The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Wednesday, April 25th, 2012.
Nobody wants to talk about it. And certainly the mob does not want change when it is painful and violently alters the illusion. This is why the fascist oligarchs and bureaucracy that control power in America (and abroad) are allowed to remain at the forefront, not accountable for their actions and accelerating the decay of our society. And this is why our civil liberties and freedom are systematically stolen by these same perpetrators, because the mob is too afraid and soft on the alternatives. This is our time of bread and circuses.
Behind the scenes (of the bureaucracy's mainstream media) however, and much to the chagrin of the powers that be, the seeds of revolution are germinating in a grass roots movement by the youth (including many in the military) of America who have been forgotten by the 'me generation'. The youth of America are angered they have been forgotten by their baby boomer parents who are use to having everything they want, and are willing to do anything and everything to maintain the status quo. Youth unemployment rates are at all time highs, making this a structural problem the present two-party system (it's really one party controlled by the fascist oligarchs and bureaucracy) will not be unable to overcome no matter what gimmicks and deceptions are employed.
Nope - food stamps or unemployment insurance or any other handouts are not going to do it for this growing crowd. They want jobs. And they want jobs now. So, given this group is far larger than official statistics would have you believe, and sentiment towards the status quo is being radically altered within growing ranks, one should not be surprised if equally radical change grips the official political monster around its precariously exposed neck at some point, making the election this fall anything but the 'lay-up' incumbents expect at this point. Upset here would definitely shake some trees that think they are firmly rooted at present.
For now however, all appears well for the powers that be, with US stock markets higher and commodity prices under control, even if only on the surface. In this regard, and something predicted last year, the MF Global scandal has now matured into a festering sore that will ultimately morph into full blown cancer in the financial markets, where the present brand of 'crony capitalism' will no longer be tolerated. And again, while this may take considerably more time to fully mature given current events can be compared to Rome's long decline, please, make no mistake, the West is in decline in real time - right now - whether you chose to believe it or not.
Of course if you use the investing population's distain for precious metals investments right now as a sign meaningful change in attitudes is much closer than can presently be discerned (anticipate the opposite of dumb money expectations), then it is my opinion you would be on the right track. Here, a bell will not ring in this regard, which means it's up to you to take a look at which way the wind blows and move to protect yourself financially. It's either that or have your life savings potentially go up in smoke in what can be termed a paradigm shift. You will remember from our last commentary that we made the point the masses remain fundamentally uninvolved in the precious metals market(s), and that precious metals shares are as cheap as they were back at bear market lows in 2000.
Now we have consistently tuned in high profile commentators coming out with similar observations, and more, talking about paradigm shifts (see above), the virtues of owning physical precious metals over paper, and where this is all going one day. Myself, I think precious metals shares will do 'just fine' moving forward despite their present malaise because amongst other things, in the end, this may be the only means most will be able to participate in the trade once physical supplies become (semi) permanently encumbered. (i.e. because of physical shortages all mine sales are bought by governments, etc.) It's important to note that a shade of this is already the situation in China, where not only is it the top producer of gold (and soon to be top importer above India), exports have been outlawed, and sales to its citizens are completely controlled by the State. (i.e. and the State needs to increase its gold reserves drastically.)
Beyond this however, there can be little doubt that despite a concerted effort by the powers that be to misrepresent true physical metal inventories, supplies are tight right now with public interest at an all time low (Westerners are cashing in jewelry never mind grounding assets in eternal money), and getting tighter by the day. So again, and wholeheartedly agreeing with the attached above, the stage is in effect ripe for a 'paradigm shift' once demand begins to affect these tight supplies, where when it comes to silver, its tiny market size will end up backfiring on heavily off-side price managers (think the banks via central bank / government accounts trading through JP Morgan) presently using this dynamic to keep excitement from the market (entire sector at large) removed.
