (from the creditor’s perspective, collateral values). These charts suggest it all is likely to happen. For a Free 30 day Trial Subscription, go to www.technicalindicatorindex.com
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