The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, October 19, 2015.
In Greek mythology, sirens were dangerous yet beautiful creatures that lured passing sailors with enchanting music and voices, who ended up shipwrecked on the rocky coast of their island. Fast forward to today, and this same imagery can be used to warn people about the perils of 'modern day finance', where the dangerous yet beautiful creatures that inhabit the parasite classes continue to lure all strata of 'wannabees' as close to their shores as possible, only to end up on the rocks once they have been used up. Wannabees are told, greed is good, materialism is good, and consumerism is good; and, if you want to get to the enchanted island of 'success', you should do whatever it takes to get there - even if it's a mirage.
And make no mistake about it; the new 'American dream' of reaching material world Elysium has become exactly that, a dream. The entrenched parasites in the system (bureaucrat, politic, oligarch) are making sure of that via an increasingly class system encased in a neo-fascist state that would have Orwell rolling over in his grave. If it's not nailed down, it will be taxed. In fact, even if it is nailed down this has become the case. Case in point, we now have administered interest rates in the States, which have already been nailed down to zero, looking to go negative, which in case you didn't know, is designed to force you to spend and invest in stupid and valueless things - all with the goal of keeping the parasite classes in style - buy continuing to promote consumerism / materialism. (i.e. and it's working.)
Of course it's the unintended consequences associated negative administered rates that investors and parasites alike should be worried about; everything from increased demand for tangible assets (think gold) given money would be forced out of the banks / fixed income, to currency actually being 'called in' on a de facto basis. But the false sirens of promised prosperity still have the mob delusional enough to look past such risks, which are in fact blaring sirens for real, so don't expect the parasite classes to heed such warnings, as they eventually consume themselves. Oh, and don't forget to be a contrarian and buy the fear. With expectations for a stock market crash never higher - it's a 'no brainer' - right?
In a follow-up to our comments on the possible triggering of World War III by Russia's involvement in Syria (and expanding) the other day, already at 'proxy war' status, it's important to realize what Putin is doing is showing the entire world what they are capable of, but more specifically, they are showing other parties interested in getting rid of ISIS it's possible - and all you need do is ask. What this does, is put the US on the spot, where if they don't drop their strategic colonial approach to harvesting the wealth of the Middle East (ME), and actually do something to help these people (?), they will lose power rapidly in the area, threatening petro-dollar domination in the process. And in the modern day empire game folks, it's all about hegemony and control of exchange that the US parasites are worried about because this is how they maintain power.
So it's important to understand the petro-dollar game is everything in the end, where if Russia were able to dethrone the US in its global control of commodity prices via this mechanism, oil prices would undoubtedly feel the benefit, along with their larger sovereign financial picture. Because Russia is a large oil producer on a global scale, and it depends on the revenue from energy unlike the US, whose chief exports are dollars, debt, and all variations of financial derivatives. This is why Russia is doing what it's doing in the ME, make no mistake about it. It's not because they are 'nice guys' and want to help the unfortunates being ravaged by the Americans. Once in a dominant position the Russians would be just as ruthless as the US, although it could be argued perhaps not as easily duped due to the trappings of empire - because they already had that 100 years ago. And again, it's this dynamic that could cause a much larger 'war situation' between these super powers (from the present 'proxy war') to develop through time.
Fast forward a few weeks, and looks like Putin has scored a big victory in Syria already with the White House hitting the de-escalation button 'big time', which in hindsight years out, could be viewed as the stake that went through the petro-dollar's heart. The question is why so fast? Is it because their paper empire is at risk of failure if stocks didn't rally toute suite when they were plumbing the lows a few weeks back. Apparently the only way they were going to stabilize stocks was by sacrificing the dollar($) in order to spark another short squeeze. Again however, and more importantly in the longer term, while it might be 'mission accomplished' in the short-term, with disaster for the parasite classes averted once again, you can be assured this will not be the case indefinitely, especially if Russia succeeds with their ground assault to bring Assad back into a strong control position in Syria.
