A Summer Of Discontent
The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, June 8st, 2010.
The best quote regarding the trouble that lies ahead I've read for some time comes from Darryl Schoon in his lastest, attached for your benefit below:
"Modern economics is simple. The substitution of credit and debt for money produced debt; and as long as that debt could be serviced and/or paid down, everything was fine. The problems came when it couldn't."
If there is one thing that the Western (Fed) led international brotherhood of central bankers or our self-serving politicians cannot make disappear magically its the debt. And the fact new credit eventually turns into yet more un-repayable debt, and that we have now arrived at the 'tipping point' in this regard, where additions to debt do more harm to the economy than good as not only does serviceability become an issue, but increased government participation crowds out market influence, the stage appears to be set for a grand scale systemic / economic crash.
And according to Gerald Celente, because of all this - from government incompetence to over-taxation - the second American Revolution is underway, along with the crash of 2010, which is essentially discounting everything from a collapse in the economy (stocks, housing, etc.) to the inability of officialdom (bringing corporate into the picture) to get the Deepwater Horizon oil spill catastrophe under control. The thing to realize with all this is people are becoming increasingly angered, and will go 'off the hook' as hard times continue to dig into pocket books, which is a given considering the 'big picture' heading into next year.
In light of this perspective then, the only real question is exactly what war, or combination of wars, will dominate the landscape moving forward? Will it be disaster capitalism tips the balance in favor of our bloodsucking governments (i.e. bureaucracy vs. the people), or do they lose effective control in some version of a second civil war in America that saps fed powers? (i.e. the gulf oil spill is polarizing people in the south that are increasingly viewing those in Washington and New York as opportunists raping their resources for profit, while people from the north view people from the south as 'dumb hicks' [like the illuminati] that are to be exploited.) This is the big question on inquiring minds as events continue to unfold, where if you were to believe the message in the stock futures recovery since yesterday's sell-off, we are suppose to think the economy (and bureaucracy) will be 'just fine' (meaning don't expect meaningful civil unrest), with the Gulf falling into the category of an unfortunate 'make work program'.
Of course if you had to bet on an ultimate outcome, one in tune with a more natural order, political and economic decentralization appear inevitable sooner rather than later if events in the eurozone are any indication, with this process already well on it's way in the States as well. With each passing day, in one way or another, the federal bureaucracy is alienating itself from the local interests of states and municipalities across America not receiving any benefit from loose headed policy in Washington designed to benefit the oligarchs and their worker bees. So, it will be interesting to see how the make work program in the Gulf turns out in the end, and how politics is affected in the region.
Bottom line then is don't count out something on the more draconian side of the spectrum in terms how things play out moving forward considering even the idiots in Washington are now waking up to the cold and undeniable truth of the situation. A once great American empire is now broke, along with the rest of the Western alliance, and there's nothing to do but print increasing amounts of fictitious money to prolong the dream as long as possible before we are all defrocked in one way or another. As the true situation in the US comes to light, the clearer such a conclusion becomes, with increasing numbers realizing just how broke America is all totaled.
So it's quite humorous when Bernanke and his band of buffoons come out and still expect people to believe them when they bold face lie about future prospects in the economy, even though people want to maintain the dream of course, needing to believe in fairy tales. (i.e. a jobless recovery.) What's more, they, and a complicit mainstream media would like us to believe The Age of Austerity is something that will be isolated to Europe within the Western alliance, and that this too is good for the global credit based economy. And they want you to believe this because they say so, and not ask too many questions that would expose them for the vampires they are in the light of day. Because in reality the reason they were out lying overnight again is because they want liquidity conditions to remain favorable for the Treasury Auctions this week, with the 30-Year on Thursday.
This, is of course why we see this summer as being one of discontent, where counter to the Fed's (and larger price managing bureaucracy's wishes) the Dow closed two days below 10,000 now, which is why you see such a strong intervention in stock futures and currency markets overnight. As you can see in the attached, in doing so they attempting to rally the euro and hit gold (and silver) as well, however these interventions will not work for long, as investor sentiment, as measured by open interest put / call ratios, is not cooperating, with speculators continuing to buy the dip in stocks (as mentioned yesterday all US index ratios fell with stocks last Friday) and sell the rallies in gold. (i.e. the open interest put / call ratio for GLD shot over unity yesterday accounting for the surge in price married to tightening physical supplies discussed last week.)
Side note: All US index and ETF open interest put / call ratio charts will be updated on the site Thursday, along with being reviewed in a pre-expiry analysis.
Despite the fact seasonal weakness normally plays into the picture prominently this time of year then, expect gold to vex new highs in coming days to complete the count presented here in Figure 1 several weeks ago, now just finishing off the lower degree sub-waves of 1 of C that would see gold reach in excess of $1300 in a perfect world to complete this Golden Ratio projection. Afterwards gold will likely feel the effects of the deflation scare that will grip macro-conditions once the S&P 500 (SPX) closes below the large round number at 1,000 in coming weeks (by July), which would be understandable. Again however, and as per the count presented above in the attached, although quite pronounced, although gold will be correcting the move up from the $700's in 2008, still, it should not fall below four-figure support at 1,000 for long, if at all, in a final test at this level.
Why do we think the SPX is heading below the large round number at 1,000 despite all the optimism in official circles, the media, and amongst traders looking for a bounce (never mind those poor souls who are long-term bullish / hopers [most these days])? Of course if you knew anything about our contrarian / sentiment based approach to the markets one would already know the answer to this question, where the storyline has not changed. We attempt to keep things simple having isolated the single sentiment measure (open interest put / call ratios) that still works in this very mature market environment that allows us to successfully speculate in these treacherous markets while others struggle. And I anticipate this approach will continue to work because it's both too simple and obscure for most to believe.
One thing many traders are quick to dismiss is the continued viability of the CBOE Volatility Index (VIX) as a good measure of fear / sentiment in the market, and at times these people are correct when stocks are trending in manic fashion either up or down. Here, as per above, the only way of determining what the stock market is likely to do next is by monitoring US index put / call ratios as you may know; however, at times the VIX is in position to confirm the trend as well, which is the case at present. In fact, in terms of shining a light on the potential degree of collapse in stocks moving forward, this snapshot of the monthly from the Chart Room seen below is likely the quintessential chart for speculators right now, which is why it's the only one that will be featured today. (See Figure 1)
In looking at the monthly chart above, and daily plot attached here, as you can see a great deal of potential still exists for a sizable move higher, where if things were to go like 1987 (manic panic), who knows, the VIX could match the 1987 high at 150, never mind the 2008 peak at 90. The thing you should realize concerning probabilities here is that based on the degree of complacency in the trade set against the economic realities most are still grappling with to understand, a vacuum has been created underneath stocks that extends all the way back down to the 2009 lows, and it needs to be filled at some point. And that's exactly what the VIX is telling you is possible right now - that anything is possible - so hang on to your hats.
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 web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. As you will find, our recently 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 are interested in finding out more about how our advisory service would have kept you on the right side of the equity and precious metals markets these past years, please take some time to review a publicly available and extensive archive located here, where you will find our track record speaks for itself.
Naturally 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.