Posted on Thu, 03 Apr 2014 @ 14:53:17 CDT by Captain_Hook
Originally published as a Subscriber Article on 31 Dec 2013
Have you seen the movie Gravity
yet? If not do so because it’s great – especially because of what it can teach you about the weightlessness of space. It can teach you about the false sense of security (euphoria) weightlessness can give one, and that making bad decisions in this state can have startling and undesirable ramifications. What’s more, if there is one lesson stock market investors should keep in mind from what can be learned in Gravity, it’s events can spin out of control
without gravity very quickly, events that have lasting consequences. So, the appearance of the movie Gravity right now is quite timely in several ways, perhaps capturing a glimpse of what we are increasingly experiencing here on earth in the artificially created atmosphere central planning attempts to create for the unwary, to the eventual ramifications of a return to the laws of Mother Nature.
And according to Dr. Paul Craig Roberts, former Assistant Secretary of the Treasury, and co-founder of Reaganomics, we should expect the degree of Fed interventionism (central planning) in the markets to increase in coming days, further distancing price discovery from reality, and setting us up for an even bigger fall later on when fiction finally meets up with reality once again. In the meantime however, what we should expect is increasing currency, fixed income, commodity (precious metals), and stock market manipulations designed to maintain the status quo so that guys like Warren Buffet can keep raking it in apparently. So please, don’t be fooled by the tapering at the Fed’s last meeting. This was just more Kabuki Theater designed to fool the unwary using market psychology and misdirection.
Misdirection – what do you mean? Well, for those who supposedly watch the markets closely (have not heard a peep about this anywhere else, so please don’t take my work again without giving me credit), this should be obvious. The question then becomes, why did the stock market rally violently when the taper finally arrived? Was it because it was small, expected, and at an opportune time like some would have you believe? Answer: Definitely not – it was because the minute the Fed made the announcement they had their traders hit the yen hard and relentlessly, giving the impression everything must be ‘hunky dory’ if the crazies that trade this stuff think things are ‘OK’. And that was all it took for the algos to kick in, taking US stocks into record territory the same day.
Of course Mother Nature is at work here too, where gravity will be felt once again as well. The only question in this regard is when. As you will see directly below, we are expected to believe that since the yen is in the process of completing what appears to be a major 5-wave decline, which has been the supposed major propellant of the stock market(s) around the world, once a corrective sequence is complete (lasting 3 to 6 months), we should expect more of the same. (See charts below.) And given the degree of intervention in this market one would have been foolish to fight the tape (never fight determined central planners hell bent on debasing a currency), however in looking a bit closer at an alternative count that better fits present circumstances, where Western stock markets, which have been big beneficiaries of yen carry trade liquidity, appear to be topping out in a mania of epic proportions. (See Figure 1)
What’s more, it should be kept in mind that the global (Westernized) fiat currency economy completely dependent on increasing largesse, despite what central planners would have you believe, so perhaps a correction in yen carry trade related liquidity is all it takes to send equity markets reeling. Heaven knows there are a plethora of potential landmines out there to trigger a big fall in stocks, not to mention simple probabilities. And if it’s not triggered in the West, then perhaps it’s the East. While not talked about in Western mainstream media in ‘blackout fashion’ like news concerning Fukushima, it should be noted yen carry trade related liquidity is not helping Chinese stocks much, still close to multi-year lows, and lower than in 2009. And although doubled off last year’s lows, it should also be pointed out this isn’t so good for Japanese stocks either considering all the money printing it has taken to manufacture relatively meager gains. (See Figure 2)
But Western supremacy is not about the Nikki, or Japan for that matter, but how the subordinate periphery can be exploited and harnessed (when the timing is appropriate) to serve the masters of the New World Order (NWO) – the Anglo (including old European money) American banking cartel. Unfortunately for the West however, and everybody who lives there, a mature empire built on debt and bubbles that are ‘maxed out’ is not a recipe for longevity, especially with a kleptocratic bureaucracy so large and embedded in ‘the system’ the economy will simply topple over at some point from the shear weight of it’s vulgar mass. This is what is so important about the Dow / Gold Ratio (DGR), because it provides the most profound measure of the health of the system – faith in the system. (i.e. because make no mistake about it, despite what you don’t hear about it and the denial, the economy is already collapsing.) What’s more, this is why it’s important to realize the importance of the shift in gold from West to East as the ‘powers that be’ attempt to postpone the inevitable collapse of the American Empire. (i.e. as well as enriching themselves.) (See Figure 3)
