The Rich Man's Panic
The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, May 25, 2015.
Market historians may remember the stock market mania of the early 1900's referred to by some as 'the rich man's rally', because like today, it was the top 1% of the 1% that really made out. In folklore it was the Gatsby's, and in reality the Rockefellers. And today, it's Warren Buffett and Bill Gates, all of whom who have one thing in common - maximization in the exploitation of credit and crony capitalism. In hindsight we can now see for John Rockefeller and his ilk it was just the beginning in this regard, as the Fed and larger US credit cycle were just getting rolling, born of volatility at the turn of the century in the rich man panics of 1903 and 1907 that brought The Creature From Jeckyll Island into existence.
Of course some may say both Buffett and Gates (both then and now) bought the crash in 2008, which means they deserve the rewards. And on a basic level this would true if it were not for the fact they were tipped off and bailed out by government lackeys, many who also profited personally from the very debacle they helped create as well. This is crony capitalism at it's finest, with the blueprint established all those years ago on an island just off the coast of Georgia. Because when you know about all the backdoor bailouts ahead of everybody else, as well as given sweetheart deals at the expense of the taxpayer, it's not really a level playing field - is it?
So the rich men don't panic anymore. In fact, knowing how to exploit volatility with huge cash reserves and credit facilities (global debt now $200 trillion), they would apparently welcome another good panic in order to put new capital to work, because they will know weather to buy or not. If the unlimited bailouts are coming buy lots - right. But what if the bailouts don't come this time? What if Warren, Bill, and their elitist buddies don't get bailed out this time around? Will the government be able to bailout these characters again if the world is facing a sovereign debt crisis, as Martin Armstrong is suggesting? Or, is the move to private assets from public going to be enough to keep share markets buoyant temporarily?
These are all important questions that nobody has answers to yet, however one thing is sure in my mind, it's difficult seeing equities performing well with interest rates rising considering the present apathy towards debt - at least initially. That is to say, in the old days (think 2009 and earlier), liquidity risk due to record high excessive leverage employed in stocks (as is the case now) was viewed as negative, and a likely catalyst for a reversal lower in trend. Today, with desperation levels high evidenced in front running central planners (attempting to stay ahead of the bubble curve) and distraction by the public (anything to ignore reality), it's different this time around according to these types, pushing the present sequence into something very ugly in terms of degree.
What does this mean? It means we have entered the Twighlight Zone, with flash crash risk growing exponentially by the day due to liquidity risk - a place where even the rich men will not be able to escape. And while it's true this could still take some time to play out, it should be noted that while this is difficult to detect, process is accelerating, which is why negative / zero interest rates, exploding debt levels, and all the other varieties of financial engineering are necessary, because debt ridden hollowed out Western economies are drowning. Transatlantic and Investment Partnership (TTIP), the Trans-Pacific Partnership (TPP), and any other program Western politician's bring out are nothing more than distractions for the techno junkies at home, and Trojan horses for the colonies, with the end result being crony capitalism remains alive and well as a zombie nation (along with the colonies) continues to get fleeced by the pigs and their dogs. (i.e. think Animal Farm.)
The only problem for the oligarchs and bureaucrats cashing in on the raping and pillaging of the system is 'necessity' for the downtrodden is also accelerating the decentralization process, with the Brits at the forefront in the Western realm. (i.e. this can also be seen here, here, and here.) So while the powers that be would like to have you thinking happy thoughts while they serve up transgressions like a cashless society, one should remember what the pigs and the dogs are really up to (totalitarianism, official confiscation, and control), because the situation is quickly getting out of hand. And this will be especially true if Hillary Clinton is elected in 2016, where she is clearly for sale to the highest bidders. What's more, the really sad part of this clusterf*ck is she will likely win for the all the wrong reasons, with the most notable being the fact she's a woman, where her like (and idiot men) will vote for her just for this reason alone - never mind she is criminally insane.
How the public chooses to ignore escalating corruption (see here, here, and here) is mind boggling, but it's reality. In Rome, during the times of bread and circuses, it took increasingly grueling events to keep the mob entertained, until the debasement finally consumed them. And this is true today as well, where the games will need to intensify in order to keep the mob distracted while the pigs continue to exploit the public. This is why the powers that be in the US keep pushing for wars around the world, and they may get what they wishing for sooner than a sleepy public realize. China is sounding off (see here, here, and here) challenging the Western status (colonial) quo, threatening to upset the currency apple cart this fall, which would likely be the straw that breaks the camel's back in this regard. (i.e. this may have already started.) A crash in Chinese (global) stock and bond markets will continue the acceleration down this road as well.
