The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, April 13th, 2010.
As with Rome, that became the globally unchallenged center of power and finance in its time, so to is the American Empire visibly rotting from inside now as well, which will be its undoing. The elitists steer the bureaucracy to do their bidding in an effort to increase the power of the machine, and this can go on for some time, which it has. However again, as with all such fascist like episodes in history, the bureaucracy grow past sustainable mass and eventually must feed on itself, playing the blame game in an attempt to maintain a semblance of credibility with the public they intend to keep raping. That's what the financial crisis hearings are suppose to do. They are suppose to make an increasingly besieged and weary public feel better about continued gang rape by the bureaucracy via increasing taxes, loss of liberties, and confiscation of wealth.
Of course even a corrupt bureaucracy as big as the Western Alliance led by Bilderburg Group illuminists need a functioning currency system to maintain the fraud, which was also Rome's undoing in the end as the Denarius failed, the fate of all unbridled fiat currency based economies such as the one we have today. You see the problem is in the managing of swings that become more profound as increasing inflation (printing of fiat currency) is required to keep such economies from collapsing as they are hollowed out and plundered by the illuminists and its bureaucracy. Right now, with stocks (equities) on the cusp of going into another extreme mania state (see Figure 2), as explained in our last meeting, they have reacted by managing the growth rates of broad money measures down, along with curbing monetization practices in an attempt to cool the economy.
With the real economy falling into increasingly worse shape in spite of the bureaucracy's best efforts to stave off collapse however, this could be viewed as a risky exercise, especially if the swing lower were to taste anything like a prolonged deflation Japanese style. Apparently Paul Volcker thinks this is a distinct possibility, or he would not be recommending a value added tax (VAT-Tax) moving forward, which when translated means the government thinks they will need to make up for falling revenue in other areas. So taxes are going to increase for all Americans sooner or later, not just for the rich, which is counter to Obama's election promise; unemployment is up despite exploding deficits and reckless spending; and, government revenues are cascading lower, which is worst at State and municipal levels. In this respect, California, which is the seventh largest economy in the world and multiplies of Greece, is now less than a month from insolvency.
I bring this up because as you will see below, in terms of post crash bounces, we are at the point where they have been halted historically, measured by manias occurring both before and after the accelerated inflation phase that is separated by Nixon's closing of the gold window in 1971. More specifically, we are of course referring to the post crash patterns in the Dow following the '29 to '32 Super-Cycle collapse, and that of the Nikki through the '90's into the new millennium. In the first comparison to present patterning, one can see that the S&P 500 (SPX) is now at a point that is similar to the Dow in '38 from a duration, pattern, and magnitude perspective, which is difficult to ignore. Why is this difficult to ignore? Because exercises in human psychology within manias tend to repeat, which would create the above noted similarities. (See Figure 1)
Interestingly, because as mentioned above we also have an example of this that falls within the post gold window era as well, one can observe the same similarities mentioned above when comparing the post crash Nikki of the 90's to the aftermath of the tech wreck that topped the NASDAQ in 2000, except that the bounces in the latter were more profound. (i.e. they have a tendency to go higher and last longer, which could be the case again if the present bounce extends past this trading day comparison.) Still however, it goes without saying the fact we essentially have such stunning similarities when not only making the analog comparisons between the markets on each respective plot, but also between Figures 1 and 2, timing a turn at present could prove to be pivotal. Please note that both Figures 1 and 2 are trading day comparisons. (See Figure 2)
And in extending the above comparison to a calendar day exercise (see below) we in fact get the message this bounce can indeed last longer. Such an outcome would allow US stocks to move back into the extreme mania state mentioned in our opening remarks, which would cause further pain for the short sellers. Of course it's not as if there is any shortage of reasons for traders / speculators to be bearish on future prospects for stocks. The one that many commentators are citing at the moment is the Fed's supposed exit from Quantitative Easing (QE) in the debt / mortgage markets, which is propaganda you should know. You may remember me discussing that on Christmas Eve, where when few were looking, Obama (who is largely controlled by the elitists mentioned above) gave Freddie Mac and Fannie Mae blank checks to ensure this move on the part of the Fed would not collapse the mortgage market. (See Figure 3)
Special Note: All charts provided by The Chart Store.
So rest assured, there is no end to QE in either the mortgage or bond markets, where this latest move by the Fed is just part of the propaganda to support the debt (and equity) markets (getting people thinking this is an effective tightening), and control gold, which needs controlling before it busts a move higher. Goldman Sachs was out with their contribution to the propaganda machine yesterday in calling a top in gold here because once the metal of kings makes it through resistance at $1162 (now $1168 because of the surge yesterday) on a lasting basis, the only remaining hurdle will be at the December high. Then it's blue sky potential after that, which is why the bureaucracy's price managers will pull out all the stops moving forward to stop an advance in precious metals. As you likely know, that's how important gold is, where it would destroy the credibility of claims QE is ending if the yellow metal were to explode higher in price right now.
Fast forward to today (26-04-10) and we now have the bureaucracy feeding on itself wholesale in the States at present with Wall Street reform, where Washington politicians are attempting to eat New York bankers, which should bring the capital markets (and access to credit) to a grind halt eventually. In the meantime however, all the bad news, which includes the threat of a EU (Euro) breakup, are just more reasons to buy increasing amounts of puts by a wider scope of speculators / hedgers, which should keep equities supported believe it or not. With this in mind, and knowing precious metals like a firm equity complex to move higher, after Comex / CME options expiry tomorrow gold and silver could see some extraordinary price action. Treasury auctions have been an issue in the past, however this influence might be set to become deferential given the significance of other factors on deck at the moment.
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Good investing all.