Reaching another, perhaps final peak in optimism.

I don't know when the herd will decide to panic.  I don't know the day or the hour but it will likely be when people least expect it.  Market optimism, or said differently, complacency is at all time highs.  It has caused everyone and their brother to borrow money to get in on the Ponzi at a time when they should be heading for the door.  The latest and perhaps greatest bear to get killed was Dennis Gartman who went into a big mea culpa for being bearish or not bullish enough while stocks have climbed and climbed despite the fact that he knows it is all a big unsustainable debt Ponzi.  The market has now given the impression that fundamentals no longer matter when in fact they always have and always will.  It's just the meddling by government which has given the impression that the laws of economics no longer apply.  It is akin to the 1929-32 Pompous Prognostications that I have posted to these pages several times.  We have reached a magical peak, a plateau of permanent prosperity for anyone gambling in the markets.  So go ahead and leverage up all you want because there is no downside now that the federal reserve is controlling things. 

That is the new thinking.  Of course, it is not new thinking.  It is the same old herd-think that is part of every boom and bust that ever was.  It is the same thing thing that all of the pilots of the Blue Angels flying team are thinking just before they all auger into the ground in a fiery ball.  There is nothing new under the sun, folks, nothing is new except the history that you don't know.  This has played out so many times before.  People begin to believe in something for nothing and for a time they seem to receive it.  But then when they go to collect it, that something turns out to be the nothing that it really was all along.  This is the nature of any Ponzi scheme and no it's not going to be different this time.

Those who are early in calling it, like me, get the eye roll.  But I would rather know this early and be looking for it in real time then to not understand it and say "I never saw it coming" when it finally does hit because there will be no time to get out one the collapse begins.  It is guaranteed to end badly.

One of the signs of the overoptimism is the lack of insurance against leveraged bets to the long side: the so called VIX fear indicator.  Today I want to highlight the chart of the SVXY ETF which tracks the inverse of the daily moves short term VIX futures.  So, as VIX (AKA fear) goes down, SVXY goes up.  Manias often increase 10x before the herd decides to abandon them.  Note how this was ~$8 in late 2011 and is now nearly $80 while tracing out the 5th of 5 and also skyrocketing up in an exponential fashion to the top of its channel.  Notice the triangle at the start of the chart segment between 4 and 5.  All of these technical indicators are screaming "Get the fuck out" at the top of their lungs.  Take this in conjunction with loss of confidence in the ruling elite both in Europe and in the US and you have the makings of a major, major market collapse.

So when will it happen?  Clearly, when it is least expected.  What will be the catalyst?  Clearly, something will happen that will seem minor but then for unexplained reasons it will spiral out of control.  People will blame that one thing but it will not be the real cause.  The real cause has been building for decades and has been rising exponentially for several years: a credit pumped system will always at some point reach an end point whereby the banks can't lend and the borrowers stop wanting to borrow.  It would not surprise me to see what I call the race horse syndrome take place.  That is where you have a high strung race horse and there are all kinds of distractions to him all the time: loud taking, perhaps yelling, the pop of starter's guns going off, etc.  But the horse always seems to handle it.  But then for some unknown reason, the horse get a minor fly bite or bee sting in the ass and then just loses it.   People blame the insect bite but the horse has been fine under worse circumstances before.  So it is not rally the bee sting per se but rather the accumulation over time.  The last straw on the camel is another analogy but in that case the camel just lays down.  I expect in this case the race horse will go crazy wild with kicking and running and slamming about to the point where it becomes a great danger to property, anyone standing near it and even itself.
 
Of course, it could also be something more mundane such as another collapse in housing data coming in June.  Bad weather will not be able to be blamed again.   Keep in mind what Greenspan taught us: there can be no recovery without participation from the housing market.  This is because housing is one of the biggest asset classes  that is almost elusively paid for with debt and when people stop taking on debt, the debt Ponzi begins to unwind.  The Ponzi needs ever increasing prices and it needs people to take on ever increasing amounts of debt to buy things. 

Trees don't grow to the sky folks.  If you or your loved ones live in a place where an average home costs north of $250K then you should strongly consider getting out right now because when this credit collapse is over there will be another huge glut of foreclosures on the market that will kill housing prices (and the banks who stupidly loaned the money to buy them).  You think the financial crisis of 2007-2009 is over just because the federal reserve threw everything it had at the problem and everything that all global governments had?  Think again.  All they did was rack up more debt and that was never the final answer to an insolvency problem.  In other words, you cannot forever avoid bankruptcy simply by taking on more debt and that is the only thing that has happened since 2009.

Nigel Farage and UKIP take control of the UK representation to the EU.

