It's a Matter of Solvency

By: Captain Hook | Mon, Nov 16, 2015
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The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, November 5, 2015.


When it comes to enduring enterprise and buoyant economies, in the end, future fortunes depend on solvency. This brings us to the problem with enterprise in our debt saturated western economies, because the pillars are largely insolvent, meaning corporations, and governments will never repay the debt they owe because its too much. Greece has been the visible exemplar of the larger problem in western media because authorities were able to impose increasingly draconian terms of repayment on a weak and weary periphery state, kicking the insolvency can down the road once again. It's important to realize that the kind of tactics used by the Troika to arrive at a solution to their larger solvency problem will not work when developed economy borrowing costs begin to rise in earnest, calling into question core economy solvency, extending all the way back to the United States.

Because it's the debt ladies and gentlemen - it's the Empire of Debt (thank you Max Keiser) - on which the America Empire has built its fortunes. Individuals, corporations, and government alike have gorged themselves on cheap debt since the 'financial crisis' in 2008, and now America, and much of the world (especially the West), are at a point where just the slightest increase in interest rates would topple the debt colossus, which has not only been pyramided to a point of critical diminishing returns, but also has reached the Rubicon of spiraling collapse and default. Therein, it should be understood that just the interest on $18 trillion plus of national debt in the US (now closer to $20 trillion) is in excess of $500 billion, and growing. (i.e. in unlimited fashion now.) What's more, if left unchecked, and at current trajectories, by 2025 the interest on the national debt will consume most of the federal budget, which is something you won't hear much about on the up coming Presidential debates.

And you also won't hear much about how over-indebted zombie consumers lead to a larger non-performing zombie economy, which will eventually lead to non-payment(s) on a macro-level, which will in turn expose the solvency issues that bring down this deception we have allowed our wicked rulers to construct. By educated accounts, the bond bubble is set to burst next year, likely as a result of increasing sovereign disarray (think led by the collapse of the European Union), which will unleash an uncontrolled global monetary emulation that will make the debasement race obvious to all because nobody, not even those who think they exist in Elysium, will be able to insulate themselves from its force. It's beginning now in the more mature socialistic states like Sweden, and will move quickly through Europe as the migration crisis intensifies, causing the need for corresponding competitive devaluations across the rest of the globe (West, East, et al) as process unfolds. (i.e. the decentralization process et al.)

Next year, the inflation will be so bad the government will no longer be able to hide it. Some degree of hyperinflation is on the way. Money supply growth has gone parabolic since the financial crisis of 2008, but prices have not reflected that inflation because the US exported it to the rest of the world by lending out dollars($). (i.e. the $ carry trade.) All that is going to change next year. Boat loads of those exported (borrowed) $'s (America's chief export) will be coming back to the US to pay the debts off as a result of a return to deleveraging globally (the synthetic short on the $), with the net effect being an import of the same inflation that was exported for years compressed into a very short time frame. This means increasing $'s will be chasing fewer goods locally, as not only are inventories high, but credit facility and supply chain problems will put a strangle hold of just about everybody, dampening (crashing?) the economy. Then you will see who is solvent and who is not.

How can I be so sure of this? What about all the cranks that have been predicting this for years and have been wrong? Again, how can you be so sure about this - won't central planners just keep expanding money supplies faster if need be? Answer: Yes, they will likely keep printing increasing amounts of new currency faster until the economy(s) completely shut down and people literally stop eating. And when the middle class stops eating - that's when the reality of what the cranks at the Fed (et al) have done will hit the masses. That's when they will want some real answers / solutions. And that's coming beginning next year, as signaled by the profound Fibonacci resonance signature in the Dow / Philadelphia Gold & Silver Index (XAU) Ratio (see Figure 1) marking a secular turn back into an inflation cycle. (i.e. money supply, price gains, etc.) This is how I can be so sure next year will mark a very important turn in macro / market trends. (See Figure 1)

