The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, August 1, 2016.
You may not know this, or simply prefer to ignore the reality, but America, as you know, is changing rapidly – morphing into a 'banana republic' before your very eyes. No? Well let's take a look at the definition of the term and see if it applies. According to Wikipedia, a banana republic "typically has stratified social classes, including a large, impoverished working class and a ruling plutocracy of business, political, and military elites. " This politico-economic oligarchy controls the primary-sector productions to exploit the country's economy." Most American's know something is wrong in this respect, which is why increasing numbers now say the country's on the wrong track, and the pace of radical change is accelerating.
Does America have 'stratified social classes'? Both by location and wealth (net worth and income), the answer to this question is of course 'yes'. What's more, the 'class gaps' are widening at an accelerating rate. If one is of the working class, the proletariat, you cannot borrow or create money / capital at little to no cost like the 'parasite classes' (corporates, bankers, etc.), our modern day plutocracy, and without access to this 'free capital', the working classes are quickly being transformed into slave labor. So you see the politico-economic oligarchy controls the primary sector production of the free money, which is America's chief product and export, meaning they are in fact monopolistically exploiting the economy at the expense of the working classes.
So again, and by definition, America is in fact being transformed into a full blown banana republic right now, and at a rapid pace to boot. And this is happening in spite of growing resistance from the disenfranchised classes, which have yet to have any meaningful impact on slowing down the parasite classes. This will change however, and this change will happen fast once it visibly arrives as well. At least that's the way it will appear to those who are happy to ignore what's happening right now, where all the warning signs (it's war) are there, like Venezuela, expect some rendition of Animal Farm in your neighborhood soon as well. Westerners are the best at distraction and reality avoidance with all the technology available to facilitate such folly, however at some point reality will rear its ugly head no matter, and a price for this arrogance will be paid.
Michael Hudson is on to something in reducing the class war down to how the approaching election turns out, however this is view is too simple. In his view, it's neocon neoliberalism vs. Trump's rightious populism. Of course Trump is not as naïve as Hudson would have you believe, where there's a big difference between talking about the dissolution of NATO for political shock value, and another to invite assassination by actually following through with such talk. Because if Obama has taught us anything, once the election is over, following through on election promises is optional. So don't expect The Donald to start World War III (WWIII) all by himself, which is what democrats (who are today's quintessential war mongering neocons) would like you to believe.
WWIII is probable simply due to the increased competition for survival that is coming back into view – the laws of the jungle if you will – which I pointed out earlier this year – coming into view for the masses now.
So by the same token then, don't expect The Donald to actually give a shit about the poor either. I hope I'm wrong, and he actually follows through on some of his rambling, however it's amazing how fast reality hits these guys in the face once they are actually in office. If an increased police state / stronger military / and all the other promises are to be kept by Trump, where is all the money to come from? The answer is of course the printing presses, which is likely why Treasuries are becoming increasingly unsettled. This is the factor that could trump Trump you see, because he won't be able to follow through on any of his election promises if the bond market caves in. Welcome to the Jungle Donald.
And for everybody else – Welcome to The Banana Republic of America – coming to your town soon. Make no mistake about it – no matter who wins in November it won't matter for the economy, because something is going to prick the debt / equity bubbles at some point in the not too distant future, even if process takes us out a few more years. Word is, in spite of the 'everything is just fine' picture the feds are painting to get their girl into the White House, retail sales are crashing again like its 2008, not just in the States, but across the West. (i.e. understandable with Brexit.) This is of course what happens when you hollow out the working classes. It's difficult maintaining the illusion on minimum wages. Since 2009 the difference has been made up with credit, however this game is coming to an end with consumer's credit cards now maxed out.
