Rearranging Deck Chairs On The U$$ Titanic
The following is an excerpt from commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, July 14th, 2009.
America's paper empire is slowly sinking into the sea, and all the powers that be can do about it is rearrange the deck chairs for a while as they wait for the inevitable. Increasingly, more and more people are comparing the US to Japan, and it's 20-plus year bear market / economic doldrums, realizing try as they might, the prognosis for American is a match. This is of course why the stock market trading patterns are a match, because once you bubblize the real estate market (Japan peaked in 1990) it's all over, as this assures a structural high in credit creation that cannot be fixed as easily as floating a new CDO, or throwing a trillion or two at the bond market. Nope - once you play that card, as Sir Allen did back in 2002 to counter the negative effects of the tech wreck, yet another bubble he inspired, there's nothing left to do but inflate with abandon and hope nobody notices.
Why don't the powers that be increase monetary debasement rates even more if that's all it takes to bail out the economy again? Answer: Because although it may not appear they have much going for them in this department, they do know what inflation really is (their currency printing); and, they also know what would happen if they stepped up printing press speeds even more. And US officials are getting regular warnings from their (creditor) trading partners now reminding them that the days of US Dollar ($) hegemony dominance are numbered due to such policy, where again, the faster they print, the faster the end shall come. So this is why the US bureaucracy is creating new agencies and generally doing anything they can to distract attention away from such activities (shuffling deck chairs) in order to buy time.
The intriguing question from my perspective is 'are they delusional enough to think such tactics will last for long?' When facing death, like those on the Titanic, people will go to any lengths to delay and distract attention away from the inevitable, and this is certainly the case in the US right now. Of course if we were to look at the Romans in this respect, who were the last empire to accomplish complete global domination, the answer to the above question would obviously be 'a long time', as it took some 400 years past the peak before Constantinople fell. And there is a great deal of evidence to suggest we are correcting an X-wave right now, so again, this could take a very long time all totaled, meaning the bureaucracy's deck chairs will likely get far more use than their counterparts on the Titanic.
Undoubtedly the best example of what I am talking about above is seen in the stock market, and it's ability to stay aloft despite dismal fundamentals. To say the bureaucracy (and Wall Street Bourgeoisie) is shuffling the deck chairs around here is an understatement, to say the least. These characters will do anything and everything to keep the speculation based Ponzi scheme they have created going, including attempting to draw negative attention away from it when deemed necessary, like right now in focusing regulatory attention (position limits) on precious metals and commodities futures markets. (i.e. they are attempting price controls.) Of course it's too bad this kind of thing never works, and will blow up in their faces eventually. And perhaps this will be sooner than later in knowing what it would do to physical stocks.
Be that as it may, and at the same time, it does appear precious metals markets could use more corrective price action to work off overbought conditions, however it should be remembered it's normally at times like these the deflation monster rears its ugly head, which in turn calls our buddies down at the central bank(s) back into action. After all, money supply growth rates and the monetary base are now rolling over nicely, giving the bozos at the bank justification to begin inflating us into oblivion ounce again. So, get ready, as I'm sure it will be coming shortly, meaning when gold (and silver) and precious metals shares reach our targets of the mid 800's and 280ish (200-day moving average) respectively, one should think about accumulation once again. (i.e. this doesn't mean they won't go lower, which is why averaged accumulation should be considered.)
From a seasonal perspective, if the low does not occur this month, it would be surprising not to see it sometime next month. Of course what would be very surprising to most is if these lows were higher than the preceding correction, which fits with our 'seasonal inversion' hypothesis and theory that general liquidity conditions will remain resilient longer than bearish speculators can presently envision. I cannot guarantee this will happen, but at the same time one should not be surprised if it does considering the powers that be are pulling out all the stops to keep stocks aloft. Again, they will do anything and everything to maintain the deception Wall Street is healthy because this is key to $ hegemony power and credit creation prospects.
Look at the tactic Meredith Whitney brought to everybody's attention on CNBC this morning. Apparently Obama signed a Presidential writ back in May that allows banks to restructure MBS bond loans to benefit their balance sheets that could provide some unexpected earnings related surprises this week. That's why bank shares and the broads magically rose from the abyss yesterday, because the gamers were all over this news. Of course this kind of thing is nothing new. The powers that be went great lengths back on the 30's to get things rolling again, but failed naturally. Still, historical trading pattern comparisons tell us to allow for more of these instances moving forward, where stocks should remain buoyant into fall minimally.
Past this it becomes increasingly difficult being bullish on inflation prospects however, at least until the second shoe drops within the larger corrective sequence in stocks that began in earnest last year. This will eventually occur no matter how long the powers that be keep the present corrective rally going, even if they are able to extend into next year's seasonal strength. That's what a match with the extreme Nikki comparison attached above suggests is possible. Once this occurs however, the contracting credit cycle will make its presence felt once again, which will bring sweeping losses across the entire equity complex. It's just a question of time in this respect, where a second leg down to finish the larger secular stock market bear that officially got underway back in 2007 with the banks rolling over will return.
One thing is for sure, I wouldn't want to be short either bank stocks or the broads right now, not with the turn higher in the BKX yesterday. That look too much like the start of another wave higher to me, with this news on what the banks can do with their balance sheets provided yesterday the catalyst for such a move. And the thin volumes during summer months will allow the banks and brokers to continue these games. I've seen this movie before, back in the summers of 2000 and 2001. The banks and brokers were able to squeeze the markets higher during summer months in seasonal inversions just like this year because of rising put / call ratios and contracting volumes. So again, as per our timely warnings, please don't get caught short here.
With all this then, you would think precious metals would benefit from prospects for increased liquidity and such, however they have been languishing into what appears to be normal seasonal lows. Of course one needs to remember that exactly the opposite circumstance set compared to stocks exists for precious metals right now, characterized by stubbornly bullish sentiment (because of ongoing positive fundamentals) and a bureaucracy that will stop at nothing to suppress gold and silver prices. That's why precious meals have been trading in lockstep with the broads, which is a condition the powers that be don't mind a bit while equities are contracting. Keeping gold under $1,000 and four-figure territory is the goal. (See Figure 1)
And they may be more successful at this than the bulls presently think if precious metals shares remain in their current funk. They will need to lead the charge to signal inflation is back. The problem is if the above monthly chart of the Amex Gold Bugs Index (HUI) has any predictive value, at present it's telling us not to expect pressure in the pipe to increase. In fact, the message would be just the opposite if the recently registered channel failure were to accelerate to the downside. What's more, such an outcome would also likely counter all the bullish spouting off above about the potential for a seasonal inversion in equities this year, if you consider dull rallies bullish. Be that as it may, the proof needs to be in the pudding, and the pudding needs to see the indicated RSI tests negated and bettered in both Figures 1 and 2 in order to get past the likelihood significant downside in equities is something that should be expected sooner rather than later. (See Figure 2)
Of course if history is a good guide the S&P 500 (SPX) should make it up into the 1,000 area by this fall before it's all over, if you consider that dull. Still however, with the exception of buying physical precious metals to secure wealth, which is always a good idea these days considering the shaky nature of the system, equities of all varieties are risky moving forward, and only for the gamblers. Exactly where you fit into the equation is naturally a matter of choice, where one should remember being bold under such conditions involves risks that may not be foreseeable at this point. After all, history has a tendency to rhyme, not repeat exactly, so all the historical comparisons discussed above could be negated if something were to come out of 'left field' as Mark Lundeen postulates in his latest.
Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our continually improved web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. For your information, our newly reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts, to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented 'key' information concerning the markets we cover.
And if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line. We very much enjoy hearing from you on these matters.
Good investing all.