The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, March 30th, 2010.
Orwell was right all along. Big Brother (the bureaucracy) is to grow too powerful for anybody's good. And this is now happening in America, where the Ministry of Truth broadcasts endless propaganda daily to affect opinion and beliefs, and the authority of the Thought Police has grown to such proportions we can now say, here we are, totalitarianism is upon us a la 1984. What's more, if this was not evident to you before, it should be now with Obamacare, the single most offensive blow to the citizenry's constitutional rights in the history of the United States, and voted in despite being at odds with the will of the people.
The parallels between present times and those during the rise and fall of the Third Reich are becoming increasingly startling, with Obamacare easily being the most profound power grab in the history of America. Healthcare is almost 20% of US GDP, and now, with this one Bill that the electorate doesn't even want, the bureaucracy has accomplished the coupe de grass - it's effectively taken almost complete administrative control of the US economy - increasing deterioration From Freedom To Fascism. People should of course be deathly afraid of all this, as out of control episodes such as this always end badly.
But the bureaucracy has been doing what it wants for years already, using the justification status quo must be preserved for the good of the people, when in the larger scheme of things, self-interest is at the heart of their actions. And although not known to many yet, but something that appears to be on the breaking point of being better understood, perhaps the best example of this can be found in the suppression of the gold price, where if it were not for the Ministry Of Truth regularly telling us it should be so (How many fingers, Winston?), the yellow metal would be trading far higher.
Since the Greenspan era, and the increasing use of bureaucratic 'double speak', of which the Sir Alan was (and is) a master, it has become increasingly evident Big Brother will not be able to manage the degree of problems facing the people, no matter how much money they throw at it. Here, both consumer credit and real estate loans (and prices) keep rolling over despite massive efforts by Big Brother to stop the slide, spending money like the proverbial 'drunken sailors' often referred to under such circumstances, while at the same time hoping nobody notices. (i.e. again, 'How many fingers, Winston?) Big Brother hopes you don't notice any of their lies, from the unemployment rate to inflation measures.
As alluded to above however, we may finally be at a point where Big Brother is finally exposed for what it is, 'that being the ruling class's control mechanism, empowered by an equally complicit and culpable bureaucracy stretching the gambit of a bloated government body and tertiary sectors.' The doers and producers are exhausted having to carry an increasingly burdensome load, and in spite of market rigging and monetization practices in the credit markets Big Brother has been using to perpetuate obfuscation and mind control, it appears the party might be over here too, signaled by a breakout in the cost of this make believe money and prices of the real McCoy(s), gold and silver. (See Figure 1)
Figure 1
This is not the first time you are seeing the chart above, that of the 30-Year T-Bond Yield, where it is being highlighted again because of it's importance at this juncture. Why is it so important? Answer: Because a breakout here will officially signal an end to the 'cheap money' referred to above, with short-term rates grudgingly needing to rise eventually, the Fed kicking and screaming all the way. (i.e. they will be reluctant to raise official rates.) So in other words, the bond bubble is about to burst, brought on by increasing credit risk concerns given projected deficits and ballooning debt (debt is the new Hitler), with all this money needing to go somewhere, likely causing price inflation across the entire economy.
A big clue this hypothesis is correct came last week with the large traders (smart money) covering the majority of their short position on the S&P 500 (SPX), suggestive they now think prices are heading higher. Why do they think this? Answer: Because the small traders (dumb money) are growing cautious here, as evidenced by the marked decrease in their speculative SPX long position; this, and not knowing where all the money coming out of bonds will be going. As discussed previously on these pages recently, and in knowing our faulty and fraudulent markets are designed to do the opposite of what the consensus of speculators think, there is no end to the reasons to buy puts on stocks these days, with our price managing bureaucracy piling on more of them all the time to make sure you keep buying. (i.e. and supporting the stock market via the perpetual short squeeze.)
That's enough about the stock and bond markets for now, making it time to switch our attention to precious metals. We will draw on the above in transition however, as what happens in the stock and bond markets will have a material effect on precious metals pricing, bringing us to the following question. If this is all true, when will gold be allowed to rise? Answer: When the bureaucracy starts to feed on itself and defections become apparent. But as long as the bureaucracy is growing, as is the case in the States right now, the status quo will be maintained as the pigs are still in charge of the barnyard (think Animal Farm) with their deceptions. (i.e. all funded by imaginary money via inflation.) So, it's when the inflation mechanism becomes in trouble, which will be signaled by gold and interest rates rising in tandem. (i.e. inflation flowing from bonds to gold and silver.)
Like in the attached, too many people think gold has got further to correct into spring (whenever), and are betting that way, which is why it becomes unlikely to happen in spite of the stock market's overbought condition or any other reason one cares to conjure. And as for the Gold / Silver Ratio, which is also discussed in the attached directly above, as you can see both the author (and consensus) think it's about to rise as the stock market collapses, and these people are betting that way (they are out of precious metals), significantly increasing prospects for an opposite outcome. This means that although it may not be a smooth ride, which you can count on given Big Brother isn't finished with us just yet apparently, some serious buying could come in moving forward, again, contrary to the consensus.
In measuring probabilities in this regard then, as you can see here, the Gold / Silver Ratio is presently 64ish and falling (gapping below the 200-day MA yesterday), however from a historical perspective, one that measures gold's relationship to silver when they were both revered as money, it was closer to 20, which was witnessed throughout history when silver was considered money along with gold. So, what a declining Gold / Silver Ratio indicates is a return to such thinking, and will become a reality when the bureaucracy's sacred bond bubble bursts, which is happening as we speak. What's more, a declining Gold / Silver Ratio means increasingly people are coming to the conclusion that based on present circumstances, circumstances that involve all fiat currencies being debased at increasing rates, gold and silver are the best alternatives to store value because they cannot be debased. (i.e. at least not quickly, as the commodity must be mined out of the ground, which is becoming increasingly expensive.) (See Figure 2)
Figure 2
Understandably then, this is why we watch the Gold / Silver Ratio so closely, because it signals the degree the market(s) are willing to assign monetary value to gold and silver, which could be set for a 'sea change' with a bursting of the bond bubble. As you may know, bond market sentiment is high right now with the dumb money small speculators, this, set against increasingly negative gold market sentiment believe it or not. But the small speculators see the equity complex collapsing soon, not just correcting. Naturally then, we must take the opposite side of this sentiment, embracing the possibility (likelihood from an Elliott perspective in seeing five waves up in stocks off last year's lows) that any weakness in equities witnessed in coming days would be purely of a corrective nature, leading to higher prices later on. (i.e. equities should remain buoyant into options expiry, but could weaken into May, often a bad month even in good years.)
Good investing all.
