The Slow Burn
Empires fall slowly - especially the big ones. In terms of the human experience, no empire (if you can still call it that with all the cronyism and corruption today) compares to America, and its global reach both economically and militarily (they are connected), spanning the world like no other force in history. Not since the Roman Empire has there been anything comparable; but again, the American Empire is biggest ever (even though this fact is not recognized by the status quo in order to justify their agenda) and arguably far worse off. And along this line of thinking the cracks are beginning to fisher, eventually widening into chasm if history is a good guide. Because that's what happens to empires - they all die.
Because as with all empires the corruption becomes rampant with easy money empowering the lunatic fringe and moral retards, which is the rot from within that eventually brings economy down in a slow burn, taking decades, if not centuries in Rome's case. And like Rome in the end, the American Empire, which we will refer to as the West, is also being run by delusional and sociopathic criminals that are engendering corruption at both official and public levels, increasingly accepted as the new normal. As with all fascist states, it's 'comply or die', which not only corrupts our morals and behavior, but also the very fabric of culture, society, and economy. This is what Edward Snowden is using as justification for going public.
But the irony of the situation this time around is everything happening faster in the world we live in today, which still appears slow to modern stimulation junkies. The powers that be use the media to obfuscate and hide rapidly deteriorating fundamentals in an attempt to maintain the status quo, attempting to make the economy and markets seem better than they are (confusion) and to distract. (i.e. stimulus overload desensitizes the masses to real deterioration they should be concerned about.) Increasing technical (Hindenburg Cluster) and fundamentally based (trade wars) signs are appearing that indicate the global economy has a date with destiny approaching however, and it's likely not far off now, which will likely trigger violent reaction in the US at some point as well. Governments and central bankers are losing control of their fiat currency economies and markets because the disconnects are becoming more profound, which has the effect of speeding up process.
Along this line of thinking, the market(s) are confused by Fed double-speak, which is understandable considering the real economy is collapsing while they are taking about defacto tightening. They are going to get caught in their bullshit (BS) story (the US economy is recovering and strong) at some point however (think bond market meltdown), which is not only at odds with reason, but also the rest of the world. This is when the slow burn will pick up a notch or two. Most still don't see it though. The denial is pervasive. Eventual systemic collapse is assured because of this. But for now, on the surface it looks and feels like a 'slow burn' rather than collapse. This will change because the Fed has talked itself into a tight corner, and so has the BOJ, which is why stocks and bonds are crashing over there. The markets are more tightly controlled (manipulated) in the States, but they will play catch-up at some point this fall.
Further to this, and from a market(s) management perspective, effectively what we have seen so far is global money printing rotation that, for example, has England in the spotlight at the moment. (i.e. it's been Japan at center prior to this rotation.) But in a larger sense, and more importantly concerning the USDollar($), something far more important is happening. The $ is losing it's reserve status (demand) rapidly now, and some point this will become obvious to all, along with the fact the Emperor Has No Clothes. As a result of this eventually the bond market(s) will likely collapse, taking everything else with it. This may already be happening in Japan as it becomes better understood JGB's, along with the entire economy (and markets), are imploding. Heaven knows the bond market is in a terminal state given its size, with central authorities becoming increasingly stressed (and unable to do more) given their huge exposure in the bond market.
So, what we are looking at here in all likelihood is because of peak credit we will also have peak stocks, due to peak margin debt and peak collateral; peak resources (peak gold) because we are burning them off too fast; and, because of all this, peak people. That's certainly the way the average American worker is beginning to feel, like he is suffering through a slow and agonizing death. And if he is feeling this way you can imagine what people in periphery economies must be feeling. Just look at youth unemployment in non-core Europe. These people are already living in Depression like conditions that are spreading to core states, which is increasing the pace of systemic collapse. The authorities are doing everything they can in an attempt to avoid such an outcome but they will fail, and anarchy will eventually take over.
But people should have known better - right? They should have known the vast majority of public officials and bureaucrats don't give a 'rats ass' about the public - right? Again, the desire of a completely corrupted public to maintain as much of the 'good times' as possible is why this is happening, which not only explains the mass denial, along with continued support for the status quo. (i.e. not realizing the status quo is working against the public.) What's more, one should not be surprised just how far down the rabbit hole the corruption goes and why when the pace of systemic collapse begins to accelerate the bureaucrats will have no trouble instituting bail-ins in an attempt to save their insolvent banker buddies, and who knows, maybe even gold confiscation is on the agenda.
Because none of these people don't care about the well being of the public, only about their own jobs and wealth. And they have become unbelievably greedy, emboldened by a complacent and complicit public who has also been taking the free money for too long as well, allowing our unscrupulous leaders increasing license to rape pillage and plunder as long they get theirs, with the big irony being the middle class is actually the prime target. This is why our entire society, economies, and markets have been completely hollowed out, with the upshot of all this being the very moral fabric of our society is in tatters, markets nothing more than large casinos, setting the stage for real trouble just ahead given the vast majority are not prepared for what is now coming fast and furious.
