The Trump-Mnuchin-Powell "directive," which engaged the Working
Group on Financial Markets during the last weekend before Christmas 2018, has
worked both beautifully and criminally as the term "moral hazard"
has crept back into the mainstream dialogue. Once again, as we have seen
countless times since "free markets" were transformed into
"managed markets," charts and graphs and volume studies carry zero
sway over the "invisible hand" of the politico-banker cartel.
As the S&P 500 hovers some 300 points above the lows seen on Christmas
Eve, we have witnessed the full power and fury of the central banking cabal,
complete with their government and regulatory confederates, as they offer
shadowless doubt that stock prices are indeed a big part of policy mandate.
Also, right up there at the top of their to-do list, is "managing"
the prices of gold and its junior surrogate, silver, as their centuries-old
utilities as canaries-in-fiat-sensitive coal mines has been denigrated by
decades of interventionalist price-capping. It is both maddening and
infuriating but it is not unexpected; it was actually announced the weekend
before Christmas with the Mnuchin statement regarding the Plunge Protection
Team (PPT).
As much as the financial media would love to crow about the "biggest
rally in a decade," nothing—and I mean nothing—would have
prevented an all-out crash in stock prices, the severity of which could have
easily rivaled October '87 or '29, other than the stark and unabashed bailout
by the cretins.
The abject panic that was permeating the trading rooms of every major bank
and brokerage around the globe, so very palpable in December, has toned down
since the government-mandated and bank-executed rescue took hold in very late
December, composed of a series of interventions and TV appearances by current
and former Fed officials and stock market perma-bulls. However, as I debate
the notion of a V-shaped bottom for stocks leading to new highs in 2019, I am
mindful of the results of the results of the Santa Claus rally and the First
Five Trading Days rule, which would suggest that 2019 has a 70-80% chance of
being an "up" year.
While the stats are simply a look in the rear view mirror of historical
stock prices, they certainly are no guarantee of a 2019 lift. But keep in
mind that even if inflation came roaring back this year as stagflation takes
hold of the mainstream economy, a 5% rise in consumer prices versus a 2% rise
in the S&P would satisfy the statistical forecast but be of little or no
benefit on a "net" basis.
This chart shows the relative performance of the major asset classes
(gold, U.S. and European stocks, bonds, currencies, and crypto) since
December 12. While a longer-term chart would reveal and much different
result, the message is clear: Gold is outperforming everything in the
past 45 days.
This is again why I always look around the world to gauge performance. It
is also why gold prices are rising and at new all-time highs against a number
of non-U.S. currencies. Despite the desperation of the price-capping exercise
in gold, both it and silver have been able to hold the bulk of their gains
since the summer lows and appear to be simply biding time until the next
major downdraft in global equities sends the "fear bid" back into
precious metals.
With due deference to Frank Holmes, the gold "Love Trade" is
nowhere to be found right now; it has been subordinated by its meaner, older
sibling, the "Fear Trade," which rose up in Q4/2018, hissing and
growling, with gnashing teeth and bloodshot eyes, in the move from $1,167 to
a snick above $1,300. The song-and-dance, hat-and-cane act of Mnuchin and
Powell from late last month has becalmed the golden beast for the time being,
but if my analysis is correct, markets will soon revert back to behaviors
closely resembling the October-December pattern of dip-buying in the precious
metals and rip-selling in equities.
Speaking of rip-selling, one of my better passes last year was the
purchase of the Goldman Sachs (GS:NYSE) December $200 put options, which I
put on right after the headline linking them to that big Asian billion-dollar
fraud and lawsuit. I watched the stock crater from $210 to $151.70 in less
than two months, taking the puts from $3.40 to over $30 (by expiry) with my
portion being cashed in around $25 (well-documented on Twitter). Well, the
company that "does God's Work" (ripping off clients) is back approaching
$200 after it reported better-than-expected earnings and caught the algobots
net short and in trouble.
The fundamental case for avoiding (shorting) GS lies in the macro picture
of declining investment banking revenues in 2019 as the global growth story
dissipates and is replaced with recession woes. Gone forever is the Blankfein
Era and the Teflon Don approach to regulatory malfeasance and benevolent
bullet-dodging by the company, which was described as "a giant vampire
squid, its blood funnel attached to the face of humanity" so eloquently
by Rolling Stone's Matt Taibbi.
As I expect to see happen in the S&P, all markets tend to (as opposed
to "must") have "retests" of their respective low points
especially after the magnitude of the crash in Q4/2019. The losses from
trading in 2019 are still being felt in the earnings reports and the guidance
being reported is most definitely trying to gauge the negative asymetrical
wealth (poverty?) effect brought about by the many new global bear markets.
One thing cannot be denied: Despite the obscenity of the stock market bailout
in late December, the S&P did have a closing day that constituted a
20%-plus decline from the highs, and therefore what we are currently
witnessing is an exceedingly convincing, classic bear market rally. Goldman
Sachs is also having a sharp, endorphin-charging bounce, but with RSI now
back in the (overbought) 70s, the beginning of the retest cannot be far away.
GS April $180 put options at $3.00 are once again back to a reasonable level,
such that a retest of the December lows puts them back at around that magical
$30 level. I opened a 25% position on Thursday and failed to trade them when
they printed $4.85 immediately thereafter, so I will add an additional 25%
early next week and then wait for the stock to roll over, confirming the
likelihood that the idea is sound and can work.