In the EU they have been voting on who will control things.  The EU is a socialist organization which has been running things using ever expanding credit since its inception.  Nigel Farage has been an outspoken opponent of this socialist takeover of Europe and is the head of UKIP (UK Independence Party), AKA "Euroskeptics".  Euro whistle blowers is more like it and this is evident in all of the outstanding videos of Mr Farage speaking at meetings of the MEPs (Ministers of European Parliament) which controls the EU.  Go to Youtube and look him up if you want some real laughs because he pulls no punches whatsoever when addressing other members of the EU ruling body.  He points out that they are just a bunch of dangerous power mongers that don't give a crap about anything or anyone except using debt increases in order to retain control.

Just a few years ago, when the credit was flowing, everyone dismissed Farage as a lunatic fringe player.  Of course, that was to be expected as long as the credit was growing.  But now that the global money supply is contracting and now that the people are getting affected by it, their empty stomachs and dwindling bank accounts have got them paying more attention to conservatives like Farage.  All of a sudden he's not the laughing stock of the con men running the show. All of a sudden he's got momentum.  This is the con man socialist politician's worst nightmare.  It shows that they are losing the confidence of their somnambulant Marks and Patsies.  And in a con game, loss of confidence is loss of control.

This is just another sign of what I have declared to be true in these pages: an accelerating shift away from liberalism and a new and growing conservatism movement.  I am confident that at some point it will result in at least a partial break up of the EU.  The trend will push back from globalism and will focus more on nationalism and self sufficiency.  The vendor finance export model will take a punch in the gut and it will badly hurt players like France, Germany, Japan and China.  People will make do with less externally manufactured products and begin a new era of self reliance.  I expect that the liberals in the US will take a big step downward in coming elections as well.  A great restructuring is upon us and not all of it will be orderly (to say the least).

Obama thinks that changing the mouthpiece will change the public's view of him and government.

Jay Carney is leaving the coveted position as White House Press Secretary.  This position is normally highly sought after because it is a gateway job.  In other words, after you leave in good graces, doors open up for you.  Highly lucrative doors.  Just ask Dana Perino, the bumble headed blond bimbo beauty queen Press Secretary of the Bush Administration.  To be fair to ms Perino, she is a good deal smarter than her performances during the Bush years would leave one to believe.  She appeared to be a complete idiot at times mainly because the script which she was handed to recite was ridiculous.  But she muddled through and is now worth a cool $4 million.

The circumstances of Mr Carney's departure assures that he will not be afforded such opportunity.  He is reportedly leaving because of the strain that the position has put on his family.  Well this is an old story.  Any time you hear about someone leaving a good job "for family reasons" or "to spend more time with family" you can be sure they are taking the fall, whether deserved or not, for how things are going for the powers that control them at the present time.  Carney is out not for doing a poor job but simply because the social mood is headed south and the administration thinks that a change in marketing strategy of their scam will help.  They think they can bolster confidence by rolling a few public heads.  They are badly mistaken about this.  Confidence is shot and in a con game that is everything.  Confidence will continue to break down making the final 2 years of the Obama disaster the worst years any president ever spent in office.

All of this is right in line with my main theme which is that peak credit has occurred and that the herd is now turning away from stupid money-driven optimism and political correctness.  Unfortunately, the herd will not just revert to the mean.  We have over shot to the high side by a record amount and now there will be a long period - years in fact - of overshooting to the down side.  It will affect everything.   You don't get an 100 year pump (the federal reserve was created in 1913) without a significant dump.  You can't have an exponential Ponzi without a corresponding collapse.  This is the problem I have written about many times that is enabled by fiat currency and especially fractional reserve lending.  Those who are part of the pump essentially steal some of the prosperity of the later generations.  After credit has peaked it can only go down which means less money in the money supply for those who follow.  That means less opportunity even for the best and brightest to come.  And it certainly means a smaller middle class and a wider gap between the haves and the have nots.  This schism will lead to civil unrest and yes, violence on a significant scale.

Here are a few more articles worth your time:
On returning to the gold standard.

Social and market impacts (scroll all the way down to this section if you are short on time):
"Social and Stock Market Impacts

Peak credit has been surpassed, but a substantial portion of the rise in credit is in the form of student loans that cannot and will not be paid back.

Importantly, millennial attitudes towards cars and other material goods is not the same as their parents. Moreover, student debt and a dearth of high-paying jobs ensures that housing formation will stay depressed, even if attitudes did not change.

As boomers retire, they will need to draw down on both their stock market portfolios and their savings (assuming they have either). Economic support from relatively low-paid millennials so that boomers can maintain their lifestyles will be massive.

Millennials will assist aging boomers via taxation and by overpaying for Obamacare. Higher taxes coupled with increasing time commitments to help care for aging parents will take a toll. And because boomers live longer than ever, the economic drain and time commitment from millennials will increase every year.

This has downward implications on the economy and the markets, especially in light of millennial-mistrust in stocks and the massive amount of student debt many of them carry.

Wall Street is not prepared for the major attitude and demographic shifts that are now underway. Are you?"

