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Into The Fray

The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, September 15, 2014.

Into the fray - a term with several meanings that helps define the juncture humanity finds itself pressing up against at the moment, poised to descend into a new and darker world the haves are not prepared to contemplate at the moment. Scuffles, a brawl, a heated dispute, to alarm (due to intensifying official fraud and the ruthless subjugation via increasingly punitive and arcane laws), to frighten, to drive away - such is the agitated state and circumstances behind why many in Scotland desire secession. It's the 'moneyed condition' you see, because Scots feel betrayed and used by an authority that continues to take increasing privilege up and down the spectrum - right from the lowest bureaucrat up to the twits in parliament. Such is the nature of fascism until its checked - the systematic erosion of civil liberties and taxing the people to the max - where in spite of the economic uncertainty associated with a breakup, the oppression becomes intolerable.

None of this is new of course, where not only is this essentially a replay of circumstances that awoke William Wallace (think Braveheart) some 700 years ago, but also the road America has embarked as well, which is why one should expect to see increasing secession movements here too as economy deteriorates. Because as with the Scots, it's becoming increasingly obvious to those in all periphery states (as they lose jobs to insulate the core) that the feds are reaching for excessive and dangerous powers in order to maintain the status quo, those comfortably domiciled on Elysium. The Feds have manufactured an unsustainable economy however, and have ravaged the periphery (tattered edges) in an attempt to maintain it, where as with all such examples throughout history, change is inevitable.

The big question in this regard is just how violent this change will be - secession, civil war (look at Spain right now), or world war? Or do we have all three? This is the most likely outcome as the oppressed on diverse levels are forced to act in order to survive, knocked from their own varying degrees of myopic disillusionment. Such an evolution hits the mark in describing an accelerating annihilation of the Western world's middle class, but you should realize this phenomenon extends into almost all reaches of the globe (because of Globalization) in varying degrees. The explosion that is ISIS is an unparallel (to this point) example of a fringe group who've had enough of 'the bullshit' (think Western subjugation), with swelling ranks that will apparently stop at nothing to eradicate the infidels. (i.e. and anybody else that opposes them.) And while such a force is little threat to the US war machine today, still, added to increasing tensions coming out of the collective (think BRICS), at some point the American Empire will be the emperor with both no cloths (money) or power (military).

Believe it. An eventual downsizing of American armed forces will be necessary as budgetary constraints come into view, which would in turn feed back into a deflationary loop that will collapse the economy proper. This is of course why it's almost comical watching the American political machine attempting to keep the fools placated and otherwise engaged in anything that promises the illusion is still alive. (i.e. think distraction.) The brawl (tit-for-tat retaliatory sanctions) between the US and Russia is intensifying as the Obama Administration attempts to put pressure on Putin to fall back into place (serving the masters of the universe), which up until now has served as such distraction. However at some point, like the economy, real things (not the mainstream media machine that feeds the West's surreal / manufactured / televised view of the world) will matter again, likely bringing on another Lehman moment for the stock market. It is at this point the true nature of Western cowardice and desperation will be revealed. (See Figure 1)

Figure 1

If all this was not so serious it would be funny considering the power these clowns throw around is ephemeral and falsely manufactured - a popcorn fart in the words of Rodney Dangerfield (from Caddyshack) - compared to the real world wares (oil, natural gas, precious metals) backing Vlad. In terms of measuring when such an outcome is probable, we are of course watching the risk adjusted S&P 500 (SPX), that being the SPX / CBOE Volatility Index (VIX) Ratio for a signal sustained volatility should be expected. As you would know in reading these pages over the past few weeks, if we see the SPX / VIX Ratio close out the month in the vicinity of 192, the possibility of a 'seasonal inversion' for stocks will be in place, mid-term elections or not. Mid-term elections will give the bureaucracy's price managers license to pull out all the stops in order to keep stocks supported through the beginning of November, however, continued deterioration in the internals point to a meaningful top sooner rather than later. (See Figure 2)

Figure 2

Again, once elevated short interest levels in the SPX and QQQ associated with anticipated seasonal weakness here in September are burned off, which could be as early as month end, past continued VIX related retail call buying (think VXX), one would expect to see a considerable tapering of this activity going into the mid-term elections in November (because speculators will be thinking authorities won't allow stocks to fall around this time, not to mention seasonal strength time will be in full swing), supporting the seasonal inversion hypothesis. Certainly a poor performance out of the Nasdaq / Dow Ratio in November (a possibility supported by put / call ratios) would go a long way to strengthening the belief that a meaningful correction in stocks is underway, if not a crash. In the meantime however, and as discussed the other day, it looks like the SPX / iShares Silver Trust (SLV) Ratio (SPX / SLV Ratio) is set to break to the upside any day now (a close above 112 signals a move to 132), likely post a Fed policy statement that is dovish in nature, along with a close call in Scotland's referendum vote Thursday. (See Figure 3)

Figure 3

If you can believe it, and along with sending the SPX up into the 2100 area, silver would collapse, possibly setting the stage for a meaningful plunge past $17 (once RSI channel support is broken, a move to the Trend Definer [155 EMA] is quite possible, if not probable), which will hopefully finally kill off bullish paper market speculators that have been keeping open interest put / call ratios down in silver related issues (think SLV and AGQ) for too long now. Again, these guys are likely the dumbest and most stubborn speculators in the history of financial markets, which the bureaucracy's price managers have no problem preying on via sentiment driven, computerized trading. One day however, a light bulb is going to switch on for these knuckleheads and they will collectively cease this negative behavior, likely never to return. (i.e. when the deflation scare arrives.) This is when silver will shine, making any such plunge in prices an amazing opportunity to accumulate more physical, or start playing the paper with discretionary money (money you can afford to lose), which is what good speculators do when sentiment conditions in markets supported by good fundamentals (in this case excellent) are conducive to price gains.

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