Such an outcome would green light the establishment of permanent Russian military land bases in the region extending out from Syria as its talent for eradicating ISIS is increasingly sought. This will be the point the $ will come under unmanageable pressure to the extent it could literally crash, sending domestic prices in the US soaring, which in turn will quickly wipe out equity / debt valuations even if a brief period of hyperinflation is witnessed. First we will have a big rally in the $ due to global solvency fears, but after that, look out below. At this point everyone from managed money to sovereign states will be forced to sell $'s or die, so they will sell. And again, this will send a shock wave through the existing global financial infrastructure never witnessed previously, where the types of global resets being bandied about by some precious metals commentators could actually become a reality. (See Figure 1)
And its not just Russia that will bring this on, it's the larger global decentralization process that will eventually crash the $, where you can see the shift away from an American centric world is now occurring. The US obviously doesn't like this, because it means the end of empire, and is selectively showing its displeasure when they think such actions will not amount to anything. That is to say, they don't pick fights with somebody who can actually fight back, which means they probably will not provoke China over its disputed islands. This also explains why its carrier group is leaving the Persian Gulf now while Russia is setting up shop in the region. As the chart above shows in painful detail, although one more impulse to the 105 area is likely (associated with global deleveraging of the $ carry trade), once this occurs, the demand for $'s will diminish significantly (crash?), taking its hegemony status along for the ride. (See Figure 2)
But this is all going to take some time. The next significant Fibonacci number in gold's bull market is 21, giving us a possible topping target time window in the 2020 - 2021 area. This is when it should really be hitting the fan - when westerners realize they have been living inflated lives - when they will want all the gold sent east back. This is when the $ will literally crater - when the world, including delusional Americans themselves, realize the emperor (US) has no clothes (gold). This is when the Dow / Philadelphia Gold & silver Index (XAU) Ratio should be vexing historic lows shown here in Figure 1. Of course in the meantime, we still have all the delay tactics and games the parasites will employ to maintain the status quo to endure, which in this case means the Dow / XAU Ratio likely still has one more impulse higher that might have commenced last week off channel lows pictured above. For the count and Fibonacci resonance targeting, again see Figure 1 attached directly above. (See Figure 3)
Last week's COT reports for gold and silver both show momentum chasing hedge funds remain as stupefied as ever, following prices higher with big accumulations in the non-commercial categories, setting the stage for another paper precious metals takedown, which is consistent with this thinking. So, once we get a lasting top in stocks, which could happen before year-end depending on how long it takes to turn sentiment again (we need to see lower put / call ratios and shorts), we can have a final 'deflation scare' related bottom in the precious metals sector, where one should be looking for the Gold / Silver Ratio to hit the 2008 highs before turning lower to signal the bull market is back in gear on the secular trend. And again, this could all happen very quickly in terms of the larger move(s), as early as late November, or early next year (more likely).
What's more, if volatility in stocks surrounding debt-ceiling kabuki starts soon, this means precious metals could be particularly weak moving forward from here, which is the message in Figure 2. That's the message in the turn higher in the Dow / XAU Ratio, where as denoted above, a two-day close back above the 'Trend Definer' should be considered a buy signal, possibly taking prices to new highs. Because one must remember, US price managers must manufacture increasingly intense false problems in order to get speculators / hedgers to continue buying puts against the indexes - extending the perpetual short squeeze in stocks. And as you know from last week's observations in this respect, this last round of manufactured volatility into September to capitalize on having Christmas bonus hopefuls game a bottom out of seasonal lows has worked with stocks back up again.
However for insurance US price managers need a constant flow of kabuki in order to set the confusion, which is why they timed more debt-ceiling drama for early November - to make sure the shorts remain high in order to provide the fuel for a continued squeeze into Thanks Giving. And this ploy will likely work, because we should get some volatility post options expiry beginning this week, which will keep the idiots buying puts / shorting. Of course like the other manufactured kabuki designed to affect the perceptual behavior of the trading public, and despite what might appear genuine on the surface, the debt-ceiling crisis will be magically contained yet again right at the appropriate moment in November to spark a rally, so whatever you do, don't short stocks or buy precious metals going into next week because one could get caught in this price management ruse starting anytime around month's end. (i.e. to ensure strong monthly closes if needed taking stocks into November.)
At least that's the plan. What happens when this is all played out - say going into Thanks Giving - is another thing. Can all the shorts be squeezed out by then? Only the shadow knows for sure - the Shadow and the Dow / XAU Ratio. Because when it hits the profound Fibonacci resonance target shown in Figure 1 on the long-term chart attached above, there's only one thing you need know - the party in stocks is over - and precious metals are back in favor. That's why I keep running these same critically important charts repeatedly, because they are that important, with the Dow / XAU Ratio most important.
Yes, but isn't it possible a top in the Dow / XAU Ratio translates into gains for both groups, with precious metals out-performing? Answer: Of course this is always possible. It's just not probable. A secular shift of this magnitude is more likely to be the opposite of what came before simply by virtue this is how the human mind works. In this case, what has been happening while the blue chips have been out-performing is the technocrats have been able to buffalo the masses with gimmicks and bullshit by being able to hide their inflation of the monetary base. A reversal of this trend tells you that this will no longer be possible, because one must assume, the price increases moving forward will become profound, if not in absolute terms, in relativity.
The solution for the dilemma this might create for investors is simple of course - own real assets and shed paper promises of all varieties that will be ravaged by the vulgarities associated with uncontrolled monetary inflation, rapidly rising prices, and insolvency risk up and down the spectrum.
It's simple you see.