The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, March 9, 2015.
Have you had enough of the constant bombardment of noise coming out of the media these days - who could have imagined the stupidity just a few years back. Of course we should have known the last time NASDAQ hit 5,000 this was inevitable, with continued mania in all things technology apparently necessary for an otherwise impotent Empire - drowning in debt with increasing diminishing returns across the gambit. This is of course why the noise continues to get louder, because it must in order to distract and deflect attention from real world concerns, keeping people submerged in delusion and drug induced mind games. The signals are still there, albeit more difficult to see given increasing noise levels, not that it matters from a practical perspective.
Because in our collective desire to avoid the reality of an un-levered life, evident in soaring consumer debt growth rates, we have already cast the ultimate outcome - a now rapidly approaching crisis of unprecedented dimension within the human experience - undoubtedly bringing life altering regime change across the globe. (i.e. think increasing fragmentation of the New World Order [NWO] and a transition to more localized economies, as forecast long ago.) The Bible talks about it in Revelation - war, famine, and pestilence. But again, you never hear about these situation(s) from a practical perspective, one that would have people thinking and acting in a fashion to better protect against such vulgarities. No - instead we are carpet bombed with contrived and useless pearls of wisdom from a self-serving oligarchy that feeds off of a manufactured reality deemed most desirable (profitable for the few) - designed to cause irrational behavior derived from the neurotic tendencies torture creates.
Propaganda, lies, the surveillance state - all utilized to manage behavior - that's what you get from the oligarchs and their bureaucrat lap dogs these days besides their tab - to the point the pigs in Animal Farm would be embarrassed. And its true, the West's neo-colonial pathogen makes anything in more recent history look pale in comparison short of the savagery exhibited by the Third Riche (on this scale), but they are not done yet, with the best yet to come undoubtedly. (i.e. it could be argued the mess in the Middle East is already worse.) But that's what you get from an economy that's gone to the dogs, run by psychopaths attempting to maintain a fundamentally flawed status quo, willing to say or do anything to get what they want. And again, as with all such episodes using a Geobbelesk template, supported by an increasingly fascist state, expect process to accelerate as the economy continues to implode with the idiocy of the 'morons in charge' - accelerate to the point of driving increasing numbers off the edge. (i.e. you either tune out or succumb to the pressure.)
This is why people are tuning out - people are not getting stupid because it's chique - they are tuning out due to necessity. It's either that or take a trip to the funny farm (from Animal Farm to the funny farm), because the noise will drive you nuts if you let it. It's no wonder why the populace is becoming increasingly drugged - this is viewed as a matter of necessity as well by an increasingly pressured proletariat - pressure being applied by the oligarchs to feed the greed machine. (i.e. think the banker machine, political machine, and more specifically, the war machine.) So you see, the problem with being soft on the situation is such an approach fixes nothing. In fact, it empowers the status quo because it makes the public more susceptible to exploitation; where they are turned into unconscious zombies who walk into socio-financial gas chambers voluntarily. (i.e. take on more debt and don't buy gold.)
For most, the situation is 'impossible' in terms of survival, whether this be literally, or even just financially. How do you get rid of unwanted noise? How do you figure out how to survive in this increasingly hostile world? Answer: You attempt to maintain your objective, looking for legitimate signals that will help you survive financially (because if you don't the result could be fatal), despite the constant noise designed to part you from your senses. For most, the situation is 'impossible' in terms of survival, whether this be literally, or even just financially. But this does not mean you shouldn't try. And again, this means one should be looking for legitimate signals on which to base behavior, in what must appear to be a confusing mess to most who actually bother to look.
So, the question becomes - how - how do we find these signals? The answer is simpler than you may think - it's 'simplify'. Get rid of the noise. Reduce complex things to their simplest form. In case you did not realize, this is the premise my 'true sentiment' analysis is based on, with the idea being only actual bets speculators are willing to hold for a period of time longer than ten minutes count, meaning at least overnight, which is why open interest put / call ratios and short interest are the only measures that count - because they measure what speculators really think. Conventional and widely followed sentiment measures are useless in this respect, and you will go broke trading them, which has already happened to legions of traders throughout the years who haven't bought into high frequency trading (HFT).
And while true sentiment analysis (seen here) does not remove HFT noise (manipulation), again, it does simplify a trading format for intermediate-term speculators (not day traders) that is a proven commodity, where in fact you are using the same algorithms HFT uses. Because until the system blows up, which is in process, but slow to come, one must survive. So, when the put / call ratios and short interest tell you to avoid a market, as has been the case with precious metals for some time now, with low and declining values in both cases, you do, or lose a great deal of money. The gold promoters will attempt deflect blame for faulty thinking back on to the bureaucracy's price managers, which is surely the case to an extent, however the vast majority of the blame lies squarely on the shoulders of the speculators themselves, where it defies logic just how stubborn and stupid hedge fund managers playing the sector remain.
