February 2 is Groundhog Day. The question is, with this sell off in the markets will consumers see their debt shadows and go back into hibernation. As the stimulus has started to dry up, economic numbers are already starting to weaken. The question brings to mind the Bill Murray movie of the same name.
Like Murray we re live our capitalistic existence over and over again without examining how it is working. We don't see the strangle hold the banks have on the government or the people. We don't see that the multi levels of government have grown so large from a base of inflation that now they can't survive without exponential increases. The people are starting to demand fiscal responsibility, why now? It seems a little late. Could it be because they are not getting their cut anymore? Everyone was happy on the "handcart to hell" when they were getting a piece of the action. Eventually the govt will figure out the real reason the electorate is balking and grease them, not with fiscal responsibility but with extravagance.
When we wake up tomorrow nothing will have changed, inflation is a banker's golden goose and the bankers have us right where they want us, by the throat. Remember, every loan is an asset, and every one of those assets was created out of thin air. Yes, the banks lend something that does not exist until they say it does and they trade that nothing for a promise to pay, backed by a real asset such as a house or a car. If they don't get paid their interest and principal they repossess. They essentially get a free house or car which they can resell, rent or refinance. It's a sweet deal but they need inflation to keep the game going and asset prices high.
Governments need the same scam to keep the herd calm, they don't want anyone looking behind the curtain, questioning the pension system or wondering how they can ever pay back 100 trillion dollars of debt. Hell they don't even want anyone asking how much is a trillion. The time for fiscal responsibility is long gone, now it is a time to inflate or die.
In the movie "groundhog day" Murray learns from his futile, reckless actions and changes for the better. Looking into the vacuous, dull eyes of Bernanke I see a front man, a stooge, no hope for redemption there.
US$... The world is starting to realize that they are in as bad shape as the U.S.A. Britain has more debt per capita. Half of the European Union is bankrupt. China has put too much soap in their bubble blower and has to shut it down. Does China want a powerful middle class and a capitalist system or are they simply abiding these things while they accumulate world resources, wealth and military power. The dollar is rallying from a 1.5 year cycle low which is dominated by a larger 3 year cycle, plus it always rallies at the end of the year as multi national repatriate their yearly profits. See my cyclical study of the dollar, nothing has changed. We are nearing my target set in early December.
SPY... the banks made huge profits from this rally while the public stood slack jawed, mouths agape, many missing the whole thing. No one is questioning who the banks bought their stock from at the bottom, once they knew the fix was in. I mean, who got screwed? Now the talk of a crash is back. I think this drop is designed to shake off the hedgies, not panic the herd. The hedge funds finally figured out what was going on and have been taking advantage of Goldman's (as agents for the govt) largess, as they levitated the market into year end. The treasury knows asset prices have to be supported or the recovery is toast. We were long most of the year exiting the last of our longs at 113ish... we remain in cash for now...I expect a bounce to begin in the next few days which aggressive traders can take but it will only last a week or so..I suggest you review my article on the cyclical status of the indexes, notice my target, set last October was hit.
XIU...The Canadian market has under performed since June but we have to remember that it moved up off the lows faster as well. The bottom will come when the American lows are made. I look for a short bounce here as well.
GLD...this sell off is a chance to join the trend at much better prices. The world governments are going to have to print a ton of new money just to keep our heads above water. The system is distorted and dysfunctional and given an opportunity it will collapse. So far they have not printed nearly enough. Right now it is only easy money for the elite, they will eventually realize that is not working and the only way out is to go back to easy money for all. Then we blow the roof off the metals. A rising dollar is not necessarily bad for the price of gold but short term it is a negative also we have to keep the commitment of traders positions in mind for although the fat boys have covered 50k contracts of their short position they remain very short (see chart in my blog )… we need to hold around here and get a rally from these levels..I will look to enter this week..please review my cyclical analysis of gold it is still valid.
SLV..what I said about gold applies to silver as well. What I didn't say about gold I will say here. There is talk about the possibility of another big drop in the metals like we had last year. It is a possibility, the chart is ugly and silver has been tracking the stock indexes but usually the same thing doesn't happen twice in a row in the market, there are too many people waiting to take advantage of it. The surprise will be on the upside. We bought at 15.85 and have a stop at 15.69...precious metals usually make their highs in February to March, they still owe us a new high. The metals need to snap back sharply here.
GDX...it is panic selling since we got out of our last gold and silver trades a couple of weeks ago. The gdx chart looks ugly as well and it seems that a repeat of 2008 is in the cards. People are making sure they do not get caught again, look at the volume. A phoenix here will catch everyone by surprise.
To sum up, unless the govt wants to waste all the benefits that last years stock market miracle has delivered then this shake out will be over quickly, before consumers pull back into their holes for another 6 months of sitting on their wallets. The one worry is the banks have unloaded a lot of the stock they bought last winter, now we will find out if the ramp up was for the elite or the masses. They don't seem ready to lend to the peons yet, maybe they plan to make volatility and stock manipulation their main source of income. With four more years of Bernanke, it looks likes our alarm clocks will be flashing 6:00 am, Feb 2 for quite a while.
