The following is commentary that originally appeared at treasurechests.info for the benefit of subscribers on Tuesday, December 6th, 2011. Click any chart to enlarge in a new window.
Orwell would be amazed – disgusted and amazed – things have gotten so out of control in the West today. Because increasingly, for the average citizen, it’s like chapter and verse from his classic Animal Farm, once used as a standard in all classrooms to teach children of the horrors associated with communism, the ‘demon of the day’, used by still maturing Western bureaucracies all those years ago. But alas, throughout the years something has gone terribly wrong, the lessons forgotten, the teachings replaced with ideals of why dictatorial conformity is good, and why you should think like a barnyard animal. That’s the way our self-serving bureaucrats, politicians, and top level bankers (the pigs and dogs) would have you think and act today, like a dumbed-down barnyard animal, still operating under the belief America is the land of the free, and that you are not simply viewed as a resource by the oligarchs.
But if one were to count it, this author would estimate we at a minimum approaching Chapter VII within the storyline now, a point where the way it was in the past is increasingly forgotten, life continues to get harder for the masses, and Napoleon’s dogs suppress objections by any disgruntled animals. As with eventualities in all such embroils however, the politics of man dictates that the numbers of disgruntled animals will continue to grow until the mob becomes uncontrollable, and revolution will take hold once again. We are not there yet however, not even close by the important measures, which are led by the need for an honest money regime. This is of course the ultimate measure of a truly free society. But again, if history is a good guide we are likely far from such a place today, where the seeds of revolution are still being sown.
Of course everything is faster today in our technologically advanced society, so along these lines it might not take so long to get where we are going in this regard. What’s more, and in referencing the above need for honest money to facilitate such a transition, one should then expect an increasingly rapid change in this respect as well, where it doesn’t take a visionary to see our dishonest and fraudulent fiat currency / debt based economy is ready to blow. Yes, this transition might just be more radical than most people think (those few tuned into such dry thinking), where I will put forth the prognostication that if MF Global clients are not made whole in the end (causing an accelerating loss of confidence in the system), election year or not next year, 2012 (perhaps the Mayans were right) will mark a very important turning point in human interaction – potentially the top of the Z-Wave. (i.e. never mind this just being an X-Wave top, which we already know is in motion.)
So the stakes are high – and everybody should be paying attention because the implications of such rapid and radical change would be profound. As alluded to above however, next year is a Presidential election year in the US and you can bet your bottom dollar($) the feds will be printing money of all varieties to boost the economy(s). This past week’s coordinated central bank announcement is just the beginning of what you can expect to see moving into next year in this regard. At a minimum we still have Quantitative Easing (QE) both here and across the pond, IMF ‘Special Drawing Rights’ injections, and all those reserves sitting on US bank balance sheets to consider. So, by the first quarter liquidity spigots should be flowing full throttle, where everything from IMF funding and the resulting foreign bailouts to the M’s at home should be reflecting such a reality.
Does this mean volatility should disappear in the equity markets moving forward? Although inflation should be the name of the game next year, again, and as evidenced by the profound statement in this regard made by the world’s leading central banks last week, we still have continuing solvency concerns in both the corporate and sovereign spheres that will not go away, along with investor sentiment extremes to consider. So although next year should offer a relatively smooth ride for equity investors in relation to what they experienced this year, by no means does this mean investors should remove the word volatility from their vocabularies. There are growing mountains of unsustainable debt on every level (personal, corporate, and government) that the markets will need to deal with at some point, although right now it appears this will have to wait until after November of next year given election year proclivities. (i.e. cracks in the system should reappear no later than the first quarter of 2013 when money supply growth rates traditionally slow post the election.)
And although I will not comment on sentiment related considerations in this regard here today, you can be sure this factor alone will bring volatility at some point(s) over the next 12 months, so those that know what to watch for (divergences) should factor such considerations into their trading activities. Overtrading would of course be a mistake given the balance of the year should prove bullish for equities (and especially precious metal shares) once they get rolling, however with the house of cards our meddling and corrupt oligarchs have created in the financial markets, risk tolerance considerations should be ever-present on your mind. Because again, as per the attached study directly above, once the Amex Gold Bugs Index (HUI) vexes the Fibonacci signatured target at 1,050, it will likely have a 50 % correction again, just like it has done consistently since the beginning of the bull all those years ago now.
Ignoring seasonal tendencies for next year now then (in fact it would be bullish for next year if seasonals are ignored now), if the European’s finally put a coordinated plan (involving sufficient money printing) together this week (involving the ECB, Fed, and IMF), then precious metals should take off not long after, with the shares in the lead if the charts below hold any predictive power. In this regard, and in referencing Figure 1, as you can see the Dow / Gold Ratio is at an important time-line turn right now that should lead to relative buoyancy in the broad stock market. Such an outcome would of course create more liquid conditions for all shares groups, which historically has been what precious metal shares have needed to make a staged progression to a higher level. (See Figure 1)
Figure 1
In reference to the XAU to Gold Ratio, pictured in Figure 2, one can see the potential in precious metals stocks against the metals is still very attractive right now in being at a likely double bottom, with plenty of upside obviously in the cards. One would need to be blind not to see the move that is likely coming if based on this observation. All you need to do is look at the charts, invest, and wait to get paid in my opinion. Precious metals and their related equities are still a slow motion lottery ticket today if this is true, especially with reference to silver and some of the better-positioned juniors. So make sure you are positioned now. (See Figure 2)
Figure 2
Just look at silver set against the S&P 500 (SPX) in the monthly plot below. If this chart is not screaming buy to you it’s time for an eye test, where the majority of the larger move is still in front of us. Silver is still a potential ten-bagger. Eventually the liquidity from the stocks will flow into silver once escalating inflation becomes so obvious authorities will not be able to hide it anymore, sending the hoards into what will soon be an unparalleled tight market. So again, get positioned ahead of the hoards that are sure to flood into this market once prices begin to rise in earnest. (See Figure 3)
Figure 3
And make no mistake about it, this process could accelerate anytime once the stars are aligned, where as per above, sufficient money printing should soon be in place, along the desire to flee the bureaucracy’s corrupt and fraudulent markets. In this regard Jon Corzine is scheduled to appear before congress this Thursday on the MF Global debacle. And again, I will make the prognostication that if nothing more comes of the fraud he perpetuated in plain sight of the public, that same public (not just those burned in MF Global) will hasten the pace at which they exit our securities based financial markets in favor of tangible assets (making future fraud far less likely), not to mention foreigners will have a much changed view of ‘safety’ in the US. This Corzine thingy is a lot more important than most realize.
This would accelerate the larger process considerably in my opinion, bringing significant pressure down on the $ in good time. (i.e. anytime now given COT considerations.) Just wait until the Europeans finally buy some time for the Euro (in coming weeks); the combination could spell big trouble for the $ moving into next year, potentially sending commodities, precious metals, etc. zooming higher.
So again, please realize it does in fact appear the stars will be aligned in positive fashion for precious metals very soon, where everything from market risk aversion to Obama’s re-election hopes will do nothing but add to a mounting storm of positives for the group.
See you next year.
Merry Christmas all.
Captain Hook
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