While Nero Fiddles
The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, April 20, 2015.
Did Nero really fiddle carelessly while Rome burned, as some would suggest? Perhaps surprisingly to most, the answer to this question is no, as violins did not even exit at the time. But it was easy for his enemies to make such an aspersion due to his otherwise decadent and unpopular demeanor, so he was painted with this brush in some mainstream history books, which has been used widely as colloquialism to disparage those who show such behavior. Some have attributed this characterization to President Obama, the supposed leader of the free world (rich oligarchs actually run things), as he appears to favor golf and expensive trips to Hawaii at taxpayer expense as opposed to actually attempting to improve things for most in America. So unlike Nero, it would be hard to argue with such an assessment. In fact, it would not be difficult to portray the free world's (heavy on the sarcasm) hapless leader as having actual disdain and contempt for Americans (Constitution, rule of law, etc.) - because growing numbers are on the endangered species list now anyway - where if you are not there yet -you will be. (i.e. thanks to self-serving policies.)
From this perspective, where this homegrown disdain for America is more widespread than most care to comprehend, it should be understood that it's to be expected in a mature fascist state, where subjects are viewed as 'dumbed down objects' to be exploited for the benefit of (corporate) oligarchs and high-level bureaucrats. In looking at the US today, it could also be compared to France at its peak as well (but more like Rome given degree) - with a reckless and entitled neo-monarchy (completely detached from reality), oligarchs, and bourgeoisie - the works. And at the rate these guys are strip mining the middle class and American family, it shouldn't take long now to see a new and more profound crisis at some point soon, one where the true fragilityof the US becomes apparent to all, including all those still in denial attempting to live the dream on credit. No amount of dreaming about how technology will bail America out again won't help this time - not the Apple watch (a joke) - nothing. The human imagination is incredible in terms of the denial and delusion it can engender. The American dream is still a one-way ticket to Elysium at any cost.
Of course, this will not stop the oligarchs and their dogs from continuing to exploit the plebs for as long as possible. However if Martin Armstrong is correct in terms of his Economic Confidence Model, where he is forecasting peak government this fall with a popping of the sovereign debt bubble, the old farts might finally get a good view of a new future not consistent with the New World Order (NWO) - including rapidly innovating crypto currencies that are set to compete with existing regimes. Because let's face it, the so called democratic governments of today have morphed into an uncontrollable and corrupt cancers that will stop at nothing to exploit the public for their own benefit, and that of its benefactors, where left unchecked, they will kill us all.
So in an effort to provide some substance, which is in fact what is lacking in status quo propaganda, because they have made lying an obsession rather than an art (which is how they view themselves - as wise-acres - exemplified by the clowns on CBNC®), we find ourselves with the task of attempting to raise people's awareness on this subject matter, in addition to helping one survive this mess financially. And as evidenced by the price action in financial markets Friday, where events are beginning to spin out of control, in a nutshell the secret to surviving financially moving foreword lies in one word in my opinion, where again, being a true contrarian comes into play, with that word being - simplicity. Do the opposite of the masses, and given good time, where good things come to those who are patient, one can generally make a material difference in ones finances. Today, the status quo wants you to think short-term, act impulsively, and create transaction to feed the (materialism) machine. This is exactly the kind of behavior that will end you spiritually, financially, and physically in the end - the status quo is your enemy - and you should know they are at war with the individual, quintessential knowledge, and, common sense. They want you to focus on filling their pockets and if left unchecked, the current macro will deteriorate into a full-blown fascist police state where they will confiscate your wealth using increasingly draconian and aggressive techniques.
