The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Thursday, May 19th, 2011.
When one speaks of atonement, it's generally in the context of a wrong that is made good, or at a minimum, at least the acknowledgement of a wrong. Of course in terms of any wrongs our ruling class of bankers, business elites, and politicians (plutocrats) may perpetuate today, the concept of atonement is quite foreign as long as you are high enough up, which is why the wrongs against the public both continue and grow more profound by the day. History has taught us however that despite such vulgarities that will undoubtedly continue to the very end of our present fiat currency economy (experiment), which is due anytime based on historical precedent, atonement will be seen at the highest levels too despite the best laid plans of mice and men. It's only a matter of time.
In the meantime however, and to frame the picture for you, again, expect the wrongs to continue - the lying, cheating, and whatever else it takes to continue the fraud(s), which in turn enable the ongoing theft from the public for the betterment of the ruling class. In this regard it's like a page right out of Orwell's Animal Farm, where the pigs and dogs thrive at the expense of the rest of the barnyard animals. You should know this is how you are viewed by the upper ups in our society - as the equivalent of barnyard animals under the names consumers, borrowers, and taxpayers. That's because whether you realize it or not, increasingly America is becoming a fascist state, and it will continue to do so under the rule of an increasingly hostile oligarch. Their demise will only come as a result of the fiat currency economy (flimsy and mismanaged) economy finally succumbing to natural forces (the currency bubble itself will burst, raising interest rates, and in turn popping the larger credit bubble), but undoubtedly not before some degree of hyperinflation is unleashed on a predominantly unsuspecting public. (i.e. as they attempt to preserve their power as long as possible.)
So, if you don't wish to be living like a barnyard animal when this is all over, one had better begin taking steps to protect ones savings (assuming you have any left at this point), because some degree of atonement for the crony style handling of the economy and markets must take place. And apparently it's starting already, where if you are not far enough up the totem pole in the government your pensions have already been confiscated. This was bound to happen eventually, so it's no surprise, and a dress rehearsal for more permanent and profound confiscations from their own down the road. (i.e. the bureaucracy will eat its own attempting to preserve itself eventually.) What might be surprising to the plutocracy however is employee backlash and the damage such moves will inflict to the bureaucratic mechanism as participants (government employees) finally figure out they are just another flavor of food for the machine. (i.e. eventually they will begin buying gold and silver to when they realize their government pensions will be confiscated.) This is just another example of atonement you see, which will become more widespread and profound as the days, weeks, and years pass. You have to wonder how many naive government employees are banking on their pensions and have little or no alternate savings? The numbers are likely surprisingly high.
Moving on to the markets now, here too, atonement will come one day as well - atonement for all the propping by the bureaucracy's / plutocracy's price managers and atonement for all the inflation / debt creation throughout the years. As alluded to above however, one should not think of deflationary collapse initially as atonement here in knowing just how desperate the powers that be are to maintain the status quo, along with their lifestyles. No, please do not make this mistake, because they will do anything to steal more time in this regard, where again, hyperinflation, which is an act of economic suicide when understood correctly, is likely given proclivities by those on charge these days. Apparently they missed that day in economics 101, or perhaps they skipped the higher learning process all together. One does need to wonder. Or perhaps they think they can keep lying about rising prices and the sheep will continue to accept those lies because this course of action still appears best. Rest assured that at some point however, when enough people (including the bureaucrats) can no longer make ends meet because prices are rising multiples faster than their wages this will change, with denial replaced by acceptance, and where increasing numbers of the hoard will attempt to secure their wealth in hard assets. And precious metals will lead this charge. (See Figure 1)
This state is not here yet, but it's coming, likely beginning in earnest by no later than early next year, where as suggested in the chart above, increasingly more and more people will be switching their paper assets (the Dow) for tangibles (with gold in the lead). In this regard, and what the above chart is telling you, is that even though gold has been in a market for some 10-years now, the vast majority of market participants still don't own any, preferring to continue to believe that the paper markets are still the place to be. Most, including many money managers, are still in denial or ignorant about the true nature and degree of inflation in the system, what this means for paper assets eventually. (i.e. profits, debt burdens, and operating losses) And again, most still don't own gold, or any other means of investing in precious metals, where overall participation rates when considering the aggregates are still well below 1 %. This number will exceed 5 % minimally one day as the lights continue to come on for the unwashed, and likely much higher. (See Figure 2)
