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Easy Money

The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, July 18, 2016.


Any Rodney Dangerfield fans in the crowd? Certainly couldn't blame you, as he was hilarious. He was king of the one-liners, with the "I don't get no respect" routines perhaps his best-known repartee. But his genius didn't end there. For our purposes today, I would like to borrow another of his famous catch phrases from the movie Easy Money, that being "it's not easy bein me". In this case however, the punch line is not so funny - not funny at all. Because it's becoming increasingly difficult just to survive in this crazy world today with all the psychopaths running around attempting to exploit anything and everything that moves, where all to often these are the people 'in charge'.

Depending on your viewpoint, meaning whether or not you are seated in the 'status quo' or not, this can obviously mean many different things. Even psychopath central planners and bankers can defend their crony antics using this premise, 'it's not easy bein me' when justifying all the money printing, where in fact just the opposite is true. They would have you think the 'easy money' Ponzi finance binge they now have us on is 'necessary', or the (bubble) economy(s) would implode. And this is why you should expect more any day now. And that it will be more after that - and increasing - whatever it takes to stimulate our still sluggish economies.

This is of course why it's so funny when central bankers talk about how strong the economy is, and they need to tighten monetary conditions, because in the words of Max Keiser, "you can't taper a Ponzi scheme". And we are in the terminal stages of biggest Ponzi scheme in history, better known as the Federal Reserve, where 'it's been easy bein me'. Because although they make it appear they are hard at work 'managing the economy', all they really do is print 'easy money', fiat money, out of thin air every day, paying themselves, their owners, and their buddies first, leaving the crumbs for the rubes - you and me.

So next time you here a Fed official talk about 'policy change', and the various tools they can unleash to 'stimulate the economy', don't be confused about what they are doing. They are not working hard managing the economy. In fact, they are attempting to hide the ruse they are running, their crony club economics, the money printing scam that is structured to help themselves at the public's expense. Because they have no respect for the public, you should not only know that, and be actively working to end this hoax as soon as possible.

Of course now that things have matured to this ruinous juncture, perhaps the best thing to do is remain 'passive aggressive', because it's been going on for over 100-years now - so it can't possibly last much longer - right? Looking at how most people think and behave in response to present circumstances is mind numbing, where most just want more cake, and go to Elysium with all the other ne'er do wells exploiting the system. Unfortunately, what people seem to forget when the 'free money' is being handed out is there's 'no free lunch' in this world. But reading Von Mises is a real party pooper when your trying to get a good buzz on in hedonistic euphoria. (i.e. when most people should just be concerned about surviving what is coming.)

So now that we have QE, ZIRP, and NIRP in place, again, don't be surprised if new and more radical easy money schemes show up, with Helicopter money apparently next on the agenda. We have of course been on this page for some time now evidenced in my initial sounding on this subject matter (A Check In Every Mailbox) back in 2012. It's either that or the status quo will be ousted this fall by an increasing angry mob - which will happen anyway. This is why stocks have been so strong. Because the status quo wants to maintain the status quo, and the only way that's going to happen is to show the people how wonderful life is being the status quo - living the dream - as it were. As asserted last week, this is why the S&P 500 (SPX) is heading to 2200 minimum, maybe higher. (See Figure 1)

Figure 1
SPX:VIX Monthly Chart

Technical Note: Apparently I stand corrected, as Da Boyz pushed the CBOE Volatility Index (VIX) down into the close, providing the net effect of a close in the SPX / VIX Ratio right on the first rail of the sinusoidal fan. What does this tell you? Is it they want stocks strong going into the DNC convention next week? The answer to this question is yes, but explanation doesn't end there. Technically, I would not be a big seller of stocks until RSI in the above gets to sine resistance too. This would place the SPX / VIX Ratio at the top sine rail eventually, and the nominal SPX above 2200 in all likelihood. The VIX is on its way to 10, maybe as early as month end.

