The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Wednesday, January 8th, 2014.
For those familiar with Greek Tragedy, which is not difficult today if one just looks around, the concept of 'parapeto' should be well understood, as it's central to plot. Parapeto, or peripeteia in English, happens to be the moment the hero realizes everything he knows, or has known, and for this reason would take such knowledge as 'common sense', is wrong. Generally we get to see this when the hero is brought to ruin or suffers extreme sorrow as a consequence of a tragic flaw, moral weakness, or inability to cope with unfavorable circumstances, often through no fault of their own. Be that as it may, and how Aristotle would frame it, parapeto is the point of circumstance reversal in plot (literature) that is most important and surprising, the hook, if you will, that draws one into the story.
Now there are multiple ways one could go with this train of thought as it applies to our modern day lives as storyline, anywhere from the profound tragedy befalling our children, to the debasement of the masses. (i.e. think the seven deadly sins which are practiced increasingly.) But there are few heroes out there these days, where people in our society would rather remain part of an increasingly pervasive and greedy mob than attempting to promote positive change for the many. Yes, unfortunately few heroes exist in today's 'selfie world', our materialistic monolith mired in narcissism, denial, and entitlement, which is a tragedy in itself.
Because in terms of the larger tragedy being played out today, the majority of people are likely about to find out their way of thinking is wrong, that the 'status quo' is wrong and defiant of Mother Nature, and that the construct we live in is unsustainable - what will be parapeto on a grand scale for both heroes and the mob alike. Therein, what we are talking about here is radical change to the system that will affect our entire society and culture, our economy and markets. The grand neo-fascist, crony capitalism, Ponzi scheme will collapse at some point because they all do once the game becomes fully mature, to be replaced by a more honest system until it becomes corrupted as well.
The problem this time around unfortunately is not since the Roman Empire has the rot been so widespread, extending the world over via America's economic / military colonization that has allowed the Anglo banking cartel to consume the entire global economy (and it's resources) for unprecedented exploitation and plunder. Despite this however, despite what appears to be a hopeless situation for the little guy, the tab for all the depravity must be paid at some point, because again, as process unfolds, the payoffs and band aide solutions designed to appease a willfully ignorant mob become insufficient - and then it hits the fan when the oppressors go to too far in attempt to preserve the empire.
But I digress, as to remain on topic, it should be pointed out that although the above is true, most don't see it that way. Most prefer to live in a state of denial, confusion, or distraction with the attitude - even if one realizes all this - what are you going to do about it? Isn't it better to just join the mob and get yours? Pathetic as this may be, and unfortunately for all these types (and everybody else), behaving like a bunch of animals is likely not the best way to go if self-preservation is the goal. Acts of increasingly wild desperation and depravity are not signs of strength - they are signs of 'death from within', along with acceleration in process.
So where exactly does this all go from here? Expect more tyranny, violence, and intrusion in you lives from our increasingly desperate oligarchs and their government dogs. Expect more laws, punitive judgments, and loss of freedom. Expect higher taxes, health care costs, and increasingly aggressive confiscation of your wealth past simple inflation measures (bailouts are included in this category) And again, just expect more tyranny of every variety from the plutocrats all the way down, including more secret spying on you, increasingly deadly ways to kill you, and increased manipulation of the financial markets.
Tell me all you baby boomers - is this what you expected going into retirement? Probably not right? But considering most still have their heads in the sand on these issues, again, ignoring them or keeping themselves busy with every distraction imaginable, is it any wonder why it's possible this thing we call America, the West, the world is nothing but one big 'Greek Tragedy', and that a derivation of parapeto (forced awakening) will widely experienced at some point or another. And perhaps situations like Fukushima will provide a collective experience in this regard. Moreover, it's not a question(s) of 'if', but when; and then, what will trigger the coming crisis?
Because for one thing (and this is a biggie), the Fed is not infallible - and this is going to be a surprise to a great many (who have apparently forgotten the last credit crisis despite the fact nothing has changed) - including themselves. There are a lot of things that could go wrong in 2014, despite the sanguine outlook by both the Fed and public, not the least of which is a more profound debt (sovereign) crisis than in 2008. And all the central planning in the world will not change this because no bureaucrat is better at managing an economy than a market, which is a fact not taken on our increasingly interventionist government and elites these days.
Of course according to the Fed you can't see a bubble until it's in the rear-view mirror despite real time warning signs (here, here, and here) that even a low-level crooked cop waiting for his weekly envelope, blinded by his greed, could spot. But that's the problem isn't it - the greed - that's at the root of the problem. So the irony associated with people being surprised in any fashion or degree when our crooked system crashes regularly because of the rot is surprising to me, as it should be to you. Be that as it may, here we are again, going through the motions, ever so close to popping another unapparent bubble if looking through the 'rose-colored glasses' of the Fed and its ilk.
