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It was a better time, a simpler time, a time when
people knew where they stood. The family unit was just that, the modern
family set in mid-west America, mom, dad, the kids, dog, two cars in the
garage and one job paid for all of it. Mom stayed home to take care of the
kids and dad went out to take on the world in his traditional role, with all
family members comfortable in their lives, fulfilling instincts that by
nature extend back to our very origins. So it was 'happy days', as pictured
in the 70's sitcom,
with Richie, his family and friends, and The Fonz enjoying everyday life in
the 50's, seemingly oblivious to the stresses and strains we live with today,
essentially enjoying the American
Dream. Because like no other time in history America was enjoying the
fruits of its labor, having just won a global war, becoming the world's
predominant 'superpower', with reserve currency
status at center.
Indeed, it was
a time when there was no need to look for a government check in your mailbox
as so many do today because life was easy, the people were young, and the
best days still lay ahead. Interest rates were low, credit plentiful, and
good jobs -- high paying manufacturing jobs -- grew like apples on trees
right into the 60's' as America began in earnest the process of Globalizing the
world. At the time it was early enough in the process to be able to sell
Globalization as ‘constructive integration’ with benefit to all
involved, however as time as passed it’s much easier to peel back the
layers and reveal what Globalization really is (soft colonization), where the
dollar ($) was used to concur the rest of the world not plundered in World
War II. Dollar hegemony
has been the game all these years wrapped in a fiat currency economy that
has given America the highest standard of living in the world.
Fast-forward
to today, and things are so sanguine. The vulgarities associated with $ hegemony policy,
our fiat currency economy, and economic lifecycle are all profound factors
playing on a fully matured situation that is increasingly deteriorating. Much
like Rome at a similar juncture the US and the Western Alliance are in
contraction and searching for solutions to growing problems (economic,
political,
etc.), for which there are none short of an inevitable death. None of this is
new of course, as the US is not the first empire to suffer such a fate,
however we are talking about something far more profound in scale than what
occurred to the Europeans. Empires have come and gone throughout the ages,
but what we are talking about here is something different – something
much bigger in degree.
Here (and
now), we are talking about an X-Wave
top (minimally) brought about due to technical and physical constraints that
will not be overcome for some time, if ever. (i.e. the world will need to
find a new technology or grow bigger [increase the population – not
possible] in order to replace the
old.) So, for example, although the stock market still appears to be
working off less profound cycle influences, such as the Presidential
Cycle at times, please don’t be fooled by this. What you see in
front of you is all an illusion. The real economy
is in shambles. This is why money
supply growth rates must be kept high and accelerating all the time now.
(i.e. and they know
it.) Because hollowed out Western economies cannot grow anymore and have
exported the core of manufacturing sectors to lower cost countries. Oh and
let’s not forget the fact money supply growth suffers from diminishing
returns (think Austrian
School) as well, which is the primary reason growth rates must
necessarily keep rising. (i.e. because of our fiat currency economy.)
This is why we
now have QE-Infinity
that is an open ended (both in size and duration) and un-sterilized
monetization program aimed at mortgage backed securities to go along with Operation
Twist (soon to go open ended and un-sterilized too, which is considerably
more potent and direct in terms of endeavoring to simply support commercial
banks), which is of course the real primary mandate of the Fed. (i.e. as
opposed to their falsely stated dual
mandate.) Here, even the mainstream political parties will speak the truth
when it suits them, where they were quick to condemn the QE-Infinity
announcement saying it allowed the Fed to embark on an unprecedented monetary expansion
agenda that would lead to inflation. Of course they (Republicans) stopped
short of saying if their circumstances were the same 'no problem' would be
the view, where one could (as we have) hypothesize the Fed's latest move was
in fact politically motivated. (i.e. Romney was dumb enough to state he would
remove Bernanke from office in elected.). Certainly the wavering real
economy smacks in the face of such conjecture, however it's always fun to
entertain such ideas.
So they will
vote for Obama (Democrats) this fall because all will appear well. The stock
market is high, interest rates are low, and all is well in our Keynesian
nirvana. The checks are going out, with more people on the dole either
directly or indirectly (think private business that largely depends on
government assistance and multipliers) than not; where again, all appears
well. Over 130 million US families and individuals currently receive government
checks and this number will continue to grow if unchecked. Presently over
80
million checks a month (if not far
more) are mailed out to keep the mob happy, which means paying the bills.
And there are programs like cash for
clunkers running as well, where the idea here is any and all means will
be employed to keep the economy running. This concept will become especially
important in the future when you may be thinking Bernanke and friends might
be running of means to deal with a sluggish economy. Make no mistake. They
will do whatever it takes to maintain their power.
Unconventional
policy on the part of the Fed will mean a check in every mailbox. The mob already expects this and the Obama
(and Fed) will not let them down. They are buying peoples affections in what
parallels the equivalent of bread and circuses
in Roman times. What’s more, political (election related) concerns will
not be on Bernanke’s radar screen next year, so if Obama remains in
power, guaranteeing his continued tenure as Fed head, then he will
undoubtedly feel both comfortable and obliged to keep the mob happy, whatever
it takes. (i.e. which is why the Presidential Cycle may extend.) This means
the Fed could begin to expand QE monetization targets and other
unconventional policy tools quite early in the new Presidential term if need
be considering post election years (the first two years in the Presidential
Cycle) usually spell trouble for the economy and markets. And next year
should be no different considering the markets have been following the
Presidential Cycle so closely, allowing already implemented stimulus to
blow-off, which is why a confluence of cycles have the equity complex topping
sometime prior to mid-2013, along with a profound ‘washout’
scheduled for 2014.
