“The World is Getting Closer to that End Game Every Day,”
Jim Rickards, “Currency Wars, The Making of the Next Global Crisis”
Powerful Forces Extrinsic to the Markets will determine Key Market Moves over the next few months and beyond. We identify certain of those here and indicate how they are likely to affect the Markets.
Submitted by Deepcaster:
For example, “Fundamentals,” Technicals, and Interventionals all now point to an Impending (extrinsically generated) Big Move to Climax in one Key Sector, which we identified in our December Letter.
But one overwhelming Powerful Extrinsic Force has already begun to Manifest itself – and to move Markets – and will increasingly do so — Resource Nationalism
The Newly Elected self-described Pro-Business Government of Australia just determined that it was “not in Australia’s National Interest” to allow the American Ag Company Archer Daniels Midland to acquire the Australian Company, Graincorp.
And China’s recent Expansion of its Air Defense Zone to include Islands claimed by Japan is surely motivated by the significant Undersea Reserves of Oil and Gas Found around these Islands.
And France just denied Hess Oil Company Exploration Permits in the Paris Basin. Resource Nationalism is Intensifying.
Regarding The Impending Move we earlier forecast, it has been Developing for some time now , but we call our Readers attention to it again because the Fundamentals, Technicals and Interventionals are all indicating it could begin to Climax any time now.
Let us explain why we expect that move at all, and why we expect it very soon.
We must not forget that Equities have been and continue to Float Up on Sea of Fed (and other Central Bank) created QE, including especially the Ultra-low borrowing costs that have artificially inflated Corporate Balance sheets.
Moreover, Equities levels have a 90% Correlation to the size of The Fed’s Balance Sheet, a Balance Sheet which continues to grow.
Never mind that Present and immediately Prospective Equities levels are thereby a “Mirage” as Carl Icahn correctly characterizes them because they have elevated on Fed QE. Nonetheless, the levels are what they are. So where are they likely to go for the next few weeks?
If one considers that in the next few weeks
- The Fed is not likely to Taper, or to Taper only insignificantly
- That “Easy Money” Janet Yellen is likely to be confirmed as Fed Chairman
- That Certain Key Equities Technicals remain Bullish (but see below)
- That the Administrations of the U.S., China, and other Major Nations are likely to continue manipulating Key Statistics, such as GDP, Employment, and Inflation.
In other words these Official Statistics are Bogus. [Deepcaster relies on Reliable producers of Accurate Statistics such as, primarily, Shadowstats.com for the USA.]
As a result, Corporate Earnings appear (cf. above) Robust. And Key Statistics appear Mildly Bullish, Easy Fed Money is likely to continue.
Certain (but not all) Key Technicals are very Bullish short-term. (See Caveat below.)
Conclusion: Short-term and into Year-End, we expect to see the Final Blow off Top Phase of the Equities Rally. Indeed, Equities have been moving steadily up since early October.
However, technically they (cf. the S&P) have formed an ascending Bearing Wedge. Thus it is no surprise that while “Retail” Investors are jumping into the Market, Institutional “Smart Money” is beginning to exit.
In sum, while we Expect Equities to be higher at year-end than they are now, we expect The Big Move – a sudden Decline of 5 to 10% followed by a Snap Back up leading to our Target Highs (per our December Letter) just before or after Year-End.
That would set the Stage in 2014 for the beginning The Endgame, as Rickards puts it.
Rickards is right to be concerned. Looking out to the mid and long term, Fundamentals (e.g., impending U.S. Budget and Debt Ceiling Battles) as well as long term Equities Charts with their Expanding “Jaws of Death” Wedge, are quite Bearish. Indeed, according to The Buffet Rule one should not invest in Equities Now. To paraphrase
Investors should be buyers of stocks when the aggregate market cap of the largest 5,000 companies in the US, as measured by Wilshire 5,000, falls in the range of 70% to 80% of US GNP. Today, that ratio stands at 109%. (Since 2009, the Wilshire 5,000 has risen 68%. But US Economy has grown just 17%.)
And there are two other indicators that, Mid and Long Term, Equities are set to Crash beginning some time in 2014: 1) Interest Rates have begun to rise and 2) Excessive Leverage-Margin Debt (September) is at an all-time high of over $400 Million. We shall be watching the Timing Signals very carefully.
So, amidst looming Uncertainty and Threats, what are the Prospects for Real Money? Thus far, Gold and Silver Prices continue to be vulnerable to Cartel (Note 1) Generated Takedowns.
ZeroHedge graphically describes the Cartel’s early Monday (11/25/2013) Morning Raid.