I have written about these same points many times:

• peak credit
• boomers retiring means market withdrawals at a time when young people are not putting monty into the system
• Not stated above but I will add it: the government has been making up for this delta by enabling vast amounts of low cost credit to be used to pump the markets.  They hope that this fake prosperity will trick young people into jumping onto the band wagon for fear of being left behind.  But young people have given up on the government and on the bankers and on the markets.  They now see it as all too expensive to spend what little money they are making on.  And of course, I'm referring to those that have jobs at a time when many are deciding that the green paper they would receive in return for their labor simply isn't worth it anymore.

At some point the federal reserve will have to choose: let the bankers fail and create a massive deflationary depression, or watch the price of milk and gas and clothing climb out of the reach of the dying middle class.  There is no happy median, there is no soft landing.  Both paths lead to huge social problems.  However, the deflationary depression is the honest path whereas the inflationary path can quickly turn into a hyper inflationary destruction of the buying power of money.  If they allow that then the USA could break up just like the EU is about to do.

TRX update - critical technical juncture

In my Memorial Day post on TRX I cautioned that

1. the a-b-c which I was expecting into wave 2 was now more than 3 waves.
2. it could morph into an ending diagonal for wave 2.

Per today's chart below, the lower rail has been broken down an now the chart is at a critical juncture.  It must either decide to break back up into the channel and then break out the top channel or this could be viewed as a kiss good bye of the lower rail leading to lower prices.  I can't predict the future and neither can anyone else.  But by setting triggers and sticking to them we can increase our odds in this big casino where many of the games seem to be fixed by the house.  TRX must break back up into that channel and soon or confidence will be lost.  A break below the prior low is obviously a sell signal and we are not far from it.

The potential for an inclining double bottom still exists here but don't fight the ticker if that throw under cannot break back up into the channel.  If it falls back to $1.68 or lower then chances quickly fade that a breakout is going to happen.  Ending diagonals usually end with a vee bottom indicating panic selling and capitulation and this chart is not doing that.

The fear in metals and miners is that already ridiculously low metals prices can get ridiculously lower.  For example, if the silver chart turns out to be an ending diagonal per the model below (a possibility I have discussed many times before in these pages), then each of the waves should be a-b-c in nature.  You can see this in the transition between 1 to 2, clearly see it again between 2 to 3, again in 3-4.  Each of these is supposed to be 5-3-5.  That includes the transition from 4 to 5.  But if we look at the chart, it seems that we had 5 waves down to the bottom of the channel.  What if this was just A?  Furthering this position is the a-b-c back up which could have formed B.  If this is true then we are just starting for form C.   At this point the trend is still down and so that has to be respected.  If the chart can break back up into the channel soon then more thought would be called for but until it does, the safe play is to watch for signs that C is playing out.  If that turns out to be the case, conserve cash and wait for the 5 waves down to finish and then get greedy about jumping into JNUG.  Metals are not going to zero.  Miners are not going to zero.  Dividend payers will always be worth something.

Trader's alert: Buy BBRY.

I first mentioned BBRY (formally Research In Motion, ticker RIMM) in these pages back in mid December 2013.  The shares were trading at $6 at the time.  As you can see from the recent chart, the shares then went on to nearly double from that point.  However, knowing that nothing goes straight up or straight down, I modeled in this post that I expected a pullback to $7.  While I was early in that call, the shares have indeed now pulled back to $7 and have now likely begun their rapid rise into a 3rd wave up.

Zooming in, I show that 1 of 3 has already played out and then 2 of 3 finished as well.  The gap you see within the red circle is just 3 of 1 of 3.  The gaps will get bigger as the shorts are forced to cover in a panic by an overwhelming hoard of momo players.  The sell trigger is anything lower than $7.20.  This is about as good as it gets folks.  BBRY is not going to BK and it is not going to be broken up.  The new management has cut headcount and is now beginning to build product momentum again.  Hear me now and believe me later: the upside on this one can be 10x.  Why?  Because $70 was the level of the prior 4th of course.  This thing was once at $235 and there are a lot of short sellers who jumped in on the way down.  They all have to cover now.

With expenses now under control, a new focus on customers and on delivering products and $2.5 billion in cash vs only $1.63 billion in debt, price/sales of .56 (that is zero dot five six people) and price/book of only 1.04 (priced for BK when BK is not going to happen), BBRY is very compelling at this level.  When the charts and the fundamentals line up like this, you just have to play it.

But play it does mean play it because if the broader markets enter a collapse (which I think is long overdue), then BBRY could be sucked down with everything else.  After all, what is a paper asset really worth when there are massive margin calls happening all over the place?  Answer: whatever you can get for it.  Because of the toppiness of the broader markets we do have to consider the possible downside to BBRY and that could occur in the form of an ending diagonal as shown below.  We could just be finishing up the B wave of the a-b-c into wave 5. If this happens I expect a throw under that could take the shares to the $2-$3 range.  If you see that, know that it will not last very long.  That would be like buying a non-expiring call on a company that has enough cash to last for quite some time.  If the chart breaks out of the top orange trend line at any time from here on, the chances are that it has started a new bull market.