The most important chart to watch in this regard is the risk adjusted SPX chart above, where topping action is destined to set in with a monthly close within the sinusoidal fan. It was touching the fan on Friday when the VIX was plumbing the lows, however the pressure could not be maintained. (See Technical Note above.) That should change at some point however with all the money printing alluded to above, signaled by the poor weekly performance in US credit markets into Friday, where in spite of afternoon weakness stocks, the bond selling remained unaffected. And again, also alluded to last week, ultimately this is what will be a boon for precious metals as well, however before this occurs, in the initial stages of rising rates, it wouldn't be surprising to see precious metals, led by the shares, to give back some gains. (See Figure 2)

Figure 2
XAU Monthly Chart

Again, this has been the strongest impulse for precious metal shares in history, so it would be best from a 'rally longevity perspective' to see a correction sooner rather than later. Because if it's the latter, the longer the present impulse runs uncorrected, logic would suggest the eventual downturn would be worse, not that logic applies here. (i.e. the markets are largely controlled by the impulses of large speculators [hedge, mutual, and pension funds] these days.) In this regard, we do have the observation traders remain cautious (see here), so who knows, maybe we do go higher as short sellers / hedgers are forced to cover. All that money printing and bond market liquidity must go somewhere in these unprecedented times, where it won't take much to send still tiny precious metal markets much higher. (See Figure 3)

Figure 3
Gold:USB Monthly Chart

The thing that's scary about a continued rally at this point, is the parallels to 1987 this could create. What if precious metal shares rally into the beginning of September, like in '87? If we see a top in stocks in August, like in '87, the set-up will be there because try as they may, the status quo's price managers might not be able to keep it up into November, even with helicopter money. Why? Again, because of the bond market. Now we know why bonds were weak Friday in spite of equity sluggishness. It was because of speculation associated with the release of the missing 9/11 pages that the Saudi's threatened to sell its US assets ($75 billion) if released. Between this, and the helicopter money threat, this weakness in bonds could persist, continuing to fuel stocks and commodities now, until all things equity break again in fall.

Thing is, this too is what happened in '87, right into October until the equity complex (including precious metal shares) began to cave in. So this is the risk if the status quo can't 'keep it together' in order to get Hillary elected. They must keep bonds up or it's going to be an interesting fall - literally - providing Trump with a 'shoe in'. This is all speculation of course, but some degree of the above scenario could transpire if the equity complex doesn't start to correct pronto - like this week. What's worse for precious metal shares is the monthly Fibonacci count if they keep rising into August. That would be 8-months, a Fibonacci number, giving rise to the possibility (probability?) of a seasonal inversion, with September normally the strongest month of the year.

If precious metal share speculators embrace the seasonal pattern this year in positive fashion this year, by lifting hedges, this is a very possible outcome. So again, if precious metals are able to power higher this week in spite of the extended (ETF and shares) option cycle, Huston, we could have a problem that might take some time to remedy, bringing in the possibility of sharp corrections in the shares, and metals, as paper precious metal speculations on Comex must be unwound. You will remember, we are at records here too. (See gold and silver COT charts) Of course we have the GOP convention this week that should put Trump on the road to the White House, which speculators may need to discount now. (Apologies, I had the two reversed, with the DNC convention next week.)

So higher highs in the short term may still be in order due to this as traders feel the need to buy more paper gold. This makes the post options expiry analysis on Wednesday important from the perspective a supportive sentiment backdrop would be a must for a continuation in the precious metal share rally. True this is not a crucial factor right now, but next month it will matter when all the political theatre is past. Just how much it matters will depend on how much money printing is initiated of course where, as one can see over the past few weeks, just the concept of an accelerating currency wars (debasement wars) was enough to thwart a non-supportive sentiment backdrop in the broads. Again, the bond market is key in signaling potentials here, and must be watched closely now.

Good investing is possible in precious metals.


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