The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, February 22, 2016.
Make no mistake about it; at this point the stock market is just another tax on the little people, where insiders and oligarchs run wild over them. Unless you are a high frequency trader, unicorn, or billionaire activists you don't have a chance at winning against the forces at work here, making participation for most high-risk stupidity. Even the mighty quants and billionaire activists are starting to feel the pain now however, which can't be good for the average Joe. Zero interest rates has people fooled into thinking they need to have their money in the stock market to make a return, when they should be more concerned with the return of their money. That's why interest rates are being forced negative - to force the foolish into a situation that will lose them more.
Because one day an 'accident' will happen -- something unthinkable to most market participants today. Then these people will realize they are going to lose money. And for many it will be life-altering amounts. Not that any of this should be news for most investors, both old and new. Many who were burned in the 2000 and 2008 bubbles have not returned to stocks, and never will, possibly having lost half their savings as panicked sellers at the bottom - their sensibilities fully taxed. But newbies are feeling it too, in these smoke and mirrors markets, with an up year for momo stocks, but average investors see a loss. These investors are being exploited by Wall Street parasites, which in effect can be viewed as a tax enjoyed by the privileged class.
But hey, don't tell that to the talking heads. They will have you believe if you buy into the fraud you too can go to Elysium. You can be just like the momo's you see on TV. Only problem is with the collapse of the real economy, the financialized economy, of which the stock market is central, has never been more expensive. So the likelihood all the dreaming and denial on the part of the public will be shattered one day is high. Again, make no mistake about it, the investing public's sensibilities will be fully taxed again at some point in the not too distant future, because the status quo in America is under attack, and this will have a material effect on their little dream world - better known as the financialized economy.
Rebellion, revulsion, and revolution are occurring at increasing frequency across the political economy these days, with no facet more important than what is happening in American politics. The status quo is in serious trouble here with disenfranchised Millennials now the largest demographic, and using it's voting power to affect radical change. In this regard, policy will shift from pandering an aging baby boomer generation to a working class youth eager to get in the game, which will play havoc on Wall Street as inflation rates will rise sufficiently to burst both debt and equity bubbles up and down the spectrum. Crazy talk? Premature?
Take a good look around, because change is coming fast and furious, which again should be a truly taxing experience for stock market investors. Fed (central bank) policy has little to do with economy anymore. Instead it's a ruse to affect and control currency exchange rates, which in turn are used as an attempt to throttle stock markets. Again however, a combination of collapsing real economy constraints set against what is likely to involve highly inflationary fiscal and monetary policy coming down the pike catering to Millennials and the disenfranchised will blow the present Frankenstein economy / markets apart. Even the more rational hedge fund managers see this coming now - it's QE for the people or die.
And it's not just the hedge funds that are starting to show the pain - pension funds are buckling as well. Zero interest rate policy (ZIRP) has brought this about. So just imagine what Negative interest rate policy (NIRP) is doing to the pension funds right now. It's called 'unintended consequences', but the all-knowing central banks should know better - right? What do they care? Jamie Dimon's salary was up 35% last year to $27 million. That's who the Fed really works for - not the government or public. This is why it's all going to come unraveled this year - in politics, economy, and especially the markets.
Because NIRP and going cashless won't work as it's too late. In fact, I would be surprised if we go cashless based on the way things are accelerating here. What's more likely is the Fed abandon's its bullshit story in a hurry the next time stocks tumble - quickly followed by QE for the people. This is the only hope the status quo has to maintain power. So watch for this right after the election - likely at the beginning of next year. Can't see something like this getting through the House this year with the election, but you never know I guess. Based on the price action in precious metal shares over the past few days - speculators certainly this it's a go sooner rather than later. They may be getting a little ahead of themselves. Still, let's hope for another good monthly close to cement the buy signal(s) triggered last month.
Looking above it's certainly difficult envisioning otherwise, however as warned last week, once the matrix loses the support of aggressive speculators buying puts on NUGT and calls on DUST (see here) post options expiry this week, the largest influence on pricing in terms internal influences switches over to the futures market until we click over into the new month, and the COT numbers (gold and silver) are not supportive of further gains to say the least. So even if the primaries in South Carolina turn out precious metal friendly, this might not be enough to sustain prices into month end. If the Dow / XAU Ratio were allowed to correct back up to the 200-day moving average (MA) I'm sure the bearish COT profiles would get better, however with hedge fund types now looking to cover broad market exposures with precious metal hedges, things could get more stretched before this happens. (See Figure 1)
Anything to get that good monthly close - right? Not so fast, because we haven't broken out on a monthly basis yet, where it might be better to back and fill a bit first in order to gain the energy to do so. I will put up the monthlies next week (closer to month end) to show you what I mean. Basically we need to see two monthly closes either above or below (depending on the chart) the 21-month exponential moving average (EMA) to accomplish monthly buy signals in respective markets, which has not taken place yet with COT profiles at points that normally signal lasting reversals. The difference this time around is of course the ETF gamblers - they had their heads caved in over the past four years and can only think down now (or hedging if long), which is the sentiment change we have been waiting for all these years - so we remain optimistic. (See Figure 2)
Confirming such thinking we have the above, the Franco Nevada (FNV) / Gold Bugs Index (HUI) Ratio, which appears to have finally turned lower as well, signaling investors are now seeking growth over income - or aggressiveness over defensiveness. Again however, while it could definitely continue to decline into extremes, it's important to note it's already there in many important measures on a 'weekly basis'. Such conditions are in fact what one would expect in a bull market, and heaven knows there are a plethora of fundamental reasons coming to the forefront sufficient to draw legions of new participants into precious metals right now, however I would be amiss as systematic observer of the sector not to point these things out to you at this time. (See Figure 3)
Because again, although many junior stocks have doubled over the past few weeks, on many measures, precious metals are still not out of the soup just yet, as can be seen above. But please don't get me wrong, because I like the look of the above chart as you can see in the annotations, with the big message being we actually don't want to see the juniors outperforming to a large degree this early in a new run. Such an outcome would show excessive bullishness. In this regard, one should notice we would not have seen the strength we have these past weeks if aggressive speculators had kept bidding up premiums in the juniors going into year-end 2015, giving us what looks to be a bullish double bottom. Sentiment, as measured by open interest put / call ratios could have been better at the turn, however, we will deal with it as long as the aggressive speculators playing NUGT and DUST remain skeptical.
For more on this increasingly complex situation, see below.
Good investing is possible in precious metals.