And there are other reasons to own silver, such as peak precious metals (peak commodities, crude, everything) that we have been talking about for nearly a decade now, and continue to believe is why you should first anchor at least half your investing assets in physical gold and silver, and then look for opportunities in the share market(s) at opportune times, like now. The powers that be have the machines (via aglos) set to ignore precious metals when US stocks are rising, and sell them in apparent deflationary collapse when they are falling in order to maintain the appearance that king Dollar ($) is still boss, and that America is still strong in this election year. This topic was covered extensively in our last commentary.
In reality, and as reflected in the rest of the world's stock (and bond) markets (most notably in Europe and Asia) this year (being down and many at 2008 lows), nothing could be further from the truth; and, if it were not for increasingly surreptitious and largely unrecognized currency debasement (which is why the $ is not falling) in the US, the picture here would be quite different as well. At some point the growing divergences between US stocks and the rest of the world will need to be closed however, and if precious metals investors are wrong again, aside from working off US market overbought conditions this should involve global stock markets recovering on an intermediate-term basis, which would also involve perspectives on inflation prospects moving forward rapidly snapping back the other way as well.
Because no matter how much obfuscation and diversionary tactics they use, it's important to remember that as long as the present group of thugs running Washington are still in charge, inflation is still policy, even if this involves the destruction of the currency ($). (I will have more to say on this subject in the near future.) For now, our focus will remain on discussing just how cheap precious metals shares (silver bullion too) are right now, and why one should be a big buyer when the Amex Gold Bugs Index (HUI) is vexing 400. (i.e. note it does not need to get all the way there making recent lows the potential bottom.) In a nutshell the most immediately compelling reason is 400 on the HUI represents a Fibonacci 50% retracement off the 2008 lows. And naturally above this, equally important is the reason we have been harping on above - because of the excellent value in precious metal shares (and silver) at present. (See Figure 1)
Turning to the charts now, and beginning with the above, here we have the long-term chart of the Amex Gold Miner's Index (GDM) from the Chart Room that shows not only have precious metals shares retraced a common correction ending Fibonacci interval of 38.2% from the 2009 lows, but more they have also perfectly retraced 38.2% from the 2000 lows as well. You may remember signatured moves in this regard have tended to be 50%, which was an observation made in my original harmonics study back in 2003, however considering the GDM / Gold Ratio is all the back down to year 2000 levels (pushing a 100% retrace), we will have to allow for the possibility for a bottom here based on present oversold readings, negative sentiment (Gold Miner's Bullish Percentage Index $BPGDM most oversold since 2009 lows), etc.
What's more, based on the above observations, not only are technical conditions oversold enough to sponsor a significant intermediate-term rally, sentiment wise it's important to note we also have perfect sentiment related conditions for prices to climb the proverbial 'wall of worry' moving forward, where many are too afraid to jump in the pool because they think general liquidity conditions are suspect. And if you only watch conventional money supply measures Western central bankers want you to watch, this would be an appropriate concern. Consider however that just like everything else they produce, these measures are lies too, and such a practice could be dangerous to your financial health. Today, one must watch all the various ways (global monetizations are designed to hide the extent of currency printing) these characters get money into the system. (See Figure 2)
Further to this, and leaving our US-centric sphere for just a moment to make a point of just how widespread the theatre has become for good speculators, I bring your attention to the plot of the Dow set against the French stock market ($CAC), pictured above. The reason I do this is to show you that in terms of bells being rung, and in spite of too much attention being paid to Spain (because France is far more important), it appears French stocks are about to begin outperforming US bellwethers, which means the generous and fluid liquidity conditions of late are about to begin having an effect on prices. And if this is happening in France, it will be happening everywhere, meaning general price levels should begin to rise around the world quite soon. (i.e. much to the chagrin of those fearing deflation.)
