The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, December 3rd, 2013.
It was some 40 years ago now when it was first heard over the airwaves, the first time these piercing lyrics and concept of us having only Five Years left, immortalized by the incomparable David Bowie. As you may have discerned given my propensity to borrow David Bowie song fare in order to help frame my work (see Scary Monsters), I am a big fan, but of course I adore many and much of the work from 'the period', a time of cultural, social, and economic turbulence and change that was our 'coming out party' into the easy money times we have enjoyed these past decades. It wasn't long after Nixon went off the Gold Standard and the wholesale debasement of now fiat currency regimes across the Western landscape began to accelerate to where we are today, lost in a dreamland of deception, decrepitude, and vice. These are the pillars our economies now rest upon.
And it has become so bad, that like Bowie back in the confusion of the 70's, the thinking man must wonder just how much longer this madness can continue with the growing threats of not just economic implosion, but now and for real, both nuclear war and poisoning. In case you are unaware, which is understandable considering the media blackout imposed on the situation, it's estimated by impartial and concerned sources that radiation levels in the Pacific Basin are already 'noticeably toxic' (even to bought and paid for government scientists), and is projected to double in toxicity over the next five years or so, which again, if you are unaware, causes cancer for those subjected to long-term exposure. So, living on the West Coast will become increasingly like living on Mars over the next five years whether one chooses to believe this, or not. (i.e. take your iodine pills at a minimum.)
So the question of just how much longer this intensifying mess goes on for, living life on Mars, where the concept of five years has far more credence today than it did back at the beginning of this nightmare, is beckoning increasing numbers all the time, and the status quo know this - and are fighting it. Clearly the idea behind the media blackout is to keep West Coast inhabitants both fooled and calm, not wanting to sell their real estate and businesses because this would collapse the economy. Make no mistake about this - the gravity of the situation - that life on Mars is for the birds unless you wish to become a canary in a coalmine. Put that in your pipe and smoke it and you will likely be better off than living on the West Coast over the next five or ten years, however long it takes for our collective evil ways to be manifest.
Of course with everything else that's going on out there, even if one is not vanished from the face of the earth five years from now, life, as we know it, will likely be very different - very different indeed. US foreign policy is a shambles, where the current administration has now succeeded in 'angering Saudi Arabia' to the point they are now talking about 'dropping the petrodollar'. What's more, some 23 nations have now set up "non Dollar" swaps to be used to settle trade, which is a trend that appears to be accelerating. Why is this? Is it because the US is printing so much money foreigners are worried about the value of USDollars ($)? Nope, that's not the reason, especially with China printing money faster than the US. What is happening however, as evidenced in the attached above, is the Obama Administration pursuing it's misguided agenda, and in the process destroying decades of strategic ties that have literally defined the essence of US economic dominance worldwide. (i.e. think US hegemony.)
So, what does this mean will happen? Answer: It means unwanted $'s will need to come home at some point in the not too distant future, which will cause general price levels (not just stocks) to rise. Moreover, what this also means is tough times lie ahead for not just the low and middle classes, already embattled by the 'haves' who have been on a rape, pillage, and plunder extravaganza these past few years, aided by the neo-fascists in the White House; but now, 'they' too will feel the pinch as the 'status quo' unravels, and the bourgeois pigs (think French Revolution) attempt to flee. This will be the time of what Jim Sinclair has dubbed the 'Great Reset', when the larger central bank bubble becomes undeniably obvious to all. It will start with what the optimistic would prefer to view as a little 'pin prick' soon, to be followed by some degree of hyperinflation, and then the collapse of the larger economy - all within the next five years.
