The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, October 5, 2015.
It can happen in the blink of an eye. You can wake up one morning, and everything is different. Everything you thought was right is wrong. Complacency is replaced by genuine fear, not just a neurotic phobic malaise gripping your conscious state. This is when it happens. If you still consider yourself in the Western 'middle class', this is when you will see a mass awakening and acceptance your world is changing too - that this is not just happening to some unfortunates in the far off periphery. Stock markets of the world are in turmoil. Exchanges and banks are closed indefinitely until further notice. Bond markets seize up. Gold is up $500. Previously confident talking heads appear remorseful. You can sense the panic in their voices.
And then it hits you if you're lucky - the Tower of Bable is coming down and there's no Plan B - that's why these characters are finally scared.
Normally the clowns at CNBC come off as out of control sociopaths attempting to show the near-do-wells how to game the system. But this pretense disappears quickly when it hits the fan for real - when people are cut off from their money. Status quo bullshit doesn't cut it anymore when people's credit cards no longer work. Ratings at CNBC skyrocketed during the volatility in August - and this will continue as stunned investors who tuned out because they gave their savings to a money manager suddenly realize they made another mistake and become worried. This is when the redemptions come in unless something is done quickly to re-establish confidence.
This is when QE4 will be announced - followed by a global cavalcade in kind. Because central bankers are quite simple creatures you should realize, despite their best attempts to convince what they do is 'over your head'. It's all about debasement - rates cuts, reserve ratio requirements, and QE are all the same thing - currency debasement. Because central banks are a collective one trick pony you see - and they have no Plan B in this respect - where they must continue the acceleration of currency debasement because in the words of Max Keizer "you can't taper a Ponzi scheme" - they must do the opposite until the bitter end in fact - which in this case means hyperinflation.
Central banks will not stop money printing acceleration until hyperinflation grips the macro, and the economy, markets, and supply chains break down. Economies will crumble, the survival instinct will take over, the decentralization process will accelerate, global trade will crash, and people will starve. This is when it will hit the fan. When people who thought they were 'somebody' find out where they really are in the food chain. Three days is all it takes. Deprive a human being of food for three-days and the animal in them comes out - and that's when bad things happen. Extrapolate that out months and years, to people who are not use to being 'have nots', and you have a recipe for revolution, anarchy, and war.
This is why the Russians are bombing in Syria. The animal is coming out. With commodity prices being managed down by the West, desperation is setting in, and the war drums are now beating. Make no mistake. This is serious business because things will likely accelerate from here. Russia needs to shake things up in order to break the grip Western price managers have created in the commodity markets in order to support their paper economies. The only way they will be able to do this is to shake confidence in Western paper. And the only way they will be able to do this is by jacking up the need for speed in Western printing presses to fund increasing political tensions (war). (See Figure 1)
So, if you can't have a commodity economy, a war economy will have to do until the commodity economy returns. And if the 'big message' in Figures 1 and 2 (above and below) are an indication, the wait shouldn't be too long. The Dow / Philadelphia Gold & Silver Index (XAU) Ratio is one more impulse higher away from a major Fibonacci signature top that should produce a secular swing in relatively, meaning commodities will have the upper hand for years after the reversal lower occurs. It will be a check in every mailbox post this event horizon or the United States of America will become a Keynesian economic wasteland so fast idiot propagandists like Paul Krugman would be forced to shut up at some point. (See Figure 2)
And while it appears more fourth-wave consolidations in the above might be necessary, raising the specter final waves higher could involve further significant declines in precious metals and commodities as the blue chips outperform in general liquidation, either way, a key understanding of the big message in the above charts is once they top out, precious metals and commodities will begin outperforming, placing a great deal of pressure on Western paper markets. Budgets will be pressured with rising prices resulting from increasing money printing that will turn the business climate into an unmanageable nightmare if these increases come too fast. This is when tech will begin to tumble as investors realize jobs actually matter in terms of the discretionary income required to buy apps and gadgets. (See Figure 3)
That's when you will know the economy and markets are coming under increasing pressure, when the NASDAQ / Dow Ratio tops out and starts plunging back to earth. Officially this will be when it falls back out of 'Bubble Territory', however for the proactive, one would be well advised to take action sooner rather than later because absolute index levels could be 10 to 20 percent lower than present before this occurs. This is of course what creates the 'crash' set-up, because traders are not thinking clearly and don't realize what is really happening and must sell when the margin clerks call. (i.e. retail investors are already there.) That's when the word 'marginal' will become less important, as a crashing global economy and markets quickly engulfs all. With margin debt still close to record high levels, the question one should be asking is where are stock indexes going to be when 'credit balances' go positive again?
The answer to that question is 50 to 60 percent lower if history is a good guide.
And like the mainstream media, mainstream economists will not have a good explanation for what's happening, the speed and scope unprecedented. And again, central planners will have only one response - turning the screws on the printing presses - all the way down. This is when these bums will be thrown out and exposed for the charlatans they are, but unfortunately for most, it will be too late. Again, it's the speed at which all this can happen that will catch most off guard. In this world of ETF's, change can come quickly when everybody decides to sell at the same time and market makers are overwhelmed. The only question regarding the stock market now is timing, where based on Friday's performance, and trader sentiment factors discussed here, a rally in October would not be surprising at all.
Add to this US stocks have not been down in a year ending in '5' for 140 years, since 1875, and we in fact have quite a compelling case for the bulls going all the way to year end. All this suggests when the Dow / XAU Ratio breaks higher the picture will involve a stronger stock market. At the same time, they have only been up once in the fourth quarter if a loss greater than 6% in the third quarter was experienced (1970), like this year (8%), when the economy was similar (rising inflation), but still in much better condition than it is today. So as you can see, it's quite the tangled web indeed, where there's really no telling what's going to happen to stocks at this point. Precious metals are definitely going down again this year at some point. We just don't know from what level(s) (the HUI could run to 150 and not alter this view) and if the broads will accompany them or rally to complete the larger degree move higher in the Dow / XAU Ratio.
My guess we see a big rally in October, taking the S&P 500 (SPX) back above 2000, or maybe even 2050 briefly, followed by a big sell off starting in November if traders get bullish (we will be watching the put / call ratios) on the bet stocks will be gamed higher going into year-end for all the usual reasons. Supporting this thesis, we have conventional sentiment measures such as Investors Intelligence Bull Bear Survey at lows only witnessed at corresponding major lows in stocks, which must be worked off. Many traders have been steering clear of stocks during the volatility, but will be quick to jump back on board once an 'all clear' is signaled, which for the laggards, will mean exiting October. So again, this condition should be corrected by November, or at the latest December, if a bear has truly gripped the stock market(s).
Remember, the Dow / XAU Ratio can reach the Fibonacci signature target (see above) without new highs in the Dow as long as precious metals shares see new lows.
This is why one should be patient in terms of accumulating the shares no matter how strong the corrective rally gets in coming days.
Like the year 2000, November might offer exceptional opportunities in this respect. If not, this will come later (next year?).
Good investing is almost possible in precious metals.