And again, this is the perfect circumstance to sponsor a wall of worry related advance in precious metals once the market(s) see collapse is not on the immediate horizon. Just like the newly elected socialists in France, like-minded thinkers around the world will ensure such an outcome in monkey see monkey do fashion, abandoning austerity measures en masse. Make no mistake about it folks; this is the event horizon we have been waiting for to signal all out inflation moving forward. France is considered a core and important (big) EU member, so breaking from the ranks will be viewed as a game changer - a game changer that could spread across the entire globe in a monkey see monkey do chain reaction of austerity abandonment. (i.e. because jealousy amongst children spreads like wildfire.) Just think of what will happen to the $ once traders figure out US currency debasement rates will need to exceed those in Europe soon given this is an election year. Is it any wonder the $ can't rally.
So, don't be fooled by superfluous statements out the Fed this week (think FOMC meeting), watch gold and silver prices for the truth. They have been firm (think foreign central bank buying), and precious metals shares appear to be finding a bottom (possibly prior to reaching a signatured 50% retrace - this number is ~ 395 off 2009 lows for the HUI), which would be extremely bullish. A great number of people are looking for a repeat of 2008 here and they are not going to get it because of all the inflation, although with the public broke and essentially not participating in the share markets these days, debt will need to become less attractive to the institutions before precious metals will catch a bid.
This reasoning is why you can expect some sort of QE3 announcement out the Fed as summer approaches, because bonds should be feeling the pressure of all this inflation by then, where increased monetization (monetary authorities already buy more than half the bonds issued by all governments today) will be required for yields not to skyrocket. What's more, this will likely be happening as economic data continues to weaken, which is already the case, putting an especially good bid under gold and silver at some point. A monkey see monkey do chain reaction of widespread austerity abandonment and currency printing (including new means) should be expected as the year presses on for these reasons.
Along these lines then, whatever you do, don't short the stock market even though it may appear to be setting up to fall. Many people will be burned this year doing exactly that. As evidence of the potentially significant rally in US stocks that still lies ahead once the $ tops out take a gander at the two charts below. These are risk adjusted measures of US stocks beginning with the S&P 500 (SPX) divided by the CBOE Volatility Index (VIX). (See Figure 3)
New highs are likely on the way for the broad measures of stocks before it's all over. All that newly created currency will be looking for an inflation hedge home once prices begin rising in earnest later this year, and stocks will be seen as a logical alternative to many. (i.e. likely still the majority of people.) This is especially true of tech stocks when lots of free money is floating around, where it would not be surprising to see the NASDAQ attempt vexing the 2000 highs. (i.e. it should not make it if history is a good guide however, as such manias are not repeated within the same generation.) (See Figure 4)
We know this is a distinct possibility (probability) because the NASDAQ / Dow Ratio just put in what will likely turn out to be a wave 2 corrective low, with waves 3, 4, and 5 (this one will be a doozy) still to go. Apple could hit four figures under such circumstances, as the mindless machines continue to seek out momentum. One day the negative momentum plaguing precious metals shares will turn with a vengeance, and the sizable divergences (to the metals, broads, etc.) should be closed quickly; however again, as we know from our harmonics study all those years ago (attached above), the indexes may need to correct 50% before this happens.
So, be prepared for anything good people. Those holding through this correction are getting a good taste of what it means to be a battle harden veteran of precious metals investing. At times it can make no sense (like now), with inflation acceleration obvious to the naked eye and other hedges acting rationally, set against an onslaught like the one presently gripping gold and silver shares. Please remember however that at least as far as the senior indexes are concerned, this is nothing more than a routine correction (50% -- give or take), one that was overdue in fact, which should make you wary of perma-bull commentators in the future.
When in doubt about such things it always makes a great deal of sense to sit back and look at the 'big picture', which in this case centers around the fact precious metals shares have a signatured tendency to correct at least (2008 saw a 78.6% correction) 50% after a significant advance like the one witnessed off the 2009 bottom.
That's the fact Jack.
Those who can live with this will see things in the proper perspective and prosper through time.
And those who cannot will buy and sell at the wrong times.
It takes all kinds to make a market.
Good investing all.