Staying Ahead Of The Curve
The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, November 3, 2014.
This article could have simply been called 'Staying Alive', because it's about central bank(s) desire to stay alive. But in order to do this, they must stay ahead of the curve now with the bubbles poised to pop, blowing them ever larger, or die. Square headed observers may retort such a sentiment with the Fed traditionally backward looking - reactionary - in setting policy, but this is not your father's Fed my son.
The cessation of QE is of course a large part of staying ahead of the curve for the Fed, quasi-tightening designed to slow the rate at which the bubble economy is inflating. That's right, all they are attempting to do this time around, because true tightening is no longer possible with the junkie economy on life support, is slow the rate at which the balloons are expanding, which will hopefully allow the fraud to continue longer than would be possible if the spigots were left wide open. At least that as the view on Thursday, right before the BOJ's surprise announcement overnight.
This is where the brotherhood of world central bank Harry Houdini routine kicked in, using the cessation of Fed QE as distraction provided on Wednesday over here, offset by the BOJ not two-days later ramping up bubble blowing dynamics in over there, causing offside speculators to cover poorly thought out positions in everything from stock market shorts, to puts, to precious metals calls, to fixed income and currency markets, with the yen taking a huge dive, and the dollar($) soaring. And again, this was done to stay ahead of the curve for the bubble blowers, because economies are in such poor shape these days, and dependent on ever-increasing currency debasement, government spending, and higher debt (over $100 trillion now), if they fail to do so, it will all fold like a house of cards.
One does need wonder however, if central planners are actually still ahead of the curve given they have essentially adopted a 'suicide mission' for all of us (where does non-effective monetization lunacy end), and the parlor game they have been playing with speculators heads (sentiment based markets controlled by computers) getting tired, what do they do now? You should realize the economy, and eventually the stock (and bond) market(s) are going to implode because of this, and that until this happens, expect to see more central bank games like those on Friday out of all key players - the Fed (some version of QE4) - the ECB next with its version of QE, etc. All they do is rotate the timing and names to keep the public confused - but its all just money printing that will eventually make the cost of living for average income earners too high to keep their boats afloat. This is already an accelerating trend.
Speculators have been attempting to stay ahead of the curve too, evidenced in their willingness to lose money month after month in front running a top in stocks by shorting them. Never, in the history of markets has the present mania in this regard been so strong, with paranoia over losing wealth, jobs, etc, ever more profound. The pattern is stocks go down, speculators / hedgers panic and buy puts / short shares, followed by panic at central banks (led by the Fed), where in addition to overt policy, also intervene both verbally and in the futures markets. And the cycle is rinse - repeat - rinse - repeat - again, and again, and again. Direct evidence of this can be viewed in updated short interest numbers, attached here, where you can see SPY hedgers / speculators were busy in the first two-weeks of October as stocks were falling. What a nice set-up that was for central banks to orchestrate a Houdini (squeeze). And it's not over yet, where as you were warned last week, a Republican sweep of the House and Senate in this week's elections would also be $ friendly, exacerbating the squeezes even more.
And while surely many shorts covered in the squeeze last week, this does by no means suggest something far bigger is in the works, not with the stubborn but useful idiots populating the hedge fund community these days, and central planner resolve of course. (i.e. to stay ahead of the curve.) The only thing is more recently, with the exception of large professional traders (think neurotic hedge fund managers fearful of losing their lucrative jobs), retail investors have begun to show exhaustion in this cycle, not rushing to react to every downturn in stocks due to both psychological and financial exhaustion, leaving the gapping question, 'when is this going to happen to the gravy-train crowd managing macro-hedge funds?'; the only real remaining fuel past buy-backs (which are dwindling as well), and continued overt central bank monetization. And don't kid yourself folks, besides overt actions like that of the BOJ last Friday, backdoor monetization of stocks is still occurring via other increasingly covert means. (ex. the Fed opened a new prop desk in Chicago just last month.)
