Playing Chicken With Reality
This is what American's have been reduced to with all the games people play. A bunch of overweight and delusional techno-freaks with increasingly whacked out moral values set against an out of control kleptocracy (tyrants acting without the support of the people) that thinks they are invincible and are about to make the biggest mistake of our collective lives. Because this Syria thing could get far bigger than the idiots in the White House think, having catastrophic consequences on foreign relations just when US vulnerability is becoming increasingly obvious to its foes. These are just the kind of circumstances that could cause WWIII, where an out-of-touch ruling class (because Wall Street needs a war to help the economy / markets) pushes for what use to be a 'make work program' for the States because nobody could oppose, only to find out both the Chinese and Russian's are not just capable of defending their interests, they could in fact turned the tables on the US - and become the aggressors financially. Along this line of thinking - it's important to know when you are playing chicken with reality.
And it gets worse, because Syria is a 'no win situation' for Obama and his band of bunglers in the White House because if they push for war oil will skyrocket, and if they back down the US will look like a bunch of harebrained wimps, which could have the opposite effect on stocks, bonds, and especially the dollar($). (i.e. because it will look like they are no longer able to defend the petro$, hegemony, etc.) What's more, as far as I can tell the Syrian situation will turn out to be a debacle no matter how things turn out. To wit: If the US goes ahead with a military intervention (whatever you want to call it), one must ask if they have bit off more than they can chew this time around considering Syria's allies, with Russia at the forefront. (i.e. Syria is telling Americans to bring a lot of body bags.) And again, if they back off after telling everybody they were going in within a matter of days, the White House, and America, will lose what little credibility they have left. This is a lose - lose situation in my books - and is discussed further here.
Of course the whole idea (White House perspective) behind this false flag embroil was misdirection in the first place, a distraction to keep people's attention off the country's real problems, and hopefully create enough nervous tension in the markets to prevent natural outcomes. (i.e. they know improper betting practices by speculators affects outcomes as the machines are used to exploit linear thinking.) Because while they need lower asset prices to justify postponing (indefinitely) tapering QE, at the same time they don't need a crash, not like what happened to stocks in 1987 or 2008. This would bring to the forefront the real risks the economy / markets face, where they don't want to be playing chicken with deflation. That's the Fed's number one fear, you can be sure of that. (i.e. because the real economy is far worse off than the mainstream media, bureaucrats, et al. would like you to believe.)
While 'true deflation' will not likely be the result (because currency debasement will accelerate), that being a sustained contraction in the aggregate money supply, rapidly depreciating asset prices can have the same effect on the economy, and for the brief minute it would take central banks to react to this (by reversing coarse on taper talk), destroying enough wealth to trigger negative multipliers. This is the risk we have now with both stocks and bonds precariously perched in bubble territory looking for a reason(s) to pop, and confused (and trapped) central authorities still threatening to do so. (i.e. despite warning signs both at home and abroad.) But you should realize this is all a ruse. It's a bluff on the part of a weak kneed Fed. You should know from history that when push comes to shove they will always swerve to avoid oncoming traffic, which in this case is just the possibility of deflation.
But they can't have the public see how weak they are, so the need to obfuscate and hide their true agenda. They need to create an embroil intense enough to convince people of their worth. So they pull the rug out from beneath people and dangle their existence in front of their eyes a say look here, if we don't swerve (back off taper talk) both the fake fiat currency economy and you will crash. Of course we are at the point we actually need a scare to convince people the Fed (and its counterparts around the world) should keep printing money with abandon because the 'need for speed' is ever-present, meaning not only do they need to keep printing money at current rates, like a junky, they need more in order to keep the all-important credit bubble afloat, which is of course the true hidden agenda of the Fed's private owners.
So, this is why they will swerve, you can count on it. Because if it's not in September its likely never given the true state of a deteriorating global economy. (i.e. that will affect the US eventually.) This is not new subject matter for us, where we correctly predicted the same outcome last time around, and will do so again in the future because the Fed is a one-horse pony. They have no other power except their monopoly on creating monopoly money. And because of diminishing returns they continually need to create increasing quantities of this monopoly money in order to avoid a 'car wreck', which again means they need a legitimate excuse to debase the currency, economy, morals, etc. substantially further - putting the probability of a stock market dislocation quite high - either before the September 18 FOMC meeting, or just after.
Because unfortunately, our present neo-liberal (feudalistic) economy calls for global serial money printing bubble-economies, one after another, until some version (degree) of hyperinflation finally melts down our collapsing infrastructure(s). And while they may in fact be attempting to simply jawbone less volatile swings in policy, the economy, etc., you should realize this is not possible on a sustained basis because of diminishing returns in money printing. So, whether intentional or not (it doesn't matter) volatility will arrive at some point, and it appears that time is now. (i.e. running into Fall.) So, with Bernanke looking to protect his legacy until next year, again you can expect Fed policy to swerve, meaning never mind taper talk hitting the backburner - how about QE vaulting over $100 billion per month. (i.e. not printing increasing fiat currency is playing chicken with diminishing returns.)