This is of course why the calls for helicopter money are on the rise, because the parasite classes are very aware of the situation, so they know something must be done soon or risk implosion. The financialized economy is like a drug addict that needs increasing amounts of free money or its dependence is exposed. (i.e. The Emperor Has No Clothes.) This is of course not news for those who follow the folly that has become the complex game theory that is now how the economy is managed. The thing that will be 'news' however, is the price inflation such monetary inflation will create. This will be a big surprise to a great many people as the money multipliers crank up again, with a crazed population finally able to spend some of that mysterious money they have only heard about up until now. (See Figure 1)
And spend it they will – every last penny. Because hey – it's free. That's why unlike QE for the bankers, they will not be able to sterilize QE for the people, which will play hard on the sovereign bond market. This is why the Gold to US 30-Year Treasury Bond Ratio is set to take off anytime now. What's more, if US price managers continue support bond prices to the extent losses are tame, this should do nothing but fuel gold (all precious metals) even more, as the hyperinflation helicopter money will create must be discounted in the markets is some way. This is banana republic economics 101 – just look at Venezuela. It should be understood this why the bid remains in precious metals in spite of their overbought condition. Speculators see what's coming and are front running the lunacy that is about to be unleashed on the public as the status quo attempts to maintain their position. (See Figure 2)
But again, as per above, perhaps the markets are watching Trump pull ahead in the polls too, which in and of itself is sufficient to scare the bejesus out of inflation watchers, because just the infrastructure spending he's planning is estimated to add some $10 Trillion to the national debt over the next ten years, for a 50% increase. This kind of talk (and other reasons) is changing people's minds on gold (and silver – seen below), where it's increasingly beginning to look like the 'metal of kings' is just testing the break above Fibonacci resonance resistance (see above) at $1300 before accelerating higher. Like silver, pictured below, once important Fibonacci resonance resistance at $1300 is taken out (which is $21-plus for the white metal), resurgence to all time highs is likely not far behind, explaining the meteoric rise in the more liquid precious metal shares. (See Figure 3)
On this token then, if Hillary pulls ahead in the polls again (it's already happened), which is sure to happen given mainstream media's (MSM's) love affair with whoever best represents their interests (Hillary), don't be surprised if precious metals pullback at some point, given it's beginning to look like such a time may not arrive just yet. (i.e. meaning a seasonal inversion [down in September] is looking increasing likely.) Of course appearances can be deceiving, so please try to look at the 'big picture' whenever a real correction does hit the sector. The momo boys are going to hit the wall at some point, and when they do, the correction will come fast and furious. If not before, it might come with the a hit in the broads because the dollar($) will rally when that happens. Here too however, exactly when this is going to happen is anybody's guess. One thing is for sure though – I sure as hell wouldn't short stocks until I know the 'Hillary situation' is fully discounted. (See Figure 4)
What does that mean? It means stocks will not be allowed to fall by the feds (especially the Fed) until either Hillary gets in, or it becomes certain she's not. If stocks are to fall in October this year (like in '87) it will have to be the latter scenario obviously, but one should not tie their wagon to any scenario in terms of looking for a top in stocks until RSI on the monthly S&P 500 (SPX) / CBOE Volatility Index (VIX) Ratio (see above) is hitting upper sinusoidal resistance at approximately 70. And then after that, short sellers have hyperinflation worries of course, which is why I recommend not shorting anything ever until the bond market sells off a great deal. (i.e. using up all that liquidity.) Until then, you want to do one thing and one thing only – get long inflation – with precious metals at the top of the list.
Speaking of lists, and getting long inflation, the CRB has likely pulled back to start looking at commodity based opportunities for those so inclined. We will not be doing so offiicially here with a stock selection page because of the risks involved, however, this should not stop those so inclined if they just got to have some energy or base metals exposure. And certainly with helicopter money likely on the way, I don't doubt higher prices across the board are on the way. The thing that holds me back is the realization helicopter money might not be unleashed until after / or during a macro crash, so prices could still fall much further. This is why I would prefer to see helicopter money arrive in Japan and China before making any brash moves, especially with prospects in precious metals so good at present.
Because even if we are close to a short-term top in precious metals, which as alluded to above may not be the case if a seasonal inversion is in the cards, any pullbacks will be looked at as 'non-events' in the big scheme of things years from now. The test will be this week. If the Gold Bugs Index (HUI) can get through the 'inverse head and shoulders pattern' target of 280 on a weekly closing basis, then a run to as high as 400 becomes possible once the large round number at 300 is taken out. (i.e. think Progressive Interval System [PI].) Thing is, this doesn't mean the impending correction afterwards wouldn't take prices back down below 250 again anyway, however the point is, with monetary conditions the way they are, and again, prospects so good for the sector long-term, precious metals are still the only way to go right now considering the risks in other sectors.
So although it appears precious metals are to continue higher into August, creating the set-up for a 'seasonal inversion', taking them back down in September, based on the count, failure at or before 350 HUI is a more likely target, however again, anything is possible once 300 is taken out. I wished I had better news for those looking for a pullback, however the news continues to support the momo players in the crowd, and these guys are crazy (think hedge funds), so a top will not be put in place until they are completely exhausted. The good news associated with the situation is most of our stocks in the Precious Metals Portfolio are way up, with the majority of our selections tacking on anywhere from 200 to 600%. Even the ones that continue to sleep because gold and silver prices are not high enough to garner serious interest are looking better here.
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