All this said, post the elections Tuesday, it's likely at least counter-trend retracements in throttled markets will take place at some point (this week/next week?), however you should bear in mind that these price managing characters cannot let up for one second, never mind an entire month. So, until proven otherwise, expect another jam-job into month's end again - because they are only numbers right - not a true representation of the economy. Such an outcome was signaled on Friday, with a monthly close of the S&P 500 / CBOE Volatility Index (VIX) back above the monthly swing line, again, discussed here last week (see Figure 1). Further to this, in terms of likely continued strength in the broads (and $), and weakness in precious metals (and commodities - which will eventually start World War III), we have the SPX / iShares Silver Trust (SLV) Ratio at 130 now (discussed in detail here), where again, one should expect a correction post the elections on Tuesday, and due to seasonals, but after that, if short sellers (think hedge funds) have not had enough and are still attempting to game a top in stocks, then a move to the 140 area should be expected. (See Figure 1)
With such an outcome possible on sheer momentum of stupidity now gripping the macro (think traders, central planners, you name it), one must also expect a fairly high level of continued stupidity to be exhibited in paper market precious metals gambling as well (until proven otherwise); where again, it would not be surprising to see more pain experienced this week surrounding the mid-term elections. Given the stretched technical conditions in both figures 1 and 2 (below) however, on a short-term basis most of the damage is likely already done (traders can likely buy successfully Tuesday for a bounce), where as with the SPX / SLV Ratio, the Franco Nevada (FNV) / Amex Gold Bugs Index (HUI) Ratio is right on significant Fibonacci resonance related resistance, meaning any additional headway should be fleeting. Again however, not just based on our regular sentiment studies, but on an exchange I had with supposedly seasoned retail traders on a dedicated precious metals website last week that will go un-named, unless open interest put / call ratios shoot way up past unity soon, prospects for far lower prices still exist. (See Figure 2)
Therein, you attempt to talk intelligently to these fellas about fact, verifiable fact that an eight-year old could understand if presented properly (which happened), and they don't want to hear about because it conflicts with their own confused views on life, and how the markets should conform to those views. But of course they are typical, where even guys like Peter Schiff, and the larger gold promotion crowd, either can't figure it out, or are simply attempting to impose their own agendas on the markets. (i.e. they fail to realize markets today are completely controlled by sentiment and the machines.) Either way it's not good, which is why the boys down at the bank in New York continue to wipe the floor with precious metals investors in the midst of the most profound currency debasement episode in man's history. (i.e. it's not Weimar, but it's global.) What's more, and in spite of the fact we are at all time extremes in precious metal share to commodity ratios, precious metal share to broad market ratios (check the Chart Room), and other key measures we will discuss in the future, one must remember we have not even seen a true deflation scare since 2008, where precious metals shares would be halved again. (See Figure 3)
You will remember, the extreme measured move of the head and shoulders pattern in the S&P/TSX Venture Composite Index (CDNX) is down to 400, which would in fact be a halving from here. And this could come quick under the right conditions. How could that be with the technicals on key ratios stretched far enough to suggest lasting reversals are in order. Easy - as just like what happened in the first two-weeks of October, the broads can fall faster than commodities or precious metals stocks, meaning these ratios would trend in the same direction as the broad measures of stocks no matter what was happening in other markets. Of course what also could happen is precious metals shares might rally with the broads for a period of time if bullish speculators finally give in and put / call ratios shoot up to levels similar to those in broad stock measures, however one would likely do well not holding your breath on this one. Just look at the open interest in COMEX silver. Presently it's at a record 170,000 plus contracts, and could he halved with precious metals shares when speculators finally give up the ghost. This could see silver down several more dollars, not to mention bankrupt many industry players and speculators.
And the other thing to realize in this regard is the extreme nature of the larger mania. In the history of man, there has never been more crazed (stupid, greedy, etc.) people hell bent on furthering their own agendas as right now, right down to the smallest of traders, thinking they can actually impose their will(s) on a market. This is of course the idea behind the machines and algos for the large traders (think governments, bankers, billionaires, large hedge funds, etc.) imposing their wishes on the market, driving it ever higher. The thing about this whole set-up is you have naïve and emotional retail traders (think less informed and smaller hedge funds at center in this group) set against the big guys who control more money, not to mention the programming of the machines. How they maintain control is the machines are not programmed to recognize overbought or any other technical conditions, instead they focus on select headlines (planted by the establishment), which is why prices can keep trending to such extreme levels up or down. This is why it's so important not to be betting with the idiots (smaller traders), because they will lose every time.
Furthermore, this why it's so important to keep an eye on speculator betting practices, because the blowback for the price fixing status quo is imbalances in the economy / system are so profound now, the people so placated, numbed, and stupefied, that when it all breaks, some degree of a complete meltdown will occur. What this means is despite the greed and cleverness (not intelligence) of the status quo, they too will suffer the same fate(s) being imposed on a trusting public right now, where who knows, depending on how things go, we might see something similar to the French Revolution. Watch high level bureaucrats (think Animal Farm, pigs, dogs, and what happened to the pigs once they lost control of the dogs) run for their lives if something like this ever happens. The outright theft at all levels by these types is sickening, where some sort of price consistent with the crime is usually paid given enough time. Try and stay ahead of that curve.
Good investing all.
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