That being said, the fact RSI has now broken out ahead of price on the monthly Dow / TSX (Toronto Stock Exchange) Ratio (see above) we will likely have a little rally here this summer that will have people thinking deflation, and they would be correct if the Fed stops accelerating the pace of currency growth for any length of time. This is why we say, while they may play some further word / expectation games after QE2 ends next month, don't expect such a ploy to last long once asset prices start to fall. Correspondingly then, also, don't expect commodity prices (and underperformance in the TSX) to last long either, meaning while new lows in the above ratio may not be in the cards with rising interest rates in the States, at the same time conditions should remain contained while gold, silver, crude oil, etc. all hit new highs next year. Heck, as you should know from reading both my own and Dave's work recently, even stocks (a commodity now) are anticipated to hit new highs next year, with 1700 plus on the S&P 500 (SPX) the target. (See Figure 3)
Because when the markets see that Bernanke and company are in fact debasing the dollar ($) at an accelerating rate once again, it start falling precipitously, taking out all time lows on it's way down to 30 if the pronounced Fibonacci resonance signature in the patterning (see Figure 2) of the long-term plot has any predictive value. (i.e. it does.) So the CBOE Volatility Index (VIX) will fall too with all the easy money floating around once again, which will jettison the SPX / VIX Ratio back up to all time highs at a minimum, and perhaps beyond. (See above) And the strong Fibonacci resonance signature in the NASDAQ / NASDAQ Volatility Index Ratio will likely see an extended run into new highs as well, where at present it's testing a breakout above previous all time highs (from the year 2000), suggestive moral hazard in the financial markets is and will see extremes though unimaginable just a few short years ago. Of course everything is more extreme these days as economic conditions get more dire for increasing numbers, which as alluded to above includes the lying. (See Figure 4)
The biggest lie of them all right now is that the bureaucracy is not planning on printing more money once QE2 is done next month. This is an outright lie because as alluded to in our last meeting, our fully addicted and mature fiat currency economy needs ever-increasing amounts of unsubstantiated promises in order to keep the illusion alive, not less, where at this point any disruption in this regard would be fatal to patient, which in this case, is the economy. Therein, we are now at the point where the years of loose-headed mal-investment by the bureaucrats and their cronies has begun to disintegrate at an accelerating rate, where to counter this they in turn need to turn the screws up on the printing presses in order to continue papering over a literally exploding problem(s) in dimension. And so in doing just that, what happens at an accelerating pace is the currency becomes increasingly worthless, and this is where you start getting the 50% per month general price increase, which is of course the definition of hyperinflation.
So you see, both hyperinflation and the inevitable collapse afterwards is the ultimate atonement for the excesses we have allowed to be perpetuated on us by our bureaucrats and crony capitalists, where one does need to wonder just what variety of atonement awaits these most despicable characters one day. Not knowing this, and caring even less, what we do know is if hyperinflation is on the way, you, as an individual, must protect your wealth against such a travesty, and that history has proven the best way to do this is with gold (and silver), the oldest forms of real money know to man.
So don't worry, if Bernanke is still around next month, some variation of continued money printing and monetizations will continue because the alternative is too dire, which is the one thing this self-proclaimed expert on the Great Depression is not about to allow on his watch, that being a depression. Unfortunately, with China (think exports) and Japan's (think nuclear accident) economies slowing down this year (along with the rest of the world), this means we will soon have far too much money chasing increasingly few goods. And again, this is how we will likely be seeing shades of hyperinflation by as early as next year, accompanied by a bond market meltdown, followed by equities at some point.
Of course gold and silver will both be doubled from this year's lows by then for a plethora of good reasons (with the hyperinflation threat at the top of the list), so you know where to put your money on any further pullbacks into the summer. Just look at this chart of what gold in Weimar Marks did during their hyperinflation in 20's. There's about a trillion good reasons to buy gold here, no?
Good investing all.