The timing associated with a possible Syria conflict is perhaps a bit too convenient in that the Fed can always use this as an excuse not to taper as a back up plan. If no taper is announced, which as per above is likely (they will swerve), again, it won't matter past a reaction in stocks. Because don't forget they actually need unquestionable stress in the system (falling asset prices) in order for the Fed to justify printing money with abandon again, which is what is necessary to keep the larger credit bubble inflated. Again, like a mature junkie, now that the West (global economy) has been off any kind of gold standard since 1971, where these things (fiat currency regimes [think US$]) never last much more than 40 years, the establishment needs to print increasing quantities of monopoly money - not less. It's either that or we have empire failure directly ahead. (See Figure 1)
Believe it or not, that's what the Dow / TSX Ratio (see above) does a good job of defining, that being the true state of affairs in the global economy, as reflected in the demand for basic materials (inputs), which Canada is a primary supplier. Therein, when Canadian stocks are outperforming this means traders think that money supply is accelerating, which in turn will increase the demand for natural resources. And conversely then, when traders are seeking the safety of the Dow the opposite is true, with protection from deflations ever-present on people's mind. Of coarse the irony of the larger picture is even if central authorities are capable of creating the illusion of sustainable inflation this won't be good for stocks in the end (as profitability will be eroded), which is why the Dow / Gold Ratio is likely on its way to unity once again, as was the case in 1980 when the two crossed paths while vexing 800. (See Figure 2)
Because as seen below, stocks will need to spring back into full-blown bubble mode last witnessed in the year 2000, as measured by tech stocks, in order to produce more nominal gains, which if history repeats should trigger real losses against gold (and silver). So while such an outcome does not mean nominal stock prices won't rise further, because counter-cyclical moves can last longer than the speculators betting against them, again, at the same, in the end real gains will be wiped out by some variation of either gold (and silver) rising far beyond the wildest dreams of even the most fervent bulls, or broad stock market prices feeling the weight of water. (i.e. inflation eroding both profits and share prices.) The big take away message from this lesson is obviously 'own gold and silver' for the long term, and forget the rest. (i.e. especially with stocks pushing into bubble territory once again.) (See Figure 3)
Of course the powers that be will undoubtedly attempt to further their respective agenda(s), which means they will continue to do their damndest to keep stocks levitated and precious metals suppressed using obfuscation, bullshit (BS) stories, and market(s) manipulation. One must wonder however, with the 'rock star status' of the Fed (and ilk) beginning to fade due the obvious failure of QE, which will increasingly have a profound impact on the markets given time, just how much longer the illusion can be maintained. Along this line of thinking one should always remember the secular trend(s) in both stocks (down) and gold (up) will likely not end until the Dow / Gold Ratio surpasses unity, signaling a clearing of the excesses in the system, if it survives. System survival is of course questionable with the degree of bubble economics currently built into equation, not to mention more worldly considerations like the inevitability of a worsening energy crisis.
In looking at precious metals from a more near-term perspective however, we do have some recent developments that should keep people cautious despite the fact seasonal strength in September should be expected. (i.e. the seasonal pattern shows the strongest months for gold are September and November.) In addition to observations noted in our last meeting, we now have the observation the gold stock to gold ratios, highlighted by the HUI / Gold Ratio, have collapsed below a Fibonacci 61.8% retracement of the movements from the June lows, showing a lack of impulsivity in the rally. In order to be confident one is looking at higher prices directly ahead it would have been better to see precious metals shares not fall below this all-important measure, where some would in fact use such a development as a 'sell signal'.
And while this could obviously change on any further gains, as this could be the equivalent of Mohamed Ali's 'rope-a-dope' strategy, at the same time, and at a minimum, the prudent should be careful knowing this both in terms of present portfolio holdings and future buying plans. What's more, and something that could come into play as the we move into Fall, we still have the large head and shoulders pattern in the precious metal share index first discussed on these pages back in December of last year (see HUI in Figure 3) that could trace out, putting the HUI below 200 into October. If open interest put / call ratios for the key precious metals measures were higher it would be easier for one to ignore such a risk (general market liquidity risk), however given the totality of factors, again, it appears one would be wise to be prudent (not bearish) in coming weeks. (i.e. either until October has passed, stocks have dropped, or the ratios improve.)
Being careful right now appears to the smart thing to do - not ignoring opportunities - but at the same time being both prudent and patient.
Good investing is still heavily skewed in favor of precious metals, although timing can make a big difference in terms of ultimate outcomes.