The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, May 9, 2016.
That's the way it is in the economy today - the bipolar mindset of people today has managed the situation into a corner - it's all or nothing - it's greed. It's the status quo or collapse and reset - with no in between. You are either in the top 1% and exploiting the masses in crony capitalism castles- or you are nowhere - going backwards in living standards, income, mental heath - you name it. It's the laws of the jungle come home to mankind. It's the survival of the fittest returning to the human condition after forty years of hiatus in which we flexed our technological muscle (and moral deterioration) in making life 'magical for the masses' like never before - in coming off the gold standard. Unfortunately by losing this behavioral inhibitor, in the process, we have collectively condemned ourselves to serious consequences unavoidable both down and up the food chain, increasingly manifest in all human interaction in biblical proportion.
This condition is nothing new to the human experience, and is in fact secular (periodic) over varying periods, well documented in the writings and lessons found in the bible, last witnessed in such dimension only during Rome's mighty reign over ancient civilization. It was a time of bread and circuses; a time of peak technology (roads, metals, war, etc.); and a time of distraction, where a corrupt hierarchy went insane raping the state and plebs, with the debased engaging in the 'seven deadly sins', with greed at center, in previously unbounded proportion. Fast foreword to today, and we are seeing our technological abilities feel Mother Nature's constraints once again, only this time the consequences will not be just another epochal blip in human experience, but a real show stopper if we are not careful.
I am not a religious person, however one cannot ignore the profound wisdom contained in select scripture, which is something that can be said of all religious doctrine depending on one's perspective. In removing such subjectivity from this discussion however, and in attempting to illustrate why we are in real trouble this time around, again, we borrow from scripture, which of course was the intention in its writing. From Timothy, we read, "An overseer, then, must be above reproach, the husband of one wife, temperate, prudent, respectable, hospitable, able to teach, not addicted to wine or pugnacious, but gentle, peaceable, free from the love of money." No wiser words do we need, however in our age of ignorance, our time of boundless greed and depravity, such beliefs are painfully absent in our modern world.
So here we are, on the cusp of Armageddon because of our ignorance, greed, and growing intolerance for each other - natural human behavior as times get tough - taught to those paying attention in their bible studies. Framed this way, naturally the next question begs, if this is so, 'where are we going'? In my mind, the big picture answer to this question is found in a return to 'basic truths', much like the teachings found in the bible, bringing us to a return to basic human values of true justice. Because we cannot continue on this way indefinitely, with the parasite classes (oligarchs, political, bureaucrats, etc.) continuing to flame present day neo-fascist fires without profound repercussion. Why? Because the ranks of the disenfranchised are growing and have attained critical mass - and they are mad as hell and not going to take it anymore.
Framing the answer to the 'larger question' in this regard, we consider: is the supposedly benevolent dictator Donald Trump the answer - A man who shoots from the hip in haphazard fashion? Or is liar Hillary the answer, sure to swing back to the center (status quo) the minute she's elected? In my mind, the answer to this question is found in the realization, in order to match the will of the people, Trumps nationalistic approach will prevail. In this regard, and at a higher level, we must remember that although clouded by failing efforts of an embedded status quo to maintain power (think oligarchs, political, bureaucrats), the global decentralization process will continue to accelerate as economies implode, which will eventually be reflected in the markets - not the least of which that will be effected - is the dollar($) (as it implodes).
And the employment numbers last Friday are testament to this realization. It's important to realize these numbers, like many of the others, are manufactured - estimates to put it politely. As suspected last week, they came out weak because the currency war continues to heat up as economies implode, where a country's stock market fortunes now appear to be almost completely dependent on which way this wind blows with earnings crashing. This is why Trump is talking building, infrastructure, and good paying jobs for Americans - because this is quasi-QE for the people under the guise of fiscal policy (that will be funded by borrowing copious amounts of new fiat currency into existence) - because he knows just how precarious the US fiscal situation really is, where if the $ crashes, a complete reorganization of the country's finances and economy would be necessary.
