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Well, here we are again, gripped in the heart of yet another mania
blow-off, where both good and bad news is good for equities because so much
liquidity is sloshing around. Add to this the banks, brokers, and Beltway
Boys are doing their damdest to distract and obfuscate reality by any means
possible, and you have markets doing all kinds of crazy and unexpected
things, and generally behaving badly and broken. Perhaps the best example of
this is found in this assessment of
what the banks have their hedge funds / prop desks are doing with all
the excess bank reserves recently added to the system because of the fiscal
cliff thingy the bureaucracy is using to panic people into both rational
and irrational behaviors in order to exploit them. (ex. getting traders to buy puts and short stocks in order
to engineer short squeeze(s) with the increasing liquidity.)
So, if you were wondering why the can kicking deal on New Years was
taken as good news by the markets its
because the banks are attempting to desensitize the public to what will
undoubtedly be increasingly bad news, which will backfire on them eventually
by the way. Because eventually traders will no longer buy puts and short
stocks in sufficient quantities in order to maintain this strategy; and, just
like all other post bubble episodes, stocks will take a big hit, especially
as we move into the strong cycle down years associated with an acceleration
in consumer debt deflation anticipated this year and next. Harry Dent was making the rounds
recently on this subject and how demographics play into the equation, which
is his trademark. His arguments are sound and his predictions (timing) likely
accurate, which happens to conform to our views here at Treasure Chests as
well.
But the manipulation does not end with the stock market, as you should
know if frequenting these pages. It extends to the fixed income and currency
markets. And its ever-present
in precious metals in order to hide the inflation (think QE and other sordid
money printing methods), the same inflation (money) that is ironically used
to manage prices in all of these markets. Who is at the core of these
fraudulent activities? You guessed it again its your friendly high level bankers and their dogs
(think hedge funds) that have self-gratification on their minds.
Unfortunately for them however, this has not been helping their performances
of late, with vast majority underperforming last year.
Whats more,
apparently we can look to this reason for precious metals being held back as
well, with some forecasting
this condition is about to end because redemptions from John Paulsons $19 billion Advantage Fund are to cease this week,
taking the pressure off. What does this imply? It implies that the global
gold price is largely controlled by New York based hedge fund managers and
investors, and that little else matters. It raises questions like, what
about silver, why has its performance been so poor too?
Is it the invisible hand of JP Morgan and its New York based hedge funds this
time? The markets have become a joke, the extent of which many are only realizing
now.
Now some will say, who cares as long as we are on to these characters,
and our precious metals investments start going up again. And certainly this
is right to an extent; however, one must wonder, if this is true, that New
York based hedge funds (at the behest of their controlling banks who want to
keep precious metals under wraps) control precious metals prices to this
extent, whats to stop them
from continuing to do so. And, what if redemptions persist considering
important tops in both bonds (think of the threat of real rates going
positive) and equities are a looming threat this year. Its difficult envisioning precious metals continuing
to rise if liquidity conditions become increasingly challenged. This is the
worry you see.
And what if the gamblers in the options markets continue to display
out of control bullishness towards the sector? This would not be a recipe for
a sustained rally. You will remember from last week we
have little doubt that precious metals shares, as measured by the Amex Gold
Bugs Index (HUI), would at a minimum test the 525 to 550 (think Progressive
Interval System to be sure) range before possibly failing at this level due
to liquidity conditions; and, we remain on this page with an open mind, where
we will size up things again if prices make it to the target zone. If,
for example, gambler betting practices have flipped around and the consensus
has turned bearish, then we would be prone to be bullish (this is not
the case now however), especially if money supply measures are
also continuing to accelerate growth.
Whats more, we will
also look at how other key factors / indicators are performing after we have
this anticipated relief rally in
the precious metals sector over the next little while. You will also remember
I was expecting a bounce in the sector once index and ETF options expiry
passed this Friday, likely taking us into early February, as was the case in
the year 2000. (i.e. noting similarities to present
circumstances.) Along these lines then, if for example the HUI shoots up to
the 525 area over the coming fortnight, but lets say the Canadian Dollar (C$)
does not budge and remains in the 102 area, if not worse, establishes a
divergence and heads south, we will be unable to maintain a bullish stance at
that time because the message will be clear global liquidity
conditions are about to contract on a wide-scale basis. (See Figure 1)
Figure 1
As you can see above, last Friday the C$ put in a shooting star
reversal candle, so its
quite possible (if not likely) the indicated count is correct, and the
corrective zigzag higher is now complete. (i.e.
although it could sub-divide into a more complex pattern later.) With this in
mind, one must be cautious regarding liquidity related optimism moving forward,
although again, without a doubt the sociopath(s) that run things in New York
(this is why
) will continue to pull out the stops in order to
maintain the illusion, so a more meaningful divergence in the C$ against
stocks might need to build before prices follow. This might be the window of
opportunity for precious metals (shares included) to zip higher post options
expiry this Friday, closing that divergence first.
If on the
other hand, by some miracle precious metals shares close this divergence to
the C$ this week, which is unlikely given how the options gamblers are
positioned, then we will differ to the chart below for guidance, knowing that
it must extend to the indicated Fibonacci resonance related target before
those educated on this subject matter would become bullish. (i.e. sensing capitulation.)This doesnt mean the
meat heads in this market will not pull a crazy Ivan and take precious metals shares
higher temporarily anyway, its a question of sustainability you see. (i.e. it should be noted the boys in New York have the
algos set with a negative correlation between stocks and precious metals,
which is unsustainable.) A bad sequence here is the kind of thing that could
cause the failure at 525 that is possible, not that we are anywhere near that
level just yet. (See
Figure 2)
Figure 2
So, with
the CBOE Volatility Index (VIX) on support at 5-year lows (see Figure 2) and tech stocks in trouble again, it
will be up to the financials to hold the market(s)
together, which again, they will undoubtedly endeavor to do. The
problem is, in order to get stocks to go higher, they will either need to
break the VIX down (unlikely on a lasting basis), or allow a limited sell-off
in order to ratchet stocks higher against the VIX. Either way, the word
sustainability does not come to mind here, however this kind of gaming could
go on for some time.
Along this
line of thinking, it appears small speculators in euro futures are now
set-up for a squeeze which will put additional pressure on the dollar($), potentially laying the groundwork for a big
move after ETF expiry this coming Friday. And we cannot forget about the
cessation of hedge fund redemptions discussed above. And there is something
new as well that could be an important factor moving forward, that being the repatriation of German
gold reserves held in New York and Paris. All
this could be the trigger to close the divergence in precious metals shares
denoted above in Figure 1 and move the HUI up over key structural resistance
at 460 so that we can go up and test 525.
On the
negative side of the ledger we have the increased possibility the debt
ceiling debate will go longer than the US has money, which is mid-February
apparently. Both Geithner and Bernanke were out
yesterday pointing that out, and that all restraint should be removed, which
is of course Obamas sentiment as well.
The problem here concerning a potential shock on golds nominal
pricing is that with Obama threatening to implement a whack of new gun
controls, this will polarize the House even more (what a joke this kind of
thinking has become), which could postpone
debt ceiling talks for some time.
We will
have to see just what kind of wimps we are dealing with in the House on all
this, but Obama and the Dems have made the Republicans out to be
the bad guys in the
press already (with comments like we need to pay our bills) so it will be interesting to see
whether the Beltway boys choose politics over the Constitution again.
Of course we know how this turned out now.
Heres hoping
for a big rally in precious metal at some point
post expiry then. Some degree of a rally should occur in coming weeks no
matter what happens, so be sure to be positioned for some relief in this
regard.
Captain Hook
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