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The End Game Approaches
In attempting to capture the pulse of what is (or should be) at the heart (of increasing numbers) of questioning and concerned minds out there these days, I could not help but be struck by this essay entitled Anatomy Of The Endgame (thanks to the people at Zerohedge), so I thought I might make a few comments along this line of thinking as well. As you might know if reading my work for some time, this subject matter is definitely not new to my repertoire, where a good speculator is continuously attempting to picture the future. (i.e. in proper context.) However now that we are actually coming closer to such times concerning the present global financial system, the importance of what the future might hold for all of us takes on 'new meaning' because you can see it coming in all its colors - sovereign debt defaults, hyperinflation of the currency, and an end to life as you now know it.
This is of course why you should be very interested in these writings, and in getting prepared for the economic end game that is approaching, because it will be a radical game changer, especially for those ill prepared - which is just about everybody. Most have been existing on the hope that America will continue to muddle through (especially the larger bureaucracy), however increasing evidence is suggestive day(s) of reckoning are coming for unsustainable excesses, excesses that to this day continue to be forced on the masses. Because like Europe, if the US does not respond to economic reality by continuing to kick the can down the road, ratings agencies will be forced to respond at some point as well. In terms of the financial markets, this, above all other considerations, could accelerate an unraveling, where secular tone in rising interest expenses for both government and the private sector would be most unwelcome given our debt ridden balance sheets.
So it's no wonder the expectation managing larger bureaucracy has clung onto this fiscal cliff thingy, which is nothing more than an attempt to fool 'everybody' that America is ready for austerity, when in actually its not. That's right - all of Americas cumulative problems have been isolated into the ruse dubbed the 'fiscal cliff' (this is all you hear or read about on American waves / wires), where you can be sure a winner of a deal (wink wink) will be hammered out before Christmas (so the stock market doesn't crash) so that nobody shoots Santa while he's sliding down the chimney mistaking him for a desperate burglar. Heaven knows there will be much more of this sort of thing (thievery in general) at all levels moving forward. Of course can kicking the can down the road is also no longer possible, so it will be interesting to see just what comes as this realization hits home with all the fools and optimists next year.
So it's also no wonder we are hearing increasing talk of an emboldened cessation movement, because when the going gets tough, goodtime Charlie's leave. Of course one could also have the view sensible officials at the state level are beginning to question Federal policy initiatives both in terms of motivation and effect because the Beltway Boys appear to be 'out of control' in attempting to centralize power, not to mention running the larger economy into the ground for the betterment of a few bankers, oligarchs, and themselves. Perhaps the best example of this is Obamacare, where it is becoming increasingly understood it will cause massive job losses across numerous high employment industries, not the least of which being medical care, itself. This is of course why you can expect to hear increasing talk of opting out of Obamacare in coming days, especially if even just a small group of States 'officially' decline.
And what's happening in Spain right now is just a glimpse into the future for America. All the crap you hear on TV is just a mind trick - really. That's right. Because the economy is really collapsing, bubbles are popping (including China's), and the consumer is deleveraging because they are poor - and getting poorer. Increasing numbers are of course 'getting it', slowly, but most are putting their money in the bank - believe it or not. Of course with precious metals inventories so low and evaporating (expect this tactic system wide at some point) due to just the few already enlightened who wish to escape the financial repercussions of democratic socialism (think wealth confiscation), this bodes well for prices in the future, because when the public finally figures out attempting to preserve wealth in the bank is a fools game, they will in turn rush to gold and silver, which is already be happening.
The powers that be want investors solely focused on the fiscal farce so they ignore everything else that's going on in the economy. And the media is doing its job in this regard, conditioning the easily influenced masses into thinking once this ruse is 'fixed', undoubtedly billed as the US avoiding tragedy (going over the ominous cliff to feared), a relief rally in the stock market will result, and the economy will be just fine. Of course those paying attention know nothing could be further from the truth, and that in fact the pace of decay of the economy / system is accelerating. Along this line of thinking (considering we have a fiat currency economy) it's important to realize key global credit markets (again, including China's) are contracting at an alarming rate presently, and the next big landmine is set to roll over at anytime as well.
The end game can come very quickly in fiat currency based economies once money supply growth rates roll over, taking even those expecting such an outcome by surprise. And although this is not the situation right now (although if capital spending deceleration continues it will be), if all of the tax increases and spending cuts that comprise the 'fiscal cliff' were to go through (some $560 billion annually), the Fed would be challenged to make up the difference via currency debasement alone, which is why this will never happen. This does not mean the Beltway Boys will not drag it out into next year to make it look good however, like they actually care. This would naturally send stocks over a cliff of their own, which in turn would give the politician's the backdrop to make sizeable changes in eliminating the fiscal cliff. Austerity is good for everybody else, but not for the good ole USA.
