The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, December 8, 2014.
For Whom The Bell Tolls is of course one of Hemingway's greatest works, something everybody should read in attempting to develop a discerning mind, filled with gripping themes and colorful imagery, sending powerful messages and lessons to readers that remain germane to this day. In this regard, and imagery that appeared not just in For Whom the Bell Tolls, but also in A Farewell to Arms, was the use of 'automatic machines' (machine guns) by the fascists, and how 'fascist planes' were especially dreaded because of their 'killing power'. To wit, and from Wikipedia, "Hemingway employs the fear of modern armament to destroy romantic conceptions of the ancient art of war: combat, sportsmanlike competition and the aspect of hunting. Heroism becomes butchery: the most powerful picture employed here is the shooting of María's parents against the wall of a slaughterhouse. Glory exists in the official dispatches only; here, the "disillusionment" theme of A Farewell to Arms is adapted." Truly powerful images for a topic that remains central to man's future prospects revisted on these pages here today." (See For Whom The Bell Tolls published October 2011)
The question then arises, 'can these images teach us about what to expect from the fascists of today?' I believe they can. I believe that nothing has or will ever change in man since Hemingway penned these words, or Plato sat on Olympus, except the technology for the ambitious to pursue political (and personal) agendas. Today, what we have is a global ruling class, a tyrannical oligarchy typified by the world's wealthy elite (centered in the West), that operates as all other empires have done before them, ruthlessly reaching for evermore as growing numbers (of billionaires) come up against diminishing marginal returns in their fiat economies. This is of course the primary characteristic of mature economies that have been documented all the way back to ancient Roman and Greece, which as discussed last week leads to wholesale social collapse. This is what the 'automatic machines' turned loose on our financial markets today guarantees - wholesale social collapse - where no matter your transient station (think HFT's and other oligarchs) - ill begotten or not - the bell will toll for thee.
The naive should realize there's going to be no dislodging these types without complete anarchy, so that's what will happen sooner or later. People who are naïve or chose denial are going to be shocked when they realize that by allowing the fascists now in control of 'the system' (think economy, political, etc.) to run for as long as they have, with the Obama era the tipping point into full blown fascism in America (ex. Obama's highly destructive unilateral immigration bill), what you are doing is enabling / guaranteeing our collect demise in the not too distant future - again - inviting wholesale collapse. (i.e. again, think economy, political, etc.) Because once the machines do their work in helping to create a (global) bubble in the stock market the likes of which never witnessed previously (think size, scope, etc.), it will need to deflate, and then the entire global economy will be facing a Japan like deflationary crisis square in the eyes. Believe it, because it's coming. Stock and bond markets will collapse, pensions will be substantially reduced and go unpaid, and no government will be able to fix these problems for the mobs.
Because machine aided manipulation of markets has ramifications in the real world, where debt based currency debasement begins to lose effectiveness exponentially once an economy goes over the tipping point, once debt levels drown out any possibility of economic gains. Certainly Japan is already at this point (with over a quadrillion in sovereign debt) with a debt to Gross Domestic Product (GDP) ratio in excess of 225% (its actually much higher without statistical wizardry), the worst in the world; however, with exploding debt in the States accelerating too, which has been gaining on Japan since the 90's, it too should be at such a tipping point soon as well, putting the entire global economy in jeopardy. And as you will read here, this trend is set to accelerate post 2018, where some degree of hyperinflation may be in the cards at that time. The theory is once the latest round of asset bubbles pop, the official reaction(s) (fiat money printing) on a global basis will be unprecedented.
Of course even with visible signs stocks should be topping out soon, with everything from recurring Hindenburg Omens (technicals) to a collapsing consumer (fundamentals) signaling stretched stock market valuations should be set to swing the other way soon, one would be advised to remember that as pointed out repeatedly on these pages, what we are witnessing here is the Grand Supercycle Degree top in global stock markets that towers over all other lower degree instances, and for that reason alone, the mania could last much longer than most think - or bearish speculators remain solvent. As Dave points out this week, the dollar($) appears to be forming a running correction that will see little giveback to the downside, which fits with the hypothesis (and observations like this) that periphery economies are crashing in real time, and core economy countries (with the US at center) are not much better off despite the lies.