Bottom line: buy any time, sell if it breaks down below the trigger level of $7.20 and if that happens look for a trip to the bottom of the channel for your next buying opportunity.  Either that or buy a quarter position here and then cost average into a full share if the price goes down significantly.  It will not stay down forever.

The chart of greek debt is whispering "get out".... [GREK]

The crash of 2007 through early 2009 was marked by the collapse of the value of debt issued by deadbeat borrowers in the EU.  Part of what was done in order to stop the collapse from happening at that time was to issue more guarantees and to lend more money to those who already couldn't repay what they owed.  It produced the appearance of normalcy while simply making the coming collapse even bigger than the one that was not allowed to play out before.  The big banks are now bigger.  The OTC (Over The Counter AKA "unregulated") derivative pile is bigger.

The federal reserve is up to its neck in bad debt and has little room to take on more because the garbage which it already took onto its balance sheet has gasoline costing nearly $4 a gallon in the US.  As a result, fast food workers are up in arms about not being able to make a living wage and they are not the only ones.  Several states are talking about making the minimum wage $15 an hour.  This is exactly what Jim Sinclair warns us about with "cost push inflation".  In other words, everyone will begin to notice that the buying power of the greenbacks that they are accepting in exchange for their goods and services just isn't cutting it anymore and so they will demand more.  This is historically what happens when central banks dramatically increase the money supply in order to avoid the collapse of problems of their own making.  They cannot just continue to print forever because sooner or later the cries of "unfair" and "we need more" turn into "you bastards deserve to die and we have nothing to lose by killing you".  Again, I don't advocate violence but this  is the lesson of history.  It can be communicated plainly or it can be left unsaid but it cannot be changed.

The actions taken over the past 5 years to sweep the problems under the rug have fixed nothing.  They have just created bigger problems.  This is now being seen in the chart of Greek debt which the ETF GREK is used as a proxy for in the chart below which shows the corrective, a-b-c recovery of Greek bonds since the 2012 low.

My model says that the chart has already broken down and has finished wave 1 of 3 down.  It is very nearly finished with 2 of 3.  I expect a dramatic downturn soon that will take a lot of sleepy, complacent people by surprise even though there is no mathematical or historical reason not to be fearful about what has been happening in the global economy.  
 

Here is a zoom in of just wave 1 and 2 down.  This model suggests that wave 2 will peak within a week or two.  If it turns out to be correct, expect news to begin showing up about a new and growing loss of confidence in Euro debt.  The European Central Bank cannot handle another bailout and everyone who follows this stuff knows it even if the main stream media seems blissfully unaware.  Face it folks, if aliens landed for real, government would not tell you about it even if there were real risks in it for you.  Check that.  The more real risk in it for you, the less likely they would be to tell you about it.  Why?  Because of their fear of losing control over you in a stampede.  They would say it is for your good that they don't give you warning to protect yourself but that is complete BS.  They would withhold the information because they want to protect themselves as long as possible.  You would only be told after it was impossible to cover up any further.  The collapse of the global debt Ponzi will be no different.

JPM update looks similar to my model.

In this post I indicated that JPM chart had peaked an ending diagonal and broken down below the lower rail.  At that point my model expected 5 of 1 to head down to about $53.  As you can see from the updated chart, that is just about where it bottomed.  It has since been on the slow mend but there is no conviction in this buying IMO.  It is just filling the gap and trying to a-b-c back to the prior 4th wave which is also about the 38.2 fib as you can see from the lower zoom in picture.

We will know that JPM is about to collapse in a 3rd wave down if it cannot take out the 38.2 fib.  I have my strong doubts about that.  The banks are all in deep trouble.  Nothing has been fixed, all of their balance sheets are capital impaired if the federal reserve loses control of the bond market and by my model, the dollar is getting stronger.  That means higher interest rates are likely not far behind.

Here is my dollar model using the UUP ETF as a proxy.  You can see in that post how I modeled that the throw under was done and that a break out of the top channel was imminent.  Fast forward to today and that is just what happened.  Look at how the chart broke out and then did a perfect back test - Prechter's goodbye kiss - before pushing upward.

Now, this is still a 3 wave movement so we only have 1st confirmation of the breakout.  It could take 5 waves up and then an a-b-c back and then a massive 3rd wave breakout before the market begins to believe that a real direction change is in.  But the fed has to unwind its balance sheet or at the very least not load it down any further with trash and so the banks will not be able to make free money just by making loans on crappy assets that are not nearly worth the money loaned (AKA all of the coastal housing in the USA).  In other words, the banks have been making the loans, taking in the fees and then giving it to the federal reserve to hold onto.  But if the fed can't take on any more of this crap, how are banks to make any money at all?