Honing in on the markets now, not many realize recent price action in the $ is illuminating a proper light on the Fed's BS story (the economy is strong), even though it's crash is being tagged as 'yen carry-trade unwinding' associated with taper talk. When you think about it for a while, this explanation is the same thing as saying the $ is falling because of relative economic weakness, but because it conflicts with the Fed's BS storyline another reason must be cited. This is because they attempting to create an illusion of prosperity in order to revitalize the economy, justify their jobs and stealing, etc. So, the scuttlebutt of all this is the Fed will be able to blame $ weakness on the speculators, forcing them to not cut back on QE because they 'can't take the chance'. As alluded to last week, this is why the Fed will not announce tapering at its FOMC meeting this week - because they can't take the chance - but it's not their previous policies - it's the speculators doncha know. (See Figure 1)
And that's why the stock market needed to be down going into to the Fed meeting this week - to justify not tapering. Once this is known to the market(s) violent reactions higher in both stock and bond prices should be the result into seasonal strength expected in early July, however because of the manipulated nature of this mess, who knows, rallies could be fleeting, especially with the $ rallying back. (i.e. even though it should make a lower high.) Commensurately, and if history is a good guide, precious metals would be aggressively sold post Fed meeting then, which would have the effect of pushing the Dow / Gold Ratio up to 12.5. What is the likelihood of this happening? Answer: It will largely depend on what the speculators are doing. (i.e. not just what consensus surveys tell us, as most of these measures are now redundant, but how they are actually betting.) (See Figure 2)
In this respect then, I bring your attention to the above chart, that of the Dow / XAU Ratio, because along this line of thinking (speculator betting practices will be the tell) instead of watching the Dow / Gold Ratio, which may or may not get back up to higher Fibonacci retracements, discussed at length here, perhaps we should be watching the stocks for the tell on when the cyclical correction in precious metals is over, with the shares leading - right? And sure enough, as you can see above, the Dow / XAU Ratio has in fact almost fully traced out a 'signatured' 50% retrace to date, meaning the likelihood of previous metals shares remaining weak against the broads is now significantly lessened, if not outright low considering they are still theoretically in a secular bull market. One more bout of strength in the broads and weakness in precious metals shares surrounding the Fed meeting this week should be the impetus for a reversal of some degree in this relationship (giving us an opportunity to look at it) considering even if the trend does not turn in the intermediate-term, consolidation should be required before a push to the Golden Retracement (61.8%) is able to trace out. (See Figure 3)
Now this might be far too optimistic considering gambling practices on the part of speculators in key index and ETF's are only beginning to lift bullish bets (more on this next week), however there are too many people (speculators) that think gold will go down with stocks in the next crash, which is why that may not occur this time around. So again, although I would not get too excited about such prospects just yet, because the situation is still developing (think COTS, put / call ratios [rising], inventories, physical demand, money supply growth rates, etc. coming into line), the good news for precious metals investors is both technical (including sentiment) and fundamental conditions are making marked improvements, which is bound to have a positive effect on pricing possibly sooner rather than later. (i.e. in spite of all capping efforts.) Certainly the monthly XAU plot, pictured above, is getting close to a completely sold out condition, in addition to being on a time-line turn, however additional weakness cannot be ruled out. (i.e. especially given the negative correlation to the broad markets.)
This is because with money supply growth rates still buoyant, stocks could also remain buoyant into seasonal strength expected in early July, however if this strength is due to the Fed not tapering (taper talk was designed to jawbone stocks back down to 50 day moving averages because the feds cannot stop printing), which is expected, then after misplaced relief takes bonds higher as well, a lasting reversal should ensue, taking both bonds and stocks down with force into the fall. Just how all the various segments of the precious metals complex perform under such conditions in obviously not known, however one thing is for sure. A declining stock market will rapidly accelerate solvency issues up and down the line, from banks to governments, so from this perspective it's not difficult envisioning the negative correlation between the broad measures of stocks and precious metals continuing to play out, especially if bail-ins begin to accelerate as well.
What's more, if bail-ins are already occurring with macro-conditions still supportive, monetary and macro conditions could be in chaos by fall (as the slow burn morphs into an inferno), with stocks under tremendous pressure, which should be supportive of bullion prices, however one must wonder just how the shares would perform under such conditions. Betting on a big drop in stocks moving forward is probably not the best idea considering the supportive monetary backdrop at this time; but still, bullion is the conservative choice, especially considering one escapes bail-in risk, and the system at large, making allocation decisions obvious from this perspective. That is to say, go ahead and buy some precious metals shares if you think the sector is about to turn higher, which could be the case sooner than later given the backdrop, but if you do, only allocate what you are willing to risk in volatile conditions (since they could still be halved as discussed in previous work), and also get them out of street name considering the growing solvency issues of financial institutions which should become increasingly apparent as Fall approaches.
And as Forrest Gump would espouse, 'that's all I have to say about that.'