And there's little doubt a collapsing government controlled fiat currency based economy would be harsh to say the least given just how depended we have become on the largesse, undoubtedly leading to economic depression, aftershocks, and in all likelihood formal dictatorship. Of course libertarians (and Austrian's) would argue such a sequence must first occur if we ever wish to escape the financial repression imposed on the population by the oligarchs and bourgeois's of today, and this is self-evident. However as with all other such circumstances throughout history, the present system must first be seen to be failing by the consensus, which means people must give up their illusions. This will occur in America when enough people are stripped of hypothecated wealth, meaning the S&P 500 (SPX) could begin a journey lower similar to previous inflection points anytime now. (See Figure 1)
Because without ever-increasing debt-based currency rushing into the system it's all over, which is why the debt ceiling must continue to rise no matter how much "austerity" is allowed - wink wink. (See Ron Paul's latest on this subject matter.) As discussed last month, and as you can see above in Figure 1 once again, stocks continue to trace out a topping pattern that is squeezing the CBOE Volatility Index (VIX) further into the denoted wedge. Here, the big take away message is that although one more fiscal farce related rally into early next year may transpire, the next 'big move' coming will undoubtedly be to the downside. In fact, once the VIX does breakout on a monthly basis, all hell should break loose considering the fundamental backdrop, however a falling dollar($) could buffer price declines in the early stages, making for a complex topping pattern. (See Figure 2)
Side Note: Please note it's unlikely the $ crashes just yet, however a significant decline could transpire in early 2013 to match up with a cyclical counter-trend rally in the inflation trade discussed both above and below.
This is when gold and precious metals shares are allowed to rally by the establishment's price managers because they are desperate to show pressure still exists within the pipe (inflationary forces) while keeping any gains under control by the general deflationary forces. And if the chart below holds any predictive properties this scenario should play out again, where we will see precious metals shares (as measured by HUI) attempt to put on a substantive rally in the first quarter of next year as stocks top out, only to be dragged down with the rest of the market eventually as deflationary pressure builds. (i.e. larger degree wave D [down] in Figure 3 below will measure the counter-trend rally early next year, followed by one more impulse wave [E] higher as stocks crash into 2014.) Franco Nevada is considered the quintessential conservative gold stock in the market (out-performing in a down market), managed by Lassonde and the boys, but any other royalty trust could have been used as well, albeit volatility would have been more apparent. (See Figure 3)
Because the bankers and Beltway Boys know they must make it appear their pricing mechanisms (markets) are legit or nobody will come to play. This is now a big problem and getting worse because everybody except the cat knows they are nothing but a bunch of self-involved fraudsters, who think rigging markets for their own benefit is - just fine. The trade yesterday was a classic example of this where one woke up to a falling $, explaining the miraculous recovery in SPX futures overnight, which was a surprise considering what had happened the day before. (i.e. no follow-through downside in stocks is allowed.) But an even bigger problem in this regard was this was matched with falling gold and silver prices, which has been the trend for several days now. (i.e. both the $ and precious metals falling together.)
But it was because of the falling precious metals shares the day before; right, that's the justification for bullion prices falling the next day. The problem is the shares have their own market rigging problems as well (think sentiment, algos, etc.), not to mention that fundamentals are deteriorating because of all the shenanigans making costs too high, which in turn makes profits too low due to bullion price suppression. The only good news associated with this situation is crooked Western central banks are having their bullion reserves run down to keep their scheming ways from being discovered, which will eventually cause the need for a price adjustment upwards. The bad news associated with this is unfortunately most Westerners will not participate because they neither understand nor own many precious metals, which will make surviving a financial meltdown difficult indeed.
Along these lines, and in circling back up to Figure 2 to talk about the $ in this regard, without a doubt the 'big event' that is coming down the pike eventually that will define the endgame for the American Empire is when it becomes apparent to everybody (including American's themselves) the $ is on its way out as the world's reserve currency, and they accelerate the sale of $ denominated and US based assets, which includes debt securities. (i.e. if they are held as investments.) This process is of course already well underway, with direct trade and petro-dollar exclusion deals between countries becoming increasingly common. But the real problem for the $ will come when it loses it's safe haven status - that's when there will be no saving the $ from the type of dramatic waterfall event implied possible by the Fibonacci resonance related projection (to ~ 30) denoted in Figure 2 above.
First they will sell US assets, and then the $, with both of these conditions favorable for higher interest rates and precious metals prices. This is when the Dow to Gold ratio will reach unity, or lower, as the masses realize the emperor has no clothes, meaning the US is as much a financial basket case as Greece, and the only way to preserve one's wealth is to exit fiat currency related economy(s).
And there's only one way to do that - in desired tangibles - with gold and silver at the top of the list.
Good investing all.