This sentiment is accurately reflected in not just true sentiment conditions of the ETF and share markets, but also in futures as well; where both gold and silver speculators remain stubbornly bullish despite repeated beatings by a superior force - the Commercials - the banks. As part of the trend of people increasingly tuning out of reality (due to the noise), they have given hedge funds their money over the years, which has in turn corrupted these money managers to the point they have become reckless with other people's money, accounting for their insane behavior not just in precious metals markets, but all markets they touch. Therein, as you may know from our commentaries throughout the years, one of the primary reasons for the never ending rise in the broad measures of stocks is due to the never-ending shorting / hedging in these markets, which enables the perpetual short squeeze set against central banks bound and determined to stay ahead of their bubble making efforts this time around. (i.e. this is what ECB is suppose to do, but this strategy may have finally exhausted itself - see below.)
Again, as you may know in reading our work throughout the years, this kind of lunacy can continue only as long as all the pieces of the puzzle are in place, with the shorting and money printing at center, however, once one of these integral parts goes missing, so does the existing trend. This is what should happen sooner rather than later now in both precious metal and broad market measures as process unfolds, where eventually genius hedge fund managers will figure out they had better stop their insane behaviors, and / or because of their increasingly poor performance, they are fired. Because at some point a sleepy investing population is going to figure out they are being fleeced by these guys, who are just trying not to lose too much money so they are not fired from their lucrative jobs, eventually forced into new and more appropriate vocations, like in food preparation or shoe sales. This process is well underway now with the latest drubbing in precious metals, where again, these geniuses are being forced to sell their levered bets at a loss. (See Figure 1)
As forecast last week, this is what would break the broad market to precious metals ratios (Dow / Gold Ratio (DGR) and SPX / SLV Ratio) out to the upside with a strong Employment Report, and like clockwork, that's exactly what we got for reasons already explained. With the lose in stocks due to surging interest rates the moves in the aforementioned were muted (see above), however with small speculators very short SPX futures at the moment, don't be surprised if stocks shake off what will be dubbed on bubblevision a 'normal pullback' (because NASDAQ is digesting the 5000 mark), only to march higher as the month matures. Because that's an awfully big flag in the SPX / SLV Ratio to just fail here, given at the rate things are moving these days, it shouldn't take too long for the measure to the 160 -167 range to be vexed. So, it should not be surprising both precious metals shares and the dollar($) are suggestive this measure will be traced out, where the measures in the two charts below are just as extreme. (See Figure 2)
In the case of the Gold Miners Index (GDM), we have the weekly plot from the Chart Room above with some prominent diamonds in the indicators that appear to be holding, suggestive a trip down to test the lower rails might be in order. If this occurs, the GDM might need to fall to 300 before it's all over (see head and shoulder's pattern [H&S] measured move [MM]) which would take the Amex Gold Bugs Index (HUI) below 100. And this might just be what's necessary to finally fix both large and small speculators in this space; at least we hope this is the case because most of these characters are dumber than a bag of hammers. Certainly if the $ keeps skyrocketing perhaps some bells will go off for these guys. It's either that or they will lose their life savings, if that has not already happened. Based on the way the $ has broken out this past week these guys are likely in for quite a shock, not that once the MM lower in the GDM is traced out there will still be any permabulls (or promoters) alive (or at least with any credibility). (See Figure 3)
How high will the $ go? Unfortunately, answering this question is not as simple as just watching the speculators, because if for example the euro goes away, which is an increasing likelihood as economies continue to suffer through late stages of Keynesian Economics gone wrong, the $ could maintain an un-natural bid for quite some time in being the perceived best alternative. Just how long this all lasts is questionable as diminishing returns (from money printing) have finally turned into negative returns (because the bureaucracy's are too big now) in the West, evidenced by increasingly negative interest rates (necessary to delay economic implosion), however again, until new regional trading blocks become more integrated into the larger formula, the status quo will remain dominant until the unforeseen accident that brings it all down comes into play - with contracting global liquidity topping the list.
This is changing fast, but how fast is fast? Fast enough to get gold rising again to keep the 600 distressed juniors on the TSX Venture Exchange in business? Not if gold plunges below $1,000 first, which may happen if the MM's in the stocks to precious metals ratios (think DGR) trace out - that's for sure. Normally after a rise like gold had last decade you need to kill off an entire generation of investors before another meaningful bull market can develop. That being said, and although some might argue precious metals reached mania proportions in some respects (ex. the number of junior explorers in the market), still, in terms of total asset percentages, if 2011 was the top, that was no mania. This means the mania is yet to come, where a far greater percentage of the investing population gets involved.
That means, the pause we are currently in is a 'mid-term correction', where normally the best is yet to come in the second half, just like gold's bull market in the 70's. Being a higher order Affair this time around however, the waves are lasting twice as long (the 70's bull lasted 10-years), meaning one should not expect to see a top in precious metals until the 2020 - 2021 timeframe. (i.e. a Fibonacci 21-year Affair.) All we need is for the top in stocks and / or bonds to arrive (heaven knows this could come anytime given the bubble dynamics - but most likely not until the second half this year) and confidence in the status quo will evaporate quickly as reality rebounds from its present depths. This will accelerate process further yet again as the global monetary system crumbles, as we know it, where although this might cause the $ to rally first in reaction (as the euro is abandoned - amongst other things), precious metals catch a bid anyway. This is what could cause the stocks to precious metal ratio rallies to fail prior to completing ongoing MM's - not that this will happen.
See you next week.