Of course just because you and I know WWIII is just around the corner, don't expect the boys and girls in New York to go running for the hills just yet. Although we are likely very close to a top in stocks, with the target time window for a lasting reversal lower being this summer / fall, as you can see above, the S&P 500 (SPX) / CBOE Volatility Index (VIX) Ratio is in the process of blowing off to the upside, given the vast majority of further gains will come from a crashing VIX, not SPX gains. I have taken the liberty of constructing a new monthly chart to make sure our targets are accurate, where as you can see, they have been tweaked to 220 and 250 for the sinusoidal. In terms of probabilities, 220 is most likely to mark the top if history is repeated, being the Fibonacci resonance target that stopped the moves in both 2000 and 2007. But even if the move extends to sine resistance, now estimated to be in the proximity of 250, again, it should be recognized most of the gains in such a move (more extreme) would be a result of a collapsing VIX, where 10% daily moves in this measure are expected to become common place in the not too distant future. We will look at the actual composition of how these ratio values are derived once the targets are within sight. (See Figure 1)
Contrary to this brand of thinking (and because the bureaucracy's price managers still run the show), just because the Chinese have announced a new fund to buy up the world's gold, again, don't expect precious metals to explode higher overnight on a lasting basis, not with US banks never more committed to keeping prices contained, evidenced in record breaking selling of COMEX gold and silver this past week. The 50k plus short put on gold this past reporting period is a record - showing increasing desperation on the part of US price managers. What's more, and again, if more recent history is a good guide, expect accelerated selling of paper precious metals to continue, as the Western status quo (think status quo barn yard animals) see no other way to preserve their wealth and power but to go full 'Full Monty' into The Twighlight Zone. They are going to show the Chinese 'who is who' in this fight, which is isolated to financial warfare for now. This, along with liquidity risk, is why precious metals (particularly the shares) remain vulnerable. (See Figure 2)
As pointed out last week, and as can be seen on the weekly Amex Gold Bugs Index (HUI) / Gold Ratio plot from the Chart Room above, precious metals shares are no longer oversold, making them liable to succumb to the early stages of broad market weakness. In the year 2000, it took six-months for precious metals shares to bottom after the SPX topped in April. Furthermore, and in addition to the reams of evidence in support of this view presented on these pages in more recent history, and irrespective of what the gold promoters would like you to believe, we have more support for a case suggestive near-term weakness in precious metals lay just ahead in the fact the Philadelphia Gold and Silver Index (XAU) / Gold Ratio should see one more down-leg in order to touch long-term Fibonacci resonance related support. (See below.) We say near-term because if this is going to happen, it should occur by no later than this fall if the big turn in stocks to precious metals ratios (Dow / Gold Ratio (DGR) and SPX / SLV Ratio) are to coincide with the major averages finally giving up the ghost when market interest rates get too high for reckless corporations to continue the buybacks mania. Of course from a purely technical perspective, the time-lines are also suggesting a trend change might be afoot. (See Figure 3)
Because while there's no going back in terms of the credit bubble, bubble markets, etc, where the price for excess still needs to be paid, at least we would be on the right road to a better place to live, if not perfect, at least striving for individual rights and liberties - not another Nazi experiment. And while a resurrection of the guillotine is likely not the best way for the growing class war to be resolved as well, if things keep progressing towards extremes, such an outcome may not be unavoidable as the dogs become increasingly disenfranchised too, a product of colonial upheaval. As with Nazi Germany, or any other authoritarian state, it's the bureaucrats that empower the oligarchs until the party is over and the need for scapegoats arises. Modern day oligarchs know this and manufacture distraction en masse in order to keep our increasingly sedated mob placated.
But when food (and mind-altering drugs) becomes scarce, like in hyperinflationary times, things can change quickly.
The powers that be are looking at the reaction to confiscation of bank accounts in Cyprus as an indication we would see the same everywhere. I'm not so sure that's the case. The people in Cyprus are still getting by for the most part. People are not starving yet. The people of Venezuela are a different story however, they are starving. So perhaps watching how things turn out here in coming days might prove a better comparison of what to expect in the States when the dollar($) finally fails. The banks still have an excellent grip on our collective testicles (that's for Dave Letterman), however formidable operational cracks are beginning to appear in the periphery that won't take long to reverberate back to the core. And when this happens, which again, will be no later than this fall if the Chinese are to be taken seriously, the ramifications of the debt orgy of the past 30-years will become evident to the common folk and rich men alike, and then the mob will appear as the bureaucrats realize they've been disenfranchised as well.
Clearly, for the rich men, the key is to keep interest rates low in order to prolong the party, the derivatives Tower of Babel that hedges all risk, so maintaining an eye on both short and long duration, and the curves they create, is key. Currently core US rates still appear healthy with a steepening curve(s), whatever that means today, because although this is suppose to mean more profits for big banks, such a perceived windfall could be short-lived once the true fragility of the larger debt matrix comes back into the spotlight. I like to keep such analysis simple here too. Higher absolute rates are bad - low better (not good) in our over-indebted society - where with the exception of rotating maturities - the debt will never be paid back.
So, make no mistake, it's all about the cost of money folks. Watch the TNX as the bell-weather. It appears to be consolidating before moving higher. Such an outcome will slow stock buybacks at the margin, eventually causing a bell-curve shaped collapse once rising rates (and contracting corporate revenues) pop the bubble.
Again, this looks set to take hold this summer / fall.
So get ready to avoid the rich man's panic when he's forced to sell by raising cash.
And buy the dips in gold and silver.