For this reason then, which surely some degree will occur, one should prepare your finances, because when the $ begins to accelerate lower it will be too late. And while it might still be some time before this is a pressing concern, perhaps a year or two down the road, still, attempting to map out an 'action plan' is undoubtedly a good idea, especially if one has done no such planning yet, and especially if the $ is in rally mode, or at least flat, which is the indicated probability present in the chart below. That is to say, while there is no conclusive technical evidence in this regard, still, it appears the path of least resistance is down, with the possibility of a minor strength within the intermediate-term. Thus, one must conclude then, that because of the tremendous efforts being made to keep the $ stable by the status quo, this will continue to be the case until it's not, at which time the $ might crash as it's loss of reserve currency - petrodollar - hegemony statuses hits American shores like a tsunami. (See Figure 1)
Of course with the Bollinger Band widths as tight as can be and full stochastics turned lower one would think the $ could begin it's journey to as low as 18, the Fibonacci resonance and head & shoulders pattern target indicated above, anytime now; however, and again, the status quo boys, and their price managing goons (think JP Morgan [JPM], Goldman Sachs, the Fed, etc.), will likely have something to say about that. The idea here is to make markets do the opposite of what they should be doing based on the fundamentals (this is their idea of a 'free floating' and 'self adjusting' system where the markets are made to do what they should be according to them), so that stability, and the status quo is maintained, and the top .01% can keep milking the hoards. The whole thing is very Roman - very Bread and Circuses (think food stamps, disability benefits, the welfare state) - and all. The whole idea is for the neo-fascists in Washington, and their .01%'er overlords, to maintain price / market / interest rate stability so that the distracted and brain-dead can continue to be exploited. (See Figure 2)
One does need wonder however, what happens when interest rates need to start rising for real in order to keep the $ stable. Is the jig up when that happens given America is downing in debt and bad IOU's? That's what US bonds are you should know - nothing more than bad IOU's that will never be paid off in the end. And at some point, the point it appears too many $'s are floating around and domestic prices begin rising uncontrollably, despite the best efforts of price controls and such, the bond market will have a problem that cannot be contained no matter how much QE is thrown at the problem. (i.e. think China wishing to sell all its $1.2 trillion of US Treasuries in short order because of rising political tensions.) What do you think would happen to the US / Western / global economy if indicated channel support in the chart above is taken out on a lasting basis knowing America will continue to pile up the trillion plus of new debt every year, and accelerating higher? At a minimum, volatility in the stock market, as measured by the CBOE Volatility Index (VIX) might pick up a tad - right? (See Figure 3)
Naturally the question on everybody's mind is not 'if', but 'when' this is to occur given stocks are melting higher in a speculative blow-off now looking much like that of 1929 seen here in analog comparison. Therein, it's a given the Fed will not taper at the Christmas meeting, which should cause stocks to blow off into year end, and beyond (into January) if the above attached analog is traced out. However we must also consider that if the speculative community, where just about all of whom will likely see this analog in coming weeks, attempts to capitalize / hedge this risk, it's possible the pattern does not repeat. That's what happened last year, and the market's price managers have been playing the speculators like a fiddle ever since. And this risk is seen in Figure 3 above as well, where the monthly plot clearly demonstrates the madness can continue well into next year. One must realize this is for all of the marbles, as the analog above shows, where fiction finally meets reality at some point in theory. Of course if stocks keep rising a very orthodox Janet Yellen would be forced into tapering at the first meeting in January.
Back to a focus on the $ now, which would likely have a significant rally once the stock market topped. (i.e. as foreign money pays down debt) Aside from this however, the Chinese and Russians have been accumulating gold for some time now, and may in fact be in a position to rival the $ for reserve currency status already. We know this because both China and Russia are already making rumblings in this regard, turning up the pressure on the US and alluding to the need for a new world order. What to expect at some point in the not too distant future? In knowing the Chinese (and Russians) feel they have enough gold reserves to be taken seriously now, expect increasing pressure from both to marginalize and isolate the $, ganging up on the US not to give them just one target to retaliate against. Then, expect the Chinese, Russians, and their growing trading block partners to keep announcing growing affiliations that continue to isolate the $, making it redundant. Then, expect this trend to accelerate, as the Chinese and Russians set the standard for reserve currency status to be independent audits of their gold reserves or be disqualified, which will be the enabler to issue credit on an international basis as the US does.
In case you didn't know, credit is the defacto chief export of the US, credit and $'s. JPM and Goldman run around the world selling their worthless derivatives (credit default swaps [CDS], options, etc.) to just about everybody without worry of ever having to pay because the game is rigged. They will never have to pay out on these things because the supposed CDS regulators, the International Swaps and Derivatives Association (ISDA), who are located in New York, are told (paid) to never declare a default, making the premiums the banks collect, which are forced on people, a guaranteed proposition for JPM, Goldman, and their ilk. And the same is true on the options they write, because most are protective puts (or calls on the volatility [VIX]), where the Fed backstops them with $85 billion per month. (i.e. stocks go up all the time.) And if that's not enough, and as alluded to in my last correspondence, this will be increased when necessary. Of course if a black swan event were to occur this would all change - perhaps on a lasting basis as well given these clowns are running at 40 to 1 leverage.
How much new currency would need to be printed the next time there is a meltdown given the 'system' couldn't survive such an outcome? Much more than in 2008, which is why they are opting for bail-ins this time around (so that increasing numbers become dependent on government if a stock / bond market crash occurs), and you should know this is why stock futures are jammed higher every morning. (i.e. and banged higher at the close.) This is the bureaucracy's price managers attempting to prevent / delay the doom. It's coming however, no matter how many games they play to delay / avoid it, because America is suffering from financial, moral, and leadership bankruptcy, and the world knows it. This is why China and Russia are attempting to become more respectable on the world stage - because they know the US is vulnerable with Washington full of idiots.
Where do you want to be in five years? Dependent on the government - or not? In order to escape this risk Americans must escape $ risk - fiat currency risk. And there's only one way to do that - in precious metals.
This is why we will focus on precious metals in our next meeting, along with the fact our buy targets are now coming close with gold and silver likely in their final waves down for the present corrective sequences possibly set to complete as tax loss selling subsides at month's end.
See you next week.