The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, February 20, 2017.
As Dr. Steve Pieczenik (former CIA) explains in this brilliant clip, the larger US bureaucracy, deep state, and shadow government, the centralized 'super-state' that conquered the not just America, but the world, are essentially dying. The consequences of all the corruption, fraud, and excesses are coming home to roost, where significant change is coming Trump or no Trump, as will become evident as the global decentralization process accelerates in years to come. Thing is though, these people in the bureaucracy like their overpaid jobs and privilege, where they will not go quietly. This is what you are seeing right now as Trump attempts to 'drain the swamp' – the treason, backstabbing, and betrayal – where the daily antics in Washington these days are beginning to resemble a bad episode of The Gong Show, not the management of a country.
But you've got to take your hat off to Trump with all the abuse he's been taking; even if his real compulsions are more ego exercise oriented than anything else. Who else does 'the little guy' (public) – have fighting for them however? And for this, they love him. Unfortunately, in the end, even if Trump is somewhat successful, the party won't last long, not with the inflation signals Trumponomics has been triggering, yet to be reflected in an economy still very sick under the hood. Trump would of course argue 'it's too early to see the benefits', and this is true. These are not normal times however, where if the economy does improve, and an 'inflationary tone' does return, because America, and the world, are now so heavily over-indebted, all such benefits would be eclipsed by the insolvencies as interest rates would need to continue rising.
To help things along in this regard, we have Janet Yellen, evidenced in her Humphrey-Hawkins testimony last week, where she stated although rate hikes will be gradual, they may come sooner rather than later. So if inflation keeps picking up, which has been the case, and she doesn't pull the trigger in March, the inflation trade, which includes just about anything not nailed down these days (and includes both stocks and precious metals), should benefit further. (i.e. as perception moves away from visions of stagflation towards accelerating inflation.) This could be the impetus that takes the S&P 500 (SPX) to the 2450 target (long-tem channel bottom) we have been discussing for some time. Traders should pretty much be out of their minds by then, likely sporting huge 'hedging losses', all in what will seem like 'light speed' at the time.
If she does tighten however, with the economy collapsing due to it's own weight (debt), increasingly stressed out, paralyzed, and exhausted traders could change things quickly – manifesting some degree of collapse in stocks. As you will read below in attachments, stocks have been rising because of the 'perpetual short squeeze', discussed on these pages many times previously. If you've been with us for some time then, one would know this situation will end abruptly at some point once indebted traders become exhausted (or broke) and are forced to leave the game. You will see big increases in suicide rates amongst traders (later this year?) once stocks begin to fall in earnest, leaving these ruined gamblers behind. It's too bad. I have always stated not to short the stock market blindly; unaware of what the consensus is doing. There is of course good reason for this – so you don't get caught up in a manic move (squeeze) like the one we are in right now – like this guy.
Going the other way, what this means is once stocks actually start falling for real, disoriented traders will not believe it, where if they begin to act on such a belief, would mean open interest put / call ratios could fall with prices, which is of course 'the dynamic' that brought about both crashes in 2000 and 2007. Suspension of disbelief in perpetually rising prices can be a 'real bitch' once prices start falling impulsively with traders turned on their heads. This is just the opposite of what they are attempting to do right now, which is to pick the top, evidenced by rising key ETF / index open interest put / call ratios (see here), where you have traders attempting to 'buy the dips' on a sustained basis evidenced in falling open interest put / call ratios (with prices), offering little for the machines to grab onto to squeeze.
So if you think hedge funds did poorly last year, just wait until Christmas this year. Many casualties will abound by then in all likelihood, as most are completely unprepared for what is coming. The good news associated with this will of course far less money would be available for the funds to play in COMEX gold and silver, which, when combined with the money printing that will undoubtedly be coming (as a result of panicking central bankers), should set the bottom(s) for precious metals either later this year, or early next. (i.e. to complete the larger degree a – b – c corrective affair that began in 2011 – see below.) And who knows, maybe COMEX will even be unseated as global price setter for precious metals, which would play havoc in all other US (Western) markets as a result. (i.e. due to out of control rising prices.)
Initially the charts indicate precious metals should suffer with deteriorating general liquidity conditions (see gold chart below), where it's expected the dollar($) should rise as global debtors must buy in order to deleverage (think synthetic $ squeeze). Once this buying is complete however, accelerating decentralization trends will take over concerning the $'s fate, which should see it literally crash at some point once people begin to realize just how badly the American economy has been hollowed out by the bankers and bureaucrats. All the infrastructure spending in the world will not change this reality set against the deflationary forces that will grip macro-conditions once the impending deluge of debt related insolvencies begin to accelerate in the years to come. Trump is selling the idea America can have its cake (the debt binge of the last forty plus years) and eat it too, however such belief is fallacy. (See Figure 1)
What's more, while Trump will do his thing over the next four years, and this will have some impact on the economy (although it may not be measurable set against aggregate losses), decentralization, by definition, is in aggregate an ultimately contractionary process in terms of raw numbers, even though more people should be working. So it's important to understand what happens after the present global bubble economy is popped. It won't be replaced by another bubble blowing experiment – meaning although economies will be stabilized, they will be smaller. So while trump will fill the Fed with doves, thinking he can engineer a bubble blowing experiment for 'the people' (as opposed to just the oligarchs), because of rising market (interest) rates outside of central control, hinged off rising inflation expectations, such folly will not last long.
That's all for today folks. If you want to see the rest of the charts, observations, and conclusions that go along with them from this commentary, please visit our site at treasurechests.info and subscribe.
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