The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Sunday, March 30th, 2014.

With further liberalization associated with everything from the earned income tax credit to tax-payer funded sex change operations for prison inmates, no matter how ridiculous, in one way or another the checks just keep coming, 'a check in every mailbox' if you will. Of course if you plan to run an increasingly socialistic and intrusive political system, masking the neo-fascism envisioned by the powers-that-be, then you need ever-increasing giveaways to keep the mob happy and distracted, because in the end even the most ruthless oligarchs will find a grizzly end once the party stops. Just ask Adolf and his buddies how things were going in the end once they could no longer conjure more party favors from (and for) the conquered. This is why they risked attacking a resource rich Russia; because it was viewed as a source of plunder that just keep giving, just as Obama and his buddies view a gullible American public.

Along this line of thinking then, it's important to understand that in order to put a check in someone's mailbox it requires expropriating wealth from another. And this is what government(s) have been doing on an increasing basis for some time now, since the days of Roosevelt and The New Deal (think socialism), again masking what has really been happening since the birth of the Fed. (i.e. think crony capitalism, corporatism, now morphing into a mature fascist state.) Here one only needs to think of Orwell and Animal Farm to get the picture. Doug Noland has a nice spin on it this week - A Truman Show world. (i.e. originally Seth Klarman's analogy - gee - I wonder where he got the idea to do that? ) But this is all old material (as discussed on these pages some time ago), discussed at length by no lack of idealists and intellectuals, to no avail. Instead, the plutocrats and their armies of dogs (think politician's, government bureaucrats, and status quo sympathizers) just keep pushing towards their idea of a utopian world (for them) - and they my get it given collective society is as debased as the currencies.

But I digress, which in the full spectrum, is not a bad idea now and then. History can teach us our most important lessons, but unfortunately not many care about such thinking today. Wishing to not fall into this category, every once in a while I find it a useful exercise to go back and see if my thinking has been on the right track. And in this case, the idea that the barnyard animals (think Animal Farm) are waking up to the fact this check in every mailbox business just doesn't cut it anymore, because what you are given is insufficient and fleeting, was in fact right on the money, and is gaining traction both at home and abroad, in growing circles. (i.e. as strata of the top 20% begin to feel the effects of understated inflation and unemployment.)

So even the wealthy are starting to feel the pain as liquidity is tightened. In China the bubble is in real estate, not stocks (only 25% participation rate as opposed to 70% in US), where tighter liquidity conditions designed to rein in speculators could have a knock-on effect in Western stock markets. Add in the fact the Fed is on its own quasi-tightening campaign given this is the second year of the Presidential Cycle, a trend that will last until this coming fall (think September) if the traditional script is followed, which should be kept in mind by all good speculators. Because it's all about liquidity in the financial markets these days, where stocks, bonds, and commodity prices are a function of currency debasement rates (along with speculator betting practices and wholesale manipulation). (See Figure 1)

Figure 1

This can be seen better nowhere but in what has now become the ritualistic bolstering of stocks and suppression of gold (the ultimate barometer of currency debasement rates), where prices are managed daily (by the second) in an effort to paint a picture of health in the Western / Anglo-American tapestry. Along this line of thinking, it should be pointed out that the Dow / Gold Ratio (DGR) has hit the 50% retracement from lows witnessed just a few weeks back now, giving rise to the likelihood of a reversal lower sometime in the not too distant future. What's more, at present levels the head and shoulders pattern is still in tact; however any more strength from here would negate the pattern (see above). (More on this later.)

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