People who pay attention to such things should take note at this time that it’s likely no coincidence US stocks are reaching a point of singularity in concert with the DGR testing the break below the all-important and secular trend defining 233-month exponential moving average (EMA) right now (see above), set to reach respective targets by around mid-January. (i.e. perhaps later considering this top is high degree.) All it would take is a continued surge in stocks and declining gold prices into the New Year to reach 14.5 on the DGR by then. Again, people who pay attention to such things will also be interested to know that if history is a good guide in predicting these occurrences, although scale is variable, pattern has in fact proven accurate in forecasting possible repeat performances, making this analog comparison particularly interesting. Naturally if a large number of speculators rush out and short stocks / buy puts to leverage off a possible 50% decline in the Dow running into April this will likely not happen, but on the other hand, if bearish speculators are finally sick of getting their heads squeezed off – maybe it will. (i.e. or a decline of a lesser degree, but still substantial.) (See Figure 4)
Figure 4 – Click Chart For Sharper Image
As you can see both above and below, risk adjusted stock markets in the United States have never been higher, meaning the desire to own ‘risk assets’ has never been greater. So, with this in mind, and aside from the knowledge the powers be will fight for their survival (and greed) ‘tooth and nail’, because of their privileged and lucrative lifestyles bought at the expense of the public (think law breakers, double standards, corruption, and the collapse of our society), it’s not unrealistic to contemplate a little volatility coming into the formula in 2014 as gravity finally takes hold once again – the gravity of America’s true fiscal state – and the gravity of the fact Americans have allowed themselves to be sold out by a bunch of third rate confidence men, charlatans, and outright liars. And again, this is most prominently reflected in the lack of concern or communication regarding the shift of public gold from West to East. Of course this will change after the fact (and it’s too late) – once the distraction associated with rising stocks is gone – to be replaced with anger, violence, and revolution. (i.e. hunger will ensure such an outcome.) (See Figure 5)
Figure 5 – Click Chart For Sharper Image
With this coming it’s almost funny watching the go – go crowd scratching their heads wondering why an increasingly indebted and disenfranchised consumer, whose jobs were exported to Asia long ago (in the name of capitalism), were not out shopping this year, when increasing numbers are wondering how they will just be putting food on the table. Sure higher income earners and asset owners did well last year, along with the bureaucrats, but everybody else is losing ground at an accelerating pace these days, where eventually fiction will meet reality, the housing, stock, and bond markets will have their days of reckoning (because of their respective bubbles – housing bubble, stock bubble, and bond bubble), then the economy is going to have a real problem. Because you can’t have decelerating loan growth due to a hollowed out consumer base facing exploding medical expenses and taxes and not have a problem sooner or later as the entire spectrum is effected one way or another.
Add to this increasing economic and political problems on the periphery, and we have a situation where some unforeseen variable will hit the system unexpectedly, knocking the economy, markets, etc. for a loop again. The thing about it is, stocks are priced for perfection given all the gains last year were a result of multiple expansion, not earnings growth, which is anticipated to decelerate further for reasons discussed above. What’s more, with the bubbles in margin debt and credit now at unprecedented levels, exceeding both year 2000 and 2008 levels, which again, is why stocks are setting new records with all the dumb money pouring in at a record clip as well. Add to this unprecedented money printing as well, and again, stocks are an accident waiting to happen – just waiting for gravity to kick in once Mother Nature decides to exercise her supreme power once more.
2013 was quite a different story for precious metals however, and if our observations in Figure 3 are correct, noting the count in the DGR, the punishment is still not over. Therein, although 2014 will likely be looked back on as a transition year, from cyclical correction back to secular bull market, it’s not uncommon for the trend from the preceding year to carry into the new, turning either in January (as was the case for gold in 1980), or March (as was the case for stocks in 2000), simply by virtue of momentum. In terms of the stock market, what this means is the dumb money coming in has not quite run out just yet, but we are likely close. And in terms of precious metals, once it’s recognized stocks have turned lower on a lasting basis, money will flow back to gold and silver because knowledgeable speculators / investors know the Fed’s hand will be tied – it will have to begin accelerating currency debasement policy once again.
You will remember however from our last meeting the discussion on lags in precious metals stocks because of deleveraging in the stock market once a lasting top is put in place. Therein, it should be remembered precious metals stocks are more stocks than proxies on precious metals until the timing is right, and history has proven the timing will not be right until the first round of margin clerk related selling is complete, which is something that can last as long as six-months using the year 2000 as a guide. So, although 2014 is likely to be the transition year mentioned above, at the same time it should be remembered it’s also a patient accumulation year as well, first concentrating on bullion at the beginning, and then the shares closer to the end if history is to guide us in such matters.
And regarding the near-term, with the apparent outside down day on the gold stock to gold ratios yesterday, along with the bear flags that will need some time to run their course, it looks like the speculators used up what little energy the sector was willing to provide for a January Effect rally prematurely over the holidays, which should come as quite a surprise to these people in the New Year. This is especially true of the juniors, which still need to be halved next year, so be careful.
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