This is why they will plummet.  By using the federal reserve as a dumping ground for their bad loans today, they are clearing the market of all credit worthy borrowers and then cutting deeply into the non credit worthy borrowers.  If they want to continue making profits from their loan origination fees then they will have to add more crap loans to their own books. In other words, the city dump known as the federal reserve is closed for business and so new junk that they collect can't be so easily pawned off onto the taxpayer.

JPM is going to plummet well below $10 and probably below $5 before this collapse is done playing out.

Metals and miners update

In this post from May 6th I indicated that I thought a major decision had to be made by M+M.  In fact, immediately after I made that post (at the black arrow), the proxy stock I was using in that post (JNUG) gapped down and then proceeded to break down down pretty hard.

In addition, the Junior miners ETF (GDXJ) just broke below its June 2013 low.  IMO that spells both near term trouble and major opportunity.  The high level model has now changed to the one below.  The implication here is that we are not working on an ending diagonal but rather a large 4th wave triangle.  The bottom rail should be either horizontal or perhaps downward sloping a bit as shown below.  The reason I chose that downward slope for the model is that it is the line drawn through the declining double bottom circled near blue 2.  These lines have been quite accurate of late in predicting the future direction of the chart.  Having said that, I would go on high alert bottom watch if the GDXJ chart hits about $28 which is where a horizontal line drawn from blue 2 would take us.

If this chart plays out then it will smash JNUG and it will bash the junior minors even more than they already are.  I could represent a good short term trade, especially on JNUG.  If GDXJ nearly doubles on the bounce, JNUG will nearly quadruple.  I'm keeping a nice pile of cash on the sideline hoping this model plays out.

How much longer can there be confidence when officials are talking like this?

When members of the Ponzi Proliferation Project (AKA the European Central Bank or "ECB") begin to speak openly about the whole fiat currency based system of the Eurozone as "pure fiction", much longer can the rank and file patsy remain confident in the system?  As I predicted many times in these pages long before there was even a hint of it happening, key members of the system are becoming whistle blowers.  It's not that they are honest people. IF they were then they never would have participated in the scam in the first place.  No, their revelations are more likely driven by the desire to avoid the historical reward of traitors once the people awake from their slumber and realize just how badly they have gotten screwed by the treasonous treachery of the con men.

By copping to the truth now, they hope to be viewed as a hero and a truth teller rather than what they really are which is someone who has already cashed out of the system and is now afraid that the careless buffoons who have been left running "the operation" are getting too greedy and will thus lead the system to a massive collapse wherein thousands if not tens of thousands of angry victims, now thinking they have nothing to lose, go out and "lose it".   This is how oligarchs and elitists have gotten killed in the streets in the past.  Anyone who thinks we have seen the last of that is not thinking.  The sheer number of people who are going to wake up one day and find that they have lost everything is going to guarantee civil unrest on a scale never before witnessed on this planet. 

Yeah I know, it sounds so distant and so extreme.  But this is an old game, one that has played out many times in the past.  With a hat tip to old Patrick Swayze, we ain't seen bad yet, but it's coming.

Greg Caravan from The Daily Reckoning Austrailia edition

Greg Caravan's latest post covers a few things of interest including the gold and silver fix (a technical term in the industry).  The process of fixing metals prices has been around for over 100 years and very soon it will be abandoned.  Those involved seem to be trying to distance themselves from the activity.  I can only surmise that it is, for whatever reason, no longer profitable.  Notably, Deutsche Bank first tried to sell its seat on the fixing committee which would imply that there used to be some kind of value associated with it.  Keep in mind, it was supposed to be a service, not a money maker.  It is very typical that things which initially bill themselves as services tend to, over time, turn into scams.  You know, like most of current government.

In any case, there were no takers for this seat and Deutsche Bank didn't even leave it on the market for very long before just deciding to abdicate.  I guess the liabilities of this service are catching up to it now that gold price fixing is starting to be investigated the same as the LIBOR fix.  Maybe the con men running that show could see that what is coming around the corner is not just fines on their criminal behavior but jail time.  It's all part of the coming wave of conservatism IMO.

Greg Caravan's article noted the lack of jail time for any of the major con men of the bankster clan over the past few years.  He noted that fines against companies (which most of the time don't even have to admit to any wrong doing) have just been the cost of doing business.  He considers these government attacks nothing more than a form of taxation by a complicit greedy government.  Greg is right about all of this.