While
month-end window dressing may account for last week’s resilience in
stocks set against typical seasonal
weakness, if history is a good guide, any weakness in the equity complex
occurring in the first half of October should prove corrective, giving rise
to more gains running into next year. Adherence to the seasonal pattern (in election
years) has been tight this time around, so there is no reason to believe
this will not continue into next
year (at least initially), especially considering if the profound
technical indicator I am about to show you triggers a ‘buy signal’
next month. Therein, with a monthly close in the S&P 500 (SPX) / CBOE
Volatility Index (VIX) Ratio above significant Fibonacci resonance related
resistance next month we would have a ‘buy signal’ in place
pointing to significant further gains; gains that will set up a top as
significant as any we have witnessed since 1929. (See Figure 1)
Figure 1
What’s
more, if the triple top breakout above Fibonacci resonance related resistance
occurs, expect to witness nothing less than a double top in the SPX / VIX
Ratio sometime in the first quarter of next year, as was the case in 2000,
when speculators have a tendency to set profound tops in stocks. It’s
either that or the top in stocks comes here in Fall like in 2007, which is a
possibility as well. However with so much money printing going on and
speculators doubting the rally, evidenced in all the VIX related call buying
(VXX
put / call ratios continue to decline), one would be foolish to bet this way
in my opinion. Moreover, a monthly close above sine related resistance in the
NASDAQ (COMP) / NASDAQ Volatility Index (VXN) Ratio would also trigger a
‘buy signal’, dispelling any such bearish thinking, where it
should be noted Fibonacci resonance related resistance is not an issue here.
(See Figure 2)
Figure 2
It would be
off to a new all time high for the COMP (and NDX) / VXN Ratio which would put
the impending top in the ‘significant’ category, perhaps even of
the Grand Super-Cycle variety many Elliot
aficionados are looking for these days. Of course the overall picture to most
would undoubtedly remain confusing however, because new nominal highs would
not materialize for tech stocks. But that’s the way it should be at a
major top – confusing. Bearish stock market speculators must give up
the ghost at some point and for some reason in order to breakdown the
‘wall of worry’, and visions of new highs for tech stocks,
unlimited money printing forever, and whatever else these types can conjure
up in their heads to finally exhaust their foolish behavior certainly
qualify.
And who knows,
maybe the reality of some degree of austerity hitting US shores via the fiscal cliff will be enough to prick more
holes in the ‘balloon
economy’. If history is a good guide however, fiscal cliff related
concern should keep speculators bearish, at least for a while, possibly
setting up the framework for a capitulation moon-shot in stocks running into
the beginning of next year when they are forced to cover. Time
cycle analysis points to this possibility with continued strength in
stocks later this month. That is just the type of set-up to sponsor such a
rally in this smoke and mirrors market environment. The perception vs.
reality game is played and speculators not capable of three-dimensional
thinking become road-kill.
Because one
should expect a great deal of bearishness associated with the fiscal cliff
problem, so don’t be surprised to see stocks struggle (both before and
after the election) until some kind of compromise is negotiated. Once a deal
has been cut between the two-party club in Washington however, expect the
shorts to cover (sponsoring another rally) no matter how harsh it is, where a
bought and paid for mainstream media would paint it as a positive necessary
evil, or some other horse pucky. And then of course we still have the yet to
be felt positive effects of all the money printing to come as well, where soaring commodity prices running into next
year should keep a good bid under precious metals prices – leading the
way.
But please do
not make the mistake that I am bullish on the stock market, all equities,
etc. because I am not. Rising commodity prices, for example, are not a recipe
for higher stock prices once speculative forces have exhausted themselves,
leaving a seriously bloated and impaired market to collapse of its own
weight. And it may not take too much more pushing to get to such a point once the election is over, where it appears the
market’s price managers are working over-time to keep prices supported right
now. (i.e. pushing stock futures higher and precious metals lower every
morning.) This of course may leave stocks (and the larger equity complex)
vulnerable to increasing volatility sooner than later (we are only expecting
strength into January at the latest anyway) post election, making speculation
of a fiscal cliff resolution relief rally wrongheaded.
We should know
more in this regard as the month matures, along with how speculator betting
practices could affect outcomes, which will be the topic of our next
commentary.
See you soon.
Captain Hook
Copyright
© 2012 treasurechests.info Inc. All rights reserved.
Treasure Chests is a market timing service specializing
in value-based position trading in the precious metals and equity markets
with an orientation geared to identifying intermediate-term swing trading
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has proven very successful for wealthy and sophisticated investors, as it
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Disclaimer: The above is a matter of opinion and
is not intended as investment advice. Information and analysis above are
derived from sources and utilizing methods believed reliable, but we cannot
accept responsibility for any trading losses you may incur as a result of
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