Be that as it may, lies are what we are dealing with, in the most elaborate kabuki theatre like ruse ever constructed by man, so again, don't underestimate the staying power of the status quo, as insane as things might appear on the surface. Because one must remember, we now have direct US stock market intervention by the Fed and foreign central banks, corporate buybacks, currency manipulation, interest rate manipulation, precious metals capping, all funded by money printing (it's in fact quite ironic precious metals are held down with increasing quantities of printed money) that will do nothing but accelerate as economies continue to deteriorate - and deteriorate they will despite the money printing. And when this becomes evident to the masses, where signs are already appearing, then all the foreign money going into supporting US stocks and bonds will come back out, and the $ will crash. (See Figure 1)
Because the floating exchange rate mechanism is broken, along with the entire global economy, where it has now become necessary to sell down the euro and yen daily, with their economies in crash mode, to give the appearance central planners have it under control because 'those in need' are getting currency related relief, while the US is 'doing good'. Again however, since this is a lie, while it won't last, as you can see both above and below, the ruse can go on for much longer than a rational man may think, well into next year with desperate central planners pushing asset prices far higher than appears probable. As pointed out last week, this means the Dow / Gold Ratio could climb all the way up into the 25 area in retracing 50% of the move down from the year 2000, and the S&P 500 (SPX) / iShares Silver Trust (SLV) Ratio (pictured below) could also still put on a big move up into the 185 area, new all time highs with silver still well below 1980 highs. (See Figure 2)
In spite of my repeated warnings precious metals remain vulnerable to both official intervention (think central bank suppression tactics), as well as market related risks (think careless speculators betting wrong, liquidity risks, etc.), I am still getting requests for precious metal stock selections while all this is going on, the more recent ones to 'play the likely bounce post tax loss selling season' that will end here in December. All I can say is, while a bounce may indeed be likely, as stated previously, I will not be back to individual stock coverage until the TSX Venture Composite (CDNX) hits the head a shoulders target of 400, however long that takes. At 500 you can expect to start hearing from me in this regard, which may not be long now considering its down to 700 already, but not before. A great many speculators will be gaming the anticipated post tax-selling season bounce, which is why it may not happen this year, or at a minimum, be so muted most get dunked anyway. (See Figure 3)
It would be different if any real liquidity in the market existed, but since this is not the case, and people will not be interested in precious metals until the panic is on, trust me, its best to remain very gun shy, attempting to preserve capital. For those looking to gamble, since traders need to make money and the bottom in precious metals shares will likely not come until next year, use conservative position limits. Here's another little tid bit for perma-bulls. Precious metals shares may never exceed the 2011 highs - even if gold shoots over $5,000. Why? Because of debt, and the need to dilute share floats of the producers. This is why the precious metal shares to metal ratios are breaking below year 2000 lows, because the floats of the producers, both big and small, have all exploded higher, where it's not uncommon to see a treble. And again, with most of them unable to produce profitably at present commodity prices, if they break lower because the status quo boys are bound and determined to save the empire, tax loss selling season or not, both the bullion and the shares will go lower.
So how high will precious metals shares go when gold and silver rocket higher? If I had to guess based on historical precedent, where the assumption is we are entering a period similar to the 1930's, using Homestake Mining as a template, the answer would be approximately 500% from the ultimate bottom. Fast forward to today, and using the Amex Gold Bugs Index (HUI) as the proxy for precious metal shares, if it bottoms around 100 sometime after the ultimate top in stocks either late 2015 or early 2016 (think after a deflation scare related sell-off), then the target would be somewhere just north of 500. Some of you might be saying to yourselves, yes, but what about your harmonic studies that point to the HUI going to somewhere between 1000 and 2000? What about that - are these projections no longer valid? The answer to this question is yes, because of price management and speculator greed, the harmonic(s) pattern(s) that were in effect 10 years ago have been broken, which pretty much cements the deal.
Precious metal shares will rally when the panic into the sector occurs, and who knows, maybe this view is incorrect, however once the present set of bubbles burst and the deflationary backdrop worsens, as was the case in the 30's, even though those with capital to protect will undoubtedly be looking to precious metals, one does wonder what the overall situation will yield. Certainly, if the HUI can cross 2011 highs at 650 perhaps we would have a signal we should be expecting more (a mania?), however it could be argued we already had the mania in all the shares issued both via existing producers all the way down to the microcaps. Of course this is just mental gymnastics, because with such a small percentage of Western populations (less than 1%) investing in precious metals it could be argued a bright future still exists for the shares (notice one should remain extremely positive on bullion), however if this were true, and despite the reasons (intervention and speculator gambling practices), the shares should not have fallen like they have, not to mention present trends are not over yet.
And then there is this to consider.
Unlike the traditional classical tragedy, where the hero dies but the story goes on forever, this time, with the tragedy being the human race manifest in its animal beginnings - expressed in its economies - the damage will not be limited simply to the heroes. We are all going to suffer, even those who think they've escaped to Elysium. In my essay Elysium, I got the closing thoughts wrong because up until now I had hope for the human race, a naive sentiment that no longer resides in my thinking. Now, it appears we should all get very desperate if you are not already there, if not to accumulate more fiat nonsense or bling, to prepare for the end game dynamics that are being forced on us by the collective and evil doers. Again, everybody should read this in order to know what will have value after our now flimsy system comes apart so that you can start preparing for survival issues on the more immediate horizon that could be here sooner than anybody presently thinks.
Because don't kid yourself, some degree of the worst case looks set to occur given economically the powers that be have managed us into an inescapable box, where nobody gets out without paying a price.
Be aware because 'the bell tolls for you'.
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