Greg goes on to say that "The fining of Barclay’s for manipulating the gold fix highlights what a degenerate racket the whole financial system has become. It’s a great business model for banks and governments."  "Degenerate racket".   That's Greg's Aussie way of saying "organized crime" folks.  More and more people seem to understand this truth now.  Greg goes on to talk about "degenerate capitalism" which is what I would call crony capitalism.  So Greg's article pretty much reinforces things that I have been writing for years.  Of course, all of the folks at the Daily Reckoning have known all of this for a long time and have been writing about it before I began my blog.  So perhaps I have really just been reinforcing their themes...

The one area where Greg and I differ.  In fact I differ in this way from 99.99% of all the other folks out there who are are otherwise very like minded with me.  That area is pointed out by his words, "Don’t expect any of this to stop. It’s what happens in the latter stages of degenerate capitalism. Critics are quick to point out that capitalism is the problem. It’s not. The chief problem is the constant manipulation of the rate of interest. By holding interest rates for a prolonged period below the ‘natural rate’ (the free market rate where the needs of savers and investors are balanced out) you create distortions on such a grand scale there is practically no fix apart from a system bust up."

IMO, Greg is like everyone else, talking about the symptoms while missing the root cause.  Crony capitalism cannot work with an honest money supply.  It might want to work but it simply cannot.  Government will dictate and mandate and set interest rates all day long to no avail if the money supply is honest.  
Why?  Because it takes debt in order to manipulate the interest rates and without the ability to create more debt, all the fed can do is useless jawboning.  The federal reserve has to rack up a bunch of IOUs to buy government treasuries so that the supply of them on the market is reduced, thus increasing the bond's value and lowering their interest rates.  Without this ability to buy the debt and hide it on the books of the fed, interest rates could not be manipulated AT ALL. 

I hope people will internalize that.  None of this works by magic.  It's just simple supply and demand.  If the US treasury department increases the Treasury bond supply in order to pay for big government, wealth transfer programs (welfare for the poor) and corporate welfare then it has to try to sell these new bonds to someone.  Without the federal reserve buying 90% of them, there would be no buyers at the current interest rates.  Who wants to lock up money for 10 years at 2.5% per annum at a time when the annualized CPI (even by lying government standards) is well over 3%?  If there are no buyers then the con men must sweeten the pot to attract them.  In fact, Greenspan's predecessor Paul Volcker raised short term rates to nearly 16% for a short time in the early 1980s.  He didn't want to, he had to.  People around the world were losing confidence in greenbacks as a result of Nixon having defaulted on gold convertibility in 1971.  High interest rates coaxed them back in.

So how does the federal reserve buy this Treasury debt, seemingly without limit?  It can only happen because we have a dishonest money supply made up of fiat currency and fractional reserve banking.  With fiat currency, the federal reserve is unrestricted in how many new dollars it prints up.  And since 2008 we have learned that it can basically use them for any purpose it wants to: anything from propping up US and foreign banks to bailing out influential corporations like Harley Davidson and others.  A federal reserve note is called a "note" because that is the legal term for a debt instrument.  So in effect, the federal reserve can create new debt from thin air and use it to purchase anything it wants to in order to keep the Ponzi plate spinning.  In this way, the government picks winners and losers.  This is the essence of crony capitalism.

So you see, Greg is really talking about the symptoms: the manipulation of interest rates.  This is NOT the root cause of the evil.  The root cause is a fraudulent money supply.  Take away the fraudulent money supply and replace it with an honest one and the fed would no longer be able to increase the money supply on the sneak and at will.  For example, under a gold standard, more gold would have to be mined and put in the vaults before more currency could be issued.  This is the hallmark of an honest money supply: a feedback mechanism that constrains the powers that be from criminal behavior without anyone even looking twice at them for it.  In an honest money supply, if the money supply is increased the people can ask "why?" and "by what authority do you do it?".  In a dishonest money supply there are no controls and the good old boy system takes care of itself and leaves you and me hanging out to twist in the wind.

Now for most people, all of this might seem academic.  They don't see how it affects them but I assure you that it affects anyone who is bound to live under the system that uses the fraudulent and corrupt money supply.  In order to understand this, please go back and review what money is supposed to be which is a store of value.  Value can only be created through the labor of humans.  So money is supposed to be a store of labor.  If someone is creating fake money (which, if done by someone other than the government would be a crime known as counterfeiting) then they are effectively naked shorting human labor.  In other words, they get to own human labor that they never earned.

When you naked short something, you effectively devalue it.  If this devaluation is ongoing and systemic then it is tantamount to theft.  Theft of people's labor has a name.  We call it slavery.  A fraudulent money supply enslaves the population which is stupid enough to labor under it.  The people work day in and day out wondering why their labor never buys them the lifestyle that it would have bought them if they had been a settler in the early days of any country.  Their labor would have built them shelter, provided clothing and food, and would have afforded them to have a family which would have been their social security program.  Now all of these basic things are being pulled further and further from the people and the people have no clue why.   Laboring under a dishonest money supply is a clear form of slavery whether or not the people understand it.  Again, just because Madoff victims did not understand that they were being conned, did that make it any less true?  Of course not.  They were simpleton victims of a white collar criminal who was running a long con on them just like our government is doing to the people of the USA and other governments are doing to their people.