As bear market rallies are easily the most elusive narcotic known to
mankind, the euphoria being created in January 2019 is a perfect marinade
sauce in which to soak the bulls as the bear arises from his well-earned,
feast-induced nap begun in late December. When this Papa bear attacks again,
he will be twice as violent and five times as destructive, as we get the
high-probability retest of the Christmas Eve lows.
Inversely correlated to my stock market thoughts, the current pause in
gold and silver should end with both getting an ample injection of
amphetamines as the "Fear Bids" return and safe haven buying
accelerates in response to any type of retest. However, the timing of that
injection will not be an easy exercise, and I emphasize that point because
"recency bias" is a cognitive flaw, especially after the emotional
beating many experienced last month.
I picked up a graphic off Twitter, and credit goes to Craig Hemke of the
TF Metals Report, who tweeted out this morning in a gesture of what I am sure
is disgust and outrage.
"The more things change, the more things remain the same," is
the quote of the day when I see the open interest balloon like it has. Good
for Craig in pinpointing this fraudulent price-capping exercise, which
typifies the herding actions of the banking cartel that encourages the
ownership of financial assets and discourages any thought of same for hard
assets such as precious metals. Truly an outrage of the highest order.
The three big candles shown in the 3-month gold chart are undeniable proof
of the interventions of which I have been wary and writing since the 1970s.
These are now not only becoming more obvious, they are now actually being
telegraphed by way of Twitter and "administration statements." Gone
forever are the days when I used to think that maybe I was sensing a
little skullduggery in the trading patterns or a smattering of
"shenanigans" in the COT figures or bank participation numbers. I
now look at the gold and silver markets as "fully rigged," along
with stock index futures and the bond markets.
Government officials now view the stock market as a "national
security" issue, along with the U.S. dollar. Since the U.S. war machine
requires unlimited and infinite funding to police the globe under a U.S.
protectionist mandate, there can be nothing allowed anywhere that sheds risk
on the status quo. The ultimate Achilles heel of the military is the U.S.
dollar's status as the world's reserve currency, and it stands to reason that
countries shedding dollars in favor of gold or silver are going to feel the
wrath of the price managers.
Forgive my cynicism but the last three sovereign leaders who threatened to
take payment for oil in non-U.S. dollar settlement terms were Saddam Hussein,
Muammar Gaddafi and Hugo Chavez—all deceased in short order and with great
dispatch shortly thereafter. Of course, it might be said that Chavez died of
"natural causes," but his country (Venezuela) has become a
modern-day hellhole after being one of the most prosperous in Latin America a
few decades ago. To wit, it comes as little surprise that the bullion bank
behemoths executed high-level orders and capped the precious metals rally and
U.S. dollar decline last week, coinciding with marvelous symmetry the big pop
in stocks.
I was in discussion with Getchell CEO Bill Wagener last week, during which
he showed me his NRA membership card and his firearms license, along with
photos of his latest sojourn at the firing range in the state of Colorado,
where he currently resides. He was offering me some insights on this
newsletter and in particular, the opening quote, which is "Gold is the
money of kings. Silver is the money of gentlemen. Barter is the money of
peasants. And debt is the money of slaves." He asked me if he could add
a fifth sentence to the quote: "Lead is the money of the
revolution," to which I said "Let's make it, 'Lead is the money of change.'"
Ergo, the new jingo for this missive is going to be the one shown at the
bottom of the following graphic.
Food for thought?
Going into the upcoming week, I expect to see some profit-taking in the
stock market rally, and I will be looking to buy put options on Goldman Sachs
and the S&P 500 at some point. However, as you have read here since the
Christmas Eve when I showed everyone the RSI for the S&P at 19 and
suggested that "the time to be short has passed, "that does not
mean that the market has V-bottomed nor does it follow that the advance has
to end any time soon. Bear market rallies are dangerous and very difficult to
trade because once the mesmerizing effect of the mercurial levitation on
clouds of hope and desperation dissipates, you are left with an air pocket
bereft of anything but the memories of what exactly took stocks
into"crash mode" in Q4/2018. Trade wars, balance sheet
normalization, quantitative tightening, and global growth impediments are all
still very real threats to valuation, but as we have seen since the 2009
bailout, momentum trumps valuation in this New World Order of algorithmic
assignments and interventions.
As you pore over charts and blogs and brokerage reports, just keep one
thing pasted above your quote monitor: The "invisible hand" is
there to liberate you from your wealth unless you play ball and drink from
the party-line punchbowl. Charging stock markets is the champagne narcotic
that fills the revelers with confidence and glee; gold and silver are the
caffeine that sobers up the room. And the enemy is not without means.
[NLINSERT]
Charts and images courtesy of Michael Ballanger.
Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of
the data provided. Nothing contained herein is intended or shall be deemed to
be investment advice, implied or otherwise. This letter represents my views
and replicates trades that I am making but nothing more than that. Always
consult your registered advisor to assist you with your investments. I accept
no liability for any loss arising from the use of the data contained on this
letter. Options and junior mining stocks contain a high level of risk that
may result in the loss of part or all invested capital and therefore are
suitable for experienced and professional investors and traders only. One
should be familiar with the risks involved in junior mining and options trading
and we recommend consulting a financial adviser if you feel you do not
understand the risks involved.
