It?s War

It appears ever since the world’s top money managers, crony capitalists, and corrupt politicians were in Davos again for the annual World Economic Forum increasing numbers are catching on to the fact the ‘big risk’ moving forward is likely to be ‘currency wars’, which unfortunately most common people will not understand. They don’t understand the term ‘currency wars’ is plutocratic double speak for ‘currency debasement wars’, more often referred to as money printing. (i.e. which is price inflationary and the authorities chief mechanism for wealth confiscation.) Such jargon is considered boorish by the ‘high and mighty’ who continue to perpetuate our Ponzi finance fraud, loosely considered an economy by those who continue to benefit from it, the ranks of which growing more scarce by the day. (i.e. Keynesian Economics does not work.)

Because most also do not understand that the world’s larger credit bubble must grow or it’s all over for Western fiat currency based Globalism, along with the jobs of many that attended in Davos in step, as the ultimate bubble, the fraud bubble, would be popped once living standards for the masses deteriorates sufficiently. (i.e. think revolution.) But first we will see events accelerate in these currency wars – this modern day version of world war. Again, the term ‘currency wars’ simply means that countries are accelerating competitive currency debasement policies designed to boost exports in what is referred to the race to the bottom, which is the logical progression in a mature global capitalist cycle, with our present state being – very mature.

All this money printing will lead to accelerating inflation (some degree of hyperinflation) eventually as well of course, however central planners have been lucky so far because of inefficiencies associated with rising unemployment that will not save them forever. Along this line of thinking, you should know this is coming, and it’s likely coming sooner than even the pessimists think – and it will affect you with rapidly rising prices. Because currency debasement wars don’t work for long – they just make it look like politicians are attempting serve your interests, when in reality they serve only their own by justifying their jobs.

And there is no group of bureaucrats better at this kind of thing than the Boys From Brazil of live in the Beltway, although to be sure things are heating up all over the world in this respect, with the big story being Japan. These guys continue to sell American’s down the river no matter what the cost, using ridiculous forecasts, loose-headed ideology, and feelings of euphoria to both distract and convince a still complacent constituency they are on the job. Of course things are steadily getting worse, with most Americans caught in a debt trap, and government approaching insolvency. It’s all an illusion you see, and pretty soon Americans will be forced to recognize that the party is over, and in addition to foreigners declaring war on you, one must also worry about Washington – because it’s war. (i.e. and now they are talking about coming for your retirement accounts.)

States are realizing this increasingly now, which is why talk of cessation is spreading. This will surprise many. However what would be an even bigger surprise is if the dollar($) takes off to the upside, which would put Americans in a losing position in the larger currency war. Such an outcome would signal a another round of accelerated deleveraging was taking place on a global basis, which as you know from our cycle work, is on track to grip macro-conditions as we head into next year. So, you’ve got complacency right now while Da Boyz in New York, London, wherever, can still manage to squeeze stocks higher, however if historical patterns are any indication, this is set to end at some point later this year.

How could such an outcome occur with the Fed (and friends) all printing money like there is no tomorrow? Answer: Diminishing returns. This is when the game of musical chairs a la rotating currency devaluations becomes redundant. And the trigger will come out of left field, from places you are not expecting, like Canada. Right now Canada is in the midst of a stealth meltdown with the popping of its real estate bubble that should be better reflected in the financial markets at some point. You may remember if following my work for some time the significance of the Dow / TSE (Toronto Stock Exchange) Ratio, where a break above 2008 highs would signal the next global credit crisis, this time with Canada unable to escape its wrath in spite of supposedly conservative banks. (See Figure 1)

Figure 1

And of course Canada is not the only one feeling the pinch right now (other examples are here and here), however it’s the most prominent because not only have the talking heads used relative strength here as an indicator for the inflation trade, the implications of an economic crash would reach around the world due to it’s perceived ‘safety factor’ (especially its banks), and it’s role in global commodity markets. Yes, this would be the signal the global credit bubble is in serious trouble this time if Canada’s bubbles are bursting too. In terms of the stock market, but switching back to US measures, little doubt we are indeed very close to top, seen here and here and here, along with those measures familiar to us, pictured below. (See Figure 2)