What to do then? Buy stocks and bonds, which have been working fabulously with a little (a lot) of help from increasingly complex derivatives and debt play? Can't buy precious metals right - the Western status quo boys have them in lockdown thanks to the morons in the market(s) and machines. But you can't follow the fools into debt and derivatives (due to short-termism) either, because when the music stops these same fools will be attempting to shed risk all at the same time in bottlenecked markets. That's when they will all start running towards precious metals a bipolar manic moment, where although liquidity / market risk may cause volatility initially, the simplicity of safety in precious metals will become obvious to traders as global politics / trade / markets come unglued. The reason for concern stocks could still rise and gold fall further comes from closely examining this chart, where in order for the Dow / Gold Ratio (DGR) to hit the long-term trend-line again, it would need to surge to the 20 area, presently at 15.7. It does not necessarily have to vex the 20 area before resuming its secular decline towards unity once again (it trends lower when people lose confidence in the status quo), but considering it has not even retraced 38.2% of the decline from 2000, which would put it in the 17.5 vicinity, the risk of such a move(s) must still be considered within the realm of possibility, if not probable. (See Figure 1)
People ask, why do you focus on the DGR so much, and other ratios that measure the stock market to gold relationship? Answer: because in all the confusion, with copious variables to factor, the DGR gives a trader / speculator / investor a track to run on that is not evident in looking at the various markets in nominal terms. It's that simple. Otherwise, how could one gauge the probability of the Dow rising another 1000 points for example? The answer is, you could not. But in knowing the DGR should rise further based on good historical mathematical relationships, we are enlightened to this probable outcome. This is where the genius of Fibonacci's original observations comes into play, with the primary task after that intelligent application of this knowledge. The Fibonacci resonance projection on the chart below is a very good example of this in my opinion, where if the historical resonance pattern holds any predictive value, which has proven to be a high percentage occurrence, the Gold Miners to gold ratio should see lower lows at some point in the future, supporting the view the counter-trend rally in the DGR still has legs. (See Figure 2)
More evidence a liquidity event that will effect the entire stock market spectrum, including precious metals shares initially, is approaching, comes in observing the monthly plot of McEwen Mining (MUX) seen below, where if this were not the case, it would have bounced off trend-line support instead of consolidating in its proximity before plunging through it in all likelihood. MUX is a junior producer; well known due to Rob McEwen's fame, and for this reason can be used as a proxy for the entire group that falls into this category. As you may know, my correction target for the CDNX, representing junior precious metals companies, is down to 400, where like MUX, it's probably just consolidating losses right now before plunging once again when the bottom falls out of the broad equity complex. This is the view one must have until proven wrong, which would be when the GDM / Gold Ratio breaks out to the upside, evidenced by the 'game changing' event denoted in Figure 2, that being an RSI breakout to the upside on the monthly plot. Therein, if this were to occur, it would mean any strength exhibited would most likely be lasting, because monthly charts are designed for trend following purposes. (See Figure 3)
Now you may be saying to yourself, what about the negative correlation between the broads and precious metals shares price managers have been using to cap the sector these past years - doesn't that guarantee gains for gold and silver if stocks turn lower? The answer to this question is yes, but with a caveat - not necessarily right away. There are times when precious metals and stocks share a positive correlation, where for example both were rising coming out of the depths of the 2009 lows due to improved liquidity, which is the reverse of what is coming now at some point in the not too distant future. Unsuccessful QE and various other desperate measures on the part of central banks who have been attempting to stimulate sustainable growth are about to find out about the fleeting benefits of unbridled and misplaced fiat based monetary (and debt collection) policy - despite attempting to 'stay ahead of the curve' by keeping bubble economies inflated. The thing about it is ZIRP and NIRP won't work either because they are just stopgaps in an already exhausted debt supercycle. All central authorities are doing is postponing the day of reckoning.
So, what is to be done now? For the individual, the answer is obvious. Plan for the worst, and hope for the best. You don't want to be like the Greeks who are being reduced to their true financial state, along with everybody else with no savings, bloated budgets, and improper currency diversification. Again, this is why central planners must attempt to stay in front of the bubble management curve or all will be lost - literally. In this regard, now we apparently have China jumping on the QE bandwagon as well, not that it wasn't printing money before. So, it could take some months for the markets to digest this news, where the perspective should be Chinese stocks will hit at least a double top before it's all over. This means the SSE Composite could still go to 6,000, from 4,200 today if Chinese authorities throw enough money at it. And then again it might not if the overnight reaction to this news is any indication. The stock market is nothing more than a video game controlled by a bunch of adolescent traders and programmers who doing the bidding of the bankers, hedge fund managers, and corporate oligarchs these days, so one would be foolish to draw any conclusions from how Chinese stocks reacted to this news.
Anything could still happen if more crazed Chinese housewives have yet to jump on the bandwagon.
See you next week.