“Shortly after 1amET this morning, someone with no apparent fiduciary duty to their client’s for best execution or any apparent trade allocation expertise decided it was time to dump 1500 contracts into an entirely illiquid gold futures market. The 150,000 ounce notional sell order ($184.5 million), captured graphically by Nanex, sent the price down $10 instantaneously, tripped the exchange’s circuit breakers and halted the market’s trading for 20 seconds (once again). This is now the 4th market halt in the past 3 months (and this time on no news whatsoever)”
“Gold Hammering Leads To Another Overnight Gold Market Halt”
Can these Cartel-generated Takedowns successfully continue? We have recently forecast the Duration of the Current Takedown and that when completed it will likely Mark the long-term Base for the subsequent Great Launch Up for Gold, Silver and the Miners. Why?
Looking ahead, the Prospects for The Great Launch Up beginning by early 2014 are increasingly bolstered by the fact that Physical Bullion Supplies available for Delivery continue to Deplete – A recent report from the Comex shows the Registered (Available for Delivery) has shrunk to about 630,000 ounces. And the Demand for and Recognition of the Importance of, Physical, is increasing. The Swiss Nationalist Party is pushing an Initiative to Restrict the Export of Physical Gold Bullion from Switzerland.
But the Great Vulnerability in the Market is not the Gold and Silver Price, the Prospects for which are increasingly Bright, but the Dismal Prospects for the $US.
The $US value has eroded a bit over the past couple of weeks basis USDX, and this is no surprise given the prospective ascendency of Easy Money Janet Yellen to be Fed Head.
Longer term, regarding the $US, $US Strength will likely not last for many more months either. Indeed, long-term the $US is likely doomed as the World’s Reserve Currency. China has already entered into Bilateral Currency Swap Deals with a number of Major Countries, and is the leading importer of Gold A Gold-backed Yuan as the New World Reserve Currency is on the Horizon.
The Move away from the $US as the World’s Reserve Currency has begun, and will accelerate.
Therefore, we can expect Easy Money Policies including Fed Bond Buying via QE to continue indefinitely.
This will likely keep rates on the U.S. 10 year Note below 3% for a while more, but cannot keep them from rising indefinitely. There is simply too much Fed-created Hot Money in the System. This occurs because Fed QE suppresses interest rates, which lowers borrowing costs, which artificially elevates corporate Earnings. These earnings are thus Hot, i.e., artificially created, money. Carl Icahn is therefore correct to call corporate earnings “a mirage.”
Even so, the Fundamental pressure for higher rates will eventually overwhelm Fed action therefore, short- to mid-term, we expect rates to creep up toward 3% on the 10 year.
Only when we face the Travails of early 2014 do we expect to see U.S. Treasury Bond Strength again and yields well below 3% again, but only for a very few months. After that we expect the Great Bond Bubble to burst, and Hyperinflations to take Hold. See “Fed has created an Inflation ‘Time Bomb’ Michael Kling, MoneyNews, 11/26/13.
But the Fact that other Major Nations are also devaluing their Fiat currencies via “Printing” guarantees Inflaiton of Tangible Asset Prices.
Finally, the Crude Oil Price is another Inflation Canary in the Monetary Mine.
Crude Prices took a bit of a hit when the provisional Iran Deal was announced, not so much because of the prospect of additional Crude coming on the Market, but rather because it indicates a Move toward Peace rather than War.
As well, Rising Inventories have raised WTI’s discount to Brent to an 8 Month high.
In addition to the Iran Deal, NY Fed head Bill Dudley’s recent “Taper will be reduced” talk served to take WTI Crude down to the low $90s as we write.
However, based on a similar Rationale as that for our Equities forecast above, we do expect an Equities and Crude Price Rally to begin very soon and carry into year end. Indeed, increasing Tension between China and Japan over the Disputed Islands in the South China See may provide a boost to Crude Prices as well.
Only the launching of The Great Crash, likely beginning later in 2014, will serve to deflate Crude Prices significantly once again.
Resource Nationalism, the Prospects for War and Peace, Intervention in Key Markets by Governmental and Quasi-Governmental Entities (competitive Fiat Currency Printing and Hyperinflation Prospects) and Increasing Demand for Hard Assets are the Extrinsic Forces which will move the Markets going into 2014.
November 29, 2013
Note 1: We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s December, 2009, Special Alert containing a summary overview of Intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions – III” and Deepcaster’s July, 2010 Letter entitled “Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds” in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.” Attention to The Interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.