TRX Memorial Day 2014 update

Here is my previous post on TRX.  The model predicted a significant pullback to around $1.80.  The price at that time was $2.47.  Today's update should highlight two major points:

1. At the current price of $1.88, TRX is rapidly approaching my retracement price target.
2. The wave structure itself is not playing out as expected.

As you can see from today's chart below, the chart is no longer the simple a-b-c that was expected if the peak at $2.90 was wave 1 up.  Instead, the retracement counts as a 5 wave move down and one that threatens to form an ending diagonal which is a form of triangle.  Since triangles are supposed to be penultimate, my count has to change.  What was "1" is now "A", the wave that is completing now is not "2" as expected but rather "B".  So, while the stock is very likely going to be a breadwinner over the summer, It does not appear that it will be all smooth sailing after that.  Some kind of complex structure is likely forming.  If should be very trade-able but I don't see it as buy and hold at this point.

As usual, an ending diagonal is not confirmed until the chart at least touches the bottom rail (but more likely breaks down through it) and then comes back up into the channel (1st confirmation) and then subsequently break out the top rail (2nd confirmation).  Any subsequent break down through the top rail is cause to sell immediately as the pattern will have been invalidated.  But what we have here appears to be a very nice inclining double bottom in the making.  There is every chance of making 80-100% in the next 3 months if you can catch this at $1.78-$1.80.  The C wave shown is where C=A.  If C were just 38.2 % stronger than A then that's where the doubling potential comes in.
 
A regular reader recently asked a question about TRX, wondering if it was good value at these levels.  My response (see comments section of this post) might be worth your time to read because you just don't see people speaking plainly about stocks very often.  It is common to come up with all manner of ways to impute value onto the shares in order to create the perception of value where no real value exists.  I'm not selling anything so I don't need to do that.  Even my blog loads lightening fast because I'm not selling 3rd party controlled, malware-ridden ad space.  It allows me to retain an unbiased view that I hope is at least entertaining if not useful and informative.

Bottom line: stocks that do not pay dividends have no value.  None.  Zero.  Any valuation of them is just made up by stock salesmen who ask you to imagine a time in the future when value could possibly appear so that they can offload stocks on you TODAY and collect a trading fee.  So in that sense, TRX is a horrible "value".  Even at 10 cents it would not be a "bargain".  But the chart suggests that current holders of the shares should see an influx of idiots who don't understand this and that represents an opportunity to sell to a greater fool in a couple of months at a fat profit.  This is what I am suggesting, and it is what I myself intend to do.  My plan is to take advantage of fellow speculators while at the same time they attempt to do the same to me.  It's pure gambling and anyone who calls it investing is either a patsy or a con man.

Memorial Day 2014 $COMPX update

We just hit a long 3 day weekend for Memorial Day. Typically, the market participants are refreshed and bullish upon return from holidays.  So the odds are against the bears in that aspect come Tuesday.  But the chart of the $COMPX is not bullish looking no matter how I view it.  The action since the recent bottom has not been motive.  It has been corrective looking in nature, all choppy and undecided.  At 4210 the chart will hit the 61.8 fib so there could be a pop out of the gate and then the selling could begin.  I think wave 2 should be finished very shortly.

Below are the 60 and 15 minute charts.  On the left hand 60 minute chart the structure of an ending diagonal is apparent.  We saw blue a, then an easy to count a-b-c down into blue b and then 5 rail bounces with a throw over on the 5th wave.  Each of these rail bounces is supposed to be an a-b-c.  This 3 wave structure should consist of a 5-3-5 sequence where:

• The c wave is the most powerful and should contain a gap in its 3rd wave (it does)
• C often throws over the top channel rail (it did)
• C should be made up of 5 easy to read waves.  See the right hand picture, this is apparent.
• If 3 of C is the extended wave of the C wave (which it is) then 5 should be about the same length as wave 1.  It will be the same length if 5 moves up to the top of the vertical blue line.
• The whole 5th wave also seems to count well as an ending diagonal as shown by the orange lines in the right hand picture.  If this continues to hold, we should get a few points up at the open which putter out quickly and then reverse with some gusto back down through both rails of the ending diagonal.  If it does then and then goes back up through the diagonal then the pattern is bust and caution should be exercised.

 

There are other possibilities but this is my top model for right now. That could change very early Monday AM.  I will say that there are a lot of people out there calling for pullbacks and that is not how bull markets typically end.  They usually end with everyone saying "Dow 40,000 soon".

Facebook update

In this post I correctly modeled the timing on re-entry of FB short positions.  However, I did not expect a triangle to form here.  Longer term, it's good news for FB gamblers but short-mid term it is screaming that massive pain is about to hit.