So the economy is not quite as rosy as Warren Buffet and his buddies would have you believe - not by a long shot. Because America is no longer a ripe piece of fruit to be plucked as Hillary would have you believe - again - not by a long shot. This is why Goldman is now scrambling for new clients (suckers) to exploit, because the existing ranks are realizing they are being played - and it's getting expensive. What's more, this sentiment is also evident in insider (smart money) selling; now hitting all time records. And again, this is not good with central planners trapped in a box at the zero-bound, where status quo seekers are beginning to realize there's no way out (which will add to the volatility when it finally arrives), because it's the debt stupid. This is why a substantial break higher in the below relationship is so important. (See Figure 1)
In terms of when it has officially hit the fan, with silver the status quo's whipping boy, and bonds the opposite, one should consider a lasting break above the 'swing line' in the above a clear 'warning shot' it's about to fly, and then the 233-month exponential moving average (EMA), confirmation it's airborne. Because silver is America's most manipulated (and hated) commodity evidenced in the avarice the banking cabal exercises in keeping its price suppressed. Therein, they put out a huge miss in the employment numbers Friday, but silver is sold down aggressively on Comex so that the signal described above is not triggered causing traders to dump Treasuries. Of course the big problem these bozos have is the demand for physical silver is at record highs, and bonds (precious metals) need to be repriced, so it's only a matter of time. (See Figure 2)
What's more, as you can see above, it's not just bonds that need to be repriced against precious metals, but stocks too, where as far as the broad market against precious metal stocks is concerned, it's happening in spades, in what appears to be a b-line for the Dow / XAU Ratio heading towards the 'trend definer', far below current levels. If you look at the metals against stocks however, with especial attention to silver because of its systemic importance, pictured in another monthly plot below, there a potentially incredible adjustment that could occur, taking silver prices substantially higher (remember my target is $400), and stocks lower. Again, once the Silver / SPX Ratio plows through the 'swing line', it won't take much to send it through all the other important moving averages because of the suppression. (See Figure 3)
Again, the reason precious metal stock strength is so relentless, is not only are ETF speculators looking at the Comex situation (gold and silver COTS), with paper speculators at recent record long levels, but now with precious metal stocks so stretched to the upside, the ETF speculators have yet another reason to be cautious on the group, which in today's world means increased hedging. As you may remember from previous discussions on this subject, with the advent of ETF's, directional speculators now have the ability to easily hedge positions as opposed to actually selling, which is passé now, which is why open interest put / call ratios are rising (see here), in turn fueling the perpetual short squeeze in the group, just like in the broad markets all these years.
So this is why we can't get a half-decent correction going in precious metal shares to date, and this will likely remain the case until a legitimate fundamental reason not to own precious metals rolls around, which would see the hedging, naked put buying, and shorting subside. You will remember from previous discussion we don't necessarily want to see strength in precious metal shares this month from a Fibonacci count perspective, or at least it would be best to see a significant low, so it will be interesting to observe how trade in May turns out. If last month's highs are not exceeded this month, with 'high level' consolidations, precious metal shares could literally explode higher into November, the symmetrically opposed pivot month to May.
Further to this, it should be pointed out that if open interest put / call ratios on the bullion ETF'S (GLD, UGL, SLV, AGQ) were ever to get above unity like GDX (or depressed as DUST), well, that could actually cause the daunted Commercial Signal Failure bandied about by gold market commentators, which would be ironic from the perspective status quo analysts do their damdest to ignore my work because I own the ETF space. Most, think the market is completely unpredictable, which is part of the reason my ETF sentiment work is not widely followed. This is of course fine with me, because if it were the other way around, it would not work if large numbers of speculators were acting on the signals. On this basis then, while others may attempt to take credit for identifying the Commercial Signal Failure afterwards, we are before.
Again then, you should realize with Comex gold and silver open interest skyrocketing, and the situation in the ETF's becoming increasingly explosive, all we need is a spark now to make it so uncomfortable for the bullion banks (who are short) they see no alternative but covering (in spite of Fed backing), and voila, we have Commercial Signal Failure, and metals prices significantly higher. It should be realized present circumstances, with ETF's new to the party, have never happened before, which is why the bullion banks (Commercials) could get caught this time - unawares. And it's also why unaware analysts might get caught flat-footed too - looking for a crash, hedging positions, and naked shorting in the precious metals space. Personally I am very excited about this prospect, and am adding to positions on pullbacks.
In this regard then, the bullion banks have put themselves in an 'all or nothing' situation, because if precious metals start rising uncontrollably, not only will they lose large sums on their shorts, but as you can see above, both stocks and bonds could swoon as well, creating a banquet of consequences, not the least of which being another banking crisis. Exactly what sparks such an episode is naturally not known at this time, however if the dominos keep falling - bond market pressure, volatility in stocks, political stress (Brexit?), war - again - nobody knows - and it probably won't be just one thing. It could be something(s) currently not on our radar screens, where again, the accelerating global decentralization process is increasingly forcing unexpected / unwanted change in formerly perceived stable situations. The trends towards nationalism and alternative parties / candidates all over the world is testament to this fact.
Something will snap at some point as the pressure continues to build. And this time around, because market controllers think they are not subject to such pressures and have taken their eye off the ball - they could finally get caught - it's possible due to the reasoning and circumstances outlined above. And even if such an outcome (Commercial Signal Failure) fails to appear, still, in terms of what a good speculator should do right now, the answer is the same given the situation in the ETF's - buy the dips.