The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, November 2nd, 2010.
If there were a truism to fit a broad cross-section of behaviors in our society today, the catchphrase 'desperate men do desperate things' fits well, for sure. This is because you can see it everywhere on an increasing basis as economies of all shapes and sizes disintegrate. And it spreads like a disease, reaching all quarters of our society(s), in one way or another, propagated at the core by greedy money-center bankers and their political oligarchs hopelessly attempting to prevent a collapse of the larger fiat currency economy, hegemony economics, and US Dollar ($) supremacy. Here, it's important to understand that when the US can no longer print the money to pay its bills the present game of musical chairs will cease and centralization will quickly reverse into regionalism, returning us to more primitive but sound economies.
And we may in fact be closer to such a reversal of fortunes than most would like to think, evidenced in unfaltering demand for gold, and silver, now being remonitized to it's rightful role as money as we speak. But of course you likely already know this if you have been reading our work these past months and years, where sure enough, the time has now arrived. Along these lines, very soon desperate bankers could be forced to cover their large short positions in gold and silver, which could spark a condition known as commercial signal failure in these markets, which is a fancy way of saying the outsized naked short positions these money-center bankers have been allowed to build via the help of a corrupt bureaucracy will need to be bought back, taking prices materially higher.
Why now? Because on every level, right from the banking system, to the government, and all those in the bureaucracy, are bankrupt, and they need to print ever-increasing fiat currency to support their bloated existence(s). And the thing is the foreigners know this, with the greater Western alliance under pressure. And they also know that austerity measures will be forced on America eventually as well, which will bring the house of cards down in a hurry. (i.e. think collapsing credit markets.) Of course in the meantime, desperate men will continue to do desperate things, like continuing to print copious amounts of fiat currency (think QE2, QE3, etc.) and monetizing the bond market (to maintain the illusion of wealth with artificially low interest rates), which will weigh heavily on the $.
This is all by design by an increasingly desperate Fed naturally, so don't worry (heavy on the sarcasm), as it's the devaluation of the $ that has been holding world financial markets together for quite some time now. (i.e. it peaked in 1985.) And you can count on the Fed (and other central banks) becoming even more obvious and desperate in their actions moving forward as the economy continues to disintegrate despite their best efforts, which is why they will need to keep increasing such efforts (money printing), and why stocks (to a lesser extent), commodities, and precious metals could remain buoyant well beyond the reaches of 'normal cycles', whatever that means. Naturally what this means is we are witnessing Super-cycle Degree cycles that can go far beyond a sane man's expectations, and to new heights, as desperation (and greed) grows.
So expect the money printing to get stupid, and the reaction in precious metals prices sobering, which is what our price managing bureaucracy is finding out about right now with silver threatening to break above $25 on a lasting basis, possibly on its way to $50 in short order. You will remember from previous discussions on this subject matter that no historical resistance resides above $25 for silver until it doubles, where in a commercial short squeeze scenario, this could happen very quickly, and in spite of the non-constructive sentiment conditions currently characterizing open interest put / call ratios across the precious metals complex. (See Figures 17 to 20) This is of course why we have schooled the accumulation of physical precious metals in a core buy and hold strategy designed for exactly this condition set where from a traders perspective gold and silver are overbought and risky, while at the same time still possessing explosive upside potential.
More will be said on precious metals below, however first we would like to take a better look at the broad measures of stocks by moving onto the charts. Here again it appears we are about to get a lesson in just how desperate these money-center bankers are as they attempt to print their way out of every mess by tripping the light fantastic in tech stocks again, just like in the year 2000, sending them into bubble trajectories once more. Such a move will of course most likely fail with far less fan fair than the last round in 2000 short of hyperinflation, however that is what the market is suggesting by positioning itself as it has been, leaving the door open to a devastating turn lower in equities et al next year. In the meantime however, if the S&P 500's weekly chart's upside potential is traced out in coming months, it looks like it could work its way up 100 points or so moving forward. (See Figure 1)
And it's not just the S&P 500 that appears to have a good deal of upside potential in it at present, the NASDAQ also looks good in this respect as well, looking to break higher to Fibonacci resonance related resistance at 2750, at a minimum. This hypothesis is supported, as with similar circumstances for the S&P 500 above, by Fibonacci resonance related signatures in on balance volume (OBV) and accumulation / distribution indicators that are not fully traced out as of yet, which would sponsor such moves higher. It should be noted conditions will likely never get as crazy as they were back in 2000, which we will elaborate on below, however for our purposes we need to know what is what here so that 1) we know how long the inflation trade should stay alive; and, 2) when to get short. (See Figure 2)
In relation to just how crazy things might get in coming days, weeks, and months then, we have the monthly NASDAQ / Dow Ratio plot from the Chart Room below that has the varying degrees of mania defined for you, where we are in fact on the very cusp of entering the more moderate bubble making zone that has defined the trade throughout the years. And make no mistake about it; we will likely enter this zone as stocks are further inflated by an increasingly debased fiat currency economy. (See Figure 3)
Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. As you will find, our recently reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts, to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented 'key' information concerning the markets we cover.
And if you are interested in finding out more about how our advisory service would have kept you on the right side of the equity and precious metals markets these past years, please take some time to review a publicly available and extensive archive located here, where you will find our track record speaks for itself.
Naturally if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line. We very much enjoy hearing from you on these matters.
Good investing all.