Figure 1

As you can see above however, the Dow / XAU Ratio is at trend-line resistance of a good sized corrective flag (as defined by the channel) as of the end of last week (right now), meaning a pullback to gain energy to punch through this resistance may be necessary over the next week or two. Once this occurs however, which I have every confidence will be the case since precious metals have put in some degree of a top (it could last months), it will likely be off to new highs for both the ratio, and likely the Dow, along with some of the other cap weighted indexes. Further supporting this view, we also have the Dow / Gold Ratio (DGR) pictured below (weekly plot) showing the possibility (likelihood?) of a surge to new highs for the move as well, yet another Fibonacci signatured target at 17.5 that will act as a magnet as the collective psychology of the market (manipulated as it is) is exercised. (See Figure 2)

Figure 2

Now some may be thinking, that's all fine and dandy if that happens - if gold and gold stocks make a bottom in coming weeks (months?) and then scream to new highs, but that doesn't necessarily mean general prices have to follow in this predominantly deflationary world. Well, I am sorry to burst your bubble if you are under this impression because as you can see in Figure 2 attached here, the commodity complex, as represented by the CRB is set to make an equally important turn against the Dow in tandem with the gold complex, so don't kid yourself. Therein, once stocks top out in coming days, which again could take until early next year with corporate buybacks and year-end window dressing in the equity markets to deal with, the sucking sound in the economy will be increasingly difficult to hide, which will in turn force the Fed to not only drop its bullshit story (US economy strong), but reverse tack and start not just talking dovish, but acting, with more and expanded QE. (i.e. a check in every mail box.)

That's right - central authorities will start sending everybody checks in the mail to buy their loyalty and keep the mob placated. The problem is because America has exported its fiat currency economy template to the world, everybody else will be doing the same, which will unleash a liquidity tsunami on the world that will be so profound it will be impossible for the status quo boys to hide. And again, it will be worse in the US proper because of all those already printed $'s returning home. This will make the Fed's already impossible position even more unmanageable, which will in turn cause a loss of confidence in 'the system'. This is when prices will really take off - when all confidence in the Fed and central planning is lost - forcing even more money printing as the parasites in the machine attempt to save 'the system'. Unfortunately for most, they will be wiped out financially overnight at some point, as 'system resets' become necessary.

First they will start with negative interest rates (NIRP), and then when stocks come under pressure in spite of all their efforts, they may resort to bail-ins. And if things keep getting worse, which is certain through time, who knows what 'the authorities' will do, say if (when) bank / brokerage holidays become necessary. You will be glad to own precious metals when that day comes, as when the holiday(s) is lifted, your bank account and other savings people keep with the crooks could be ravaged severely. New currencies and currency rollbacks could become a regular feature in 'the system'. You go into the holiday with $500,000 in the bank, and come out the other side with a fraction of that, and general price levels keep rising. It's impossible to know what measures will be implemented at this time, but it's safe to say whatever they are it will involve the parasites attempting to preserve their own wealth and positions at the public's expense.

This is when the United States of America will officially turn into one of those 'banana republics' they have been exploiting for so many years over night - over night.

That's really all I want to say this week - because it's enough. Try to really wrap your head around what I am saying above because it could save you financially - at a minimum. Risky banana republics where solvency concerns abound can't issue new debt at 1% or less. So this means it must be issued at higher rates, but this would eat up the entire federal budget if rates were to go up a measly 1%. The Authorities may be able to juggle the situation for a while longer, but some point they are going to get caught in their deceptions. Confidence men always do - it's just a question of how long it takes.

Next year, we have the Presidential election, which as discussed previously, have a tendency to be dangerous for stock market gamblers, and in turn naïve long term chumps.

Don't be a chump. Protect yourself. Make sure your boat is well anchored to precious metals in proper form. A buying opportunity is approaching when the Dow / XAU Ratio hits the Fibonacci target outlined above. Patient accumulation between now and this point is the strategy financial survivors of the holocaust that is approaching are undertaking. So again, be smart, not a status quo chump.

Last weeks COT reports for gold and silver show idiot hedge funds going even longer, which will not end well for them, or gold and silver, once selling is forced on them. This is why you want to be patient. Let the market come to you. These are the knuckleheads that will take the Dow / XAU and DGR to the respective Fibonacci targets delineated above.

Good investing in precious metals is almost here.



Captain Hook

Author: Captain Hook

Captain Hook

Treasure Chests is a market timing service specializing in value-based position trading in the precious metals and equity markets with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested in discovering more about how the strategies described above can enhance your wealth should visit our web site at Treasure Chests.

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