Figure 2

As you can see above, it appears the mania in stocks has never left us, opening the possibility of a double top in risk adjusted stocks before present bubble conditions pop. Along this line of thinking, you should know that one more day like we had last Friday will put the NASDAQ / NASDAQ Volatility Index (VXN) Ratio at the ‘best fit’ Fibonacci Resonance related target discussed just last week, which would increase the probability of a Bradley Model top at this time considerably. The last thing the bulls want to see is the stock market continuing higher in February and putting in an apparent top prior to the 24^th. (i.e. think Bradley Model Top.) Such an outcome could mean all the bull market’s credits might be spent. (See Figure 3)

Figure 3

Other than that, and as can be seen in the redrawn monthly CBOE Volatility Index (VIX), financial repression could continue on well into this year before the triangle apex is approached. What’s more, we also know money supply measures remain constructive; given diminishing returns could be a factor here. So in reality there is still no telling what will happen for the balance of 2013 other than at some point a top in stocks (equities) will occur, and it will be a biggie. This must be the chart that Simon Potter is using – no? (See Figure 4)

Figure 4

Which brings us to precious metals, and the big question – are you willing to run the gauntlet (take big risk) in order to invest in precious metals as we form an important top in stocks – wondering – will it be different this time? Because investing in precious metals the last two times we had liquidity events (think 2000 and 2008) were bad ideas in the first year of such embroil – to be sure. Along this line of thinking, if you are a long-term investor, isn’t it better to wait for the liquidity event to run its course and then buy in a year or so later? History suggests the answer to this question is an unequivocal ‘yes’.

The question then arises however, are we indeed in the early stages of another liquidity event? As you should know from reading these pages (including Dave’s Contracting Fibonacci Spiral work), the answer to this question is yet another unequivocal ‘yes’, however we are not quite at the point where increasing illiquidity should negatively impact precious metals. You would never know this with sluggish performance in the group for some time thanks in large part to vulgarities associated with official price management, however again, this may be set to change, allowing for a run to new highs before deteriorating liquidity conditions negatively affect nominal pricing.

Why would this occur now, after all this time? Answer: Because gamblers in the aggressive paper derivatives market(s) are beginning to show capitulation regarding their permanently bullish dispositions. This is reflected in now rising open interest put / call ratios amongst the largest producers listed here in the HUI components, where as you can see here in updated charts, 56.91% of them (most notably the top four) now show their ratios trending higher across two-year plots. And again, if the broads remain buoyant, which as you can see in the attached ratios of relevant US indexes above is likely with rising values as long side players increasingly hedge positions (they hedge instead of selling, which will eventually crash stocks), this would allow for precious metals to run higher before liquidity conditions become a limiting factor.

This is the theory anyway, where we will hopefully see some positive results over the next two weeks, a shortened options cycle for the derivatives markets of the key indexes and ETF’s we follow. A fly in the ointment could be a more buoyant broad market that sucks up available energy (liquidity) away from precious metals, where the transports are likely to keep bulls optimistic because the squeeze is definitely not over in this market based on the new shorts going on the Dow Transports ETF (IYT) (think Dow Theory followers); however, February should still be a challenging month for the broads considering overbought conditions (not too mention the Sequester), which in turn would allow for gold and silver to run.

What’s more, and in referring to our risk (volatility) adjusted index plots pictured above, it should be noted that although slow in transitioning, precious metals actually thrive in periods of initial increasing volatility (because it’s perceived money supply growth rates will need to be ratcheted higher), which are those periods directly following peaks in these measures. So, as you can see by examining the SPX / VIX and NASDAQ / VXN plots provided above, we are likely very close to such peaks, and in the early stages of such conditions. So, although the risks are rising, don’t give up on precious metals like just about everybody else out there.

Growth of the Fed’s Balance Sheet alone should be enough to keep you bullish; but if that’s not enough, perhaps martial law, which FEMA itself is predicting could be here as early as this summer; or, war between China and Japan, will be enough to finally spark panic buying of precious metals. Who knows – but what you should know is you are involved in all these wars; either directly or indirectly, and that your own increasingly fascist government is the biggest threat to your financial well-being.

So, make sure you do all you can to protect your wealth before it’s too late. Precious metals are by far the preferred method, and will not remain cheap forever. In effect the suppression of gold and silver have made them a solvency play, meaning they are ‘must have' assets. The road to riches (in this case – survival) can be a rocky one however. With a little luck though, precious metals shares might be able to get rolling over the next few weeks, where one should be watching the metrics discussed in this regard last week for clues.

Good investing all.

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