Naturally you can afford to look through rose-colored glasses when you (the Fed) know just how rigged the markets are, and that you will keep pushing until the system blows because 'there's nothing to lose'. Because the Fed will be out of business if it fails in its disguised confiscation of the commonwealth (via inflation), because everybody will stop eating, which is a process already beginning to accelerate. (i.e. this process starts on the periphery.) Therein, while the masses still appear to be placated with band-aide solutions, along with all forms of pay-offs and bribes, eventually fiction will be meet reality for one reason or another, potentially exposing the frailties of a manufactured economy (increasingly devoid of hard manufacturing) for longer than just a few uncomfortable years. (See Figure 1)
As you can see in Figure 1 directly above, we were spot on in our last communication regarding the count and timing in the Dow / Gold Ratio (DGR) chart, meaning January should be characterized by a sideways consolidation, followed by one more push higher to the all-important and trend defining 233-month exponential moving average (EMA) at 14.5 presently. What this means for stocks and gold then is relatively flat countertrend moves with the Dow possibly trading another 2-percent lower from Monday's lows, with gold possibly vexing the $1260 to $1300 range before new lows (or a triple bottom) are possibly witnessed. Such an outcome should come as quite a surprise to a great many investors / traders, setting the stage for reversals back to the secular trends sometime between March and May. (See Figure 2)
So again, as you can see above, watch the denoted inner-triangle on the monthly CBOE Volatility Index (VIX) chart for a signal stocks have topped, where the move could extend to the apex in May, or perhaps breakout to the upside as early as March. As suggested in previous work, such an outcome would closely mirror the year 2000 experience for stocks, which should not be surprising considering the numerous parallels compared to present conditions. What's more, other similar blow-offs exist as well, seen here in the 1929 analog, that suggest things could accelerate with a top as early as later this month (note the analog is not exact and should extend time wise because stocks traded on Saturdays too back in 1929), so we will just have to keep an eye on things in this regard. (See Figure 3)
In terms of clues, if the yen continues to correct now, which is likely based on speculator betting practices in the chief ETF, then the outcome should be closer to the former (a change back to secular trends in the March to May time frame), rather than the later. (i.e. this month.) Therein, selling you are seeing in stocks right now is tax planning related with taxes on gains triggered from sales this month not due until next April. Of course as April this year approaches, actual selling (not just hedging) will need to take place in order to pay last year's tax bills, which could be the pin that pricks the bubble, again, as was the case in March of 2000. This thinking corresponds with our technical observations on the DGR and VIX, giving the notion a higher degree of confidence.
Of course if an alternate count in the yen is triggered due to other factors (speculator exhaustion, unpredictable global fund flows, etc.), again, things could accelerate. Therein, and swinging back up to discuss the correction currently underway in the DGR, it should be noted the last such occurrence of the same degree back between September and October took approximately one month to correct a three-month advance, however if process is accelerating, as Sornette is suggesting with singularity here in January, who knows - stocks could blow-off into month's end (the present sequence will take longer than in '29 because the market was open Saturday's back then), ending the larger sequence earlier. Here, if the shorts are squeezed out of the broad market ETF's (SPY, DIA, and QQQ) by month's end, then hey, we may have a rodeo on our hands sooner rather than later.
What's more, a convergence of factors that could start a collapse in the stock market will likely be self-induced by the establishment - with higher taxes, accelerating health care costs, possible asset confiscations, and general miscalculations on just how far things / people can be pushed by the bureaucrats at center. The surfs can only take so much. And as you can see in the attached, all these factors come together to turn the macro lower at present, so there should be no surprise about the outcome no matter how many buybacks are announced. People will need to sell increasing amounts of stocks just to pay day-to-day expenses as higher living costs (taxes, health care, etc.) topple budgets. This is when the larger deception will really begin to fall apart, and parapeto appear for both heroes and villains alike.
But perhaps the most important part of the larger deception being perpetuated on the Western populace today is the fraud associated with the banking cartel's paper gold market, because it continues to send out a false inflation signal with prices being suppressed so aggressively. Granted, it could be argued the suppression of interest rates in order to keep the debt bubble from imploding is just as important as the gold story, and this may be true. However, without a doubt the engineered 28-percent decline in the gold price last year is 'key' (with suppressed interest rates) to making it appear the status quo is still in charge, along with propelling the stock market(s) to new all time highs.
This will not be so easy this year however, because there is a growing and noticeable difference between Western pricing (suppressed via the futures, ETF's, and options markets) and the physical story. Therein, what will happen because of this disparity, this manipulated chasm between paper and physical pricing of gold, is like with the break-up of the London Gold Pool, the gap between the two will continue to grow until the arbing of supply from West to East becomes so rampant the West simply runs out of physical supply, which is becoming the case as GLD inventory (down some 35% already), the only real supply mechanism remaining for the Western banking cartel, is now being raided aggressively with no other sources available.
False realities are always exposed for what they really are. And nobody is bigger than the market.
These two truisms will become better understood by the masses sooner rather than later as Mother Nature flexes her muscles once again.
The truth will be known - with a larger Greek Tragedy and parapeto - experienced by many.
Don't be one of them - own physical gold and silver.
You will not regret it.
See you next week.