The model below assumes that the C wave will be about the same length as the a wave.  That would take it to the level of the prior 4th.  This is best case IMO and we will know by the length of the coming first wave down how likely this scenario is going to be.

It should be known that ending diagonals are also known for retracing their entire length.  In other words, FB shares could turn out to be a mania.  This would not surprise me at all.  But for shorting purposes, the safe bet is to assume a normal a-b-c movement back to around $40.

Zooming in for more detail, it looks to me like the B wave has completed and that the breakdown is already in the very early stages.  The confirmation is the break below the lower rail.  Again, best case is a 30% haircut from here and if I see 5 clear waves down that stop there then as much as I think FB is a waste of time, I will have to call it a buy.  Why?  Because that would suggest that it is a 2nd wave in the bigger picture and that a large 3rd wave up could be coming.  This makes no sense to me at this point given what an economic waste the whole facebook concept is but perhaps it suggests that Zuckerberg will expand into the wide open spaces of cloud based AI - something that I think the world is just begging for.  If he goes there, and his recent purchase of an AI think tank suggests that this is his future direction, then FB could explode upwards because cloud AI is wide open, has no competitors or products right now and FB could get the first mover advantage.  Google had years to capitalize on this but just didn't seem to have the vision to do much of ECONOMIC VALUE past web search. 

In any case, wild speculation aside, FB is a SELL SELL SELL right here.

Important note: If the chart goes up one more wave then the B wave triangle model is in serious jeopardy because that would be 5 waves up from what I modeled as "d", and the "e" wave is only supposed to be 3 waves (5-3-5).  In the very short term it would mean that the shares could rally back to $64 (level of the prior 4th) but then that would be wave 2, not wave B.  The implications are that the $40 price level would no longer be the primary model and in that case I would start to give odds to FB becoming a mania stock, retracing all of its gains.

Final thought:  If FB is retracing even back to $40, what will the rest of the markets be doing, just sitting there?  I think not.  If FB is going down, everyone will likely be going down.  In fact, it's likely the other way around.  If the broader markets go into massive decline, FB will get sucked down with the rest of the stocks.

TWTR Update

TWTR threw under, but not as hard as expected.  Could this be an inclining double bottom forming right here?  If so, then perhaps the indices have a bit more of a rally in them than I thought because I just don't see how TWTR moves up if broader markets are supposed to turn down hard...

In any case, a break above the green line would be worth a speculative buy hoping that the shares will pop the 20% or so needed to fill the recent gaps and maybe even move up to the level of the prior 4th. I know there are a lot of short sellers in this stock right now.  They are all likely waiting for the Dow to roll over in order to cover.  But if the Dow just rallies for another week here, the short in TWTR will panic.

Of course, a subsequent break back down below the green will be the "sell this garbage stock" indicator.

Lenders are starting to care about endless, consumption based deficit (AKA debt) spending.

New York, like many places where they cram too many people into to too small an area because they think "it takes a village", is bankrupt.  They haven't had to admit it yet but it's coming.  The public unions are sucking at the city's teats so hard that they are drawing blood.  But they don't care because that is the way of the parasite.  They will absolutely not only keep it up but increase the behavior, grabbing whatever they can from whomever is stupid enough to loan it to them until they finally have to default on all of it: payment for services owed, pensions, you name it.  Anything for which actual payment can be deferred will be deferred.  I'll gladly pay you Tuesday if you just let me have that hamburger today.  Of course, Wimpy never paid a hamburger back because there was always a good reason not to.

Right now federal, state and many local governments are borrowing like mad.  Why?  In the infamous words of Bill Clinton, "because they can".  They can do it because the interest rates have been manipulated to artificial all time lows by the federal reserve. But manipulation is not free.  It isn't even cheap.  The fed is running out of capacity to keep it up and when interest rates begin to rise, the full faith and credit of the US and of the individual states and cities is going to decline rapidly.

In fact, signs that the party is ending are all around us for anyone who will see.  Today's news sees bond firms bailing out of NYC debt due to capo (mayor) Blasio's out of control plans to increase the debt based consumption.  The article says his "plan to pay for labor contracts that boost deficits."  Breaking it down into simple English, he is conspiring with the socialist union bosses to pay the city workers more than the taxpayers can afford in order to buy their loyalty.   Of course, that continues up until the ability to acquire new debt runs out and then the Major will announce mass layoffs and a haircut for pensioners.  In other words, they plan to default.  They know it will happen. The math will not allow another outcome and so it is clearly fraudulent behavior.  But they do it anyway because it suits their needs.  They will stay in power and break the back of the people so that the people come begging to government for the basics of life.  The con men are using the greed of the people to eventually destroy them.  It is a treasonous plot and never let anyone tell you "we never saw it coming".



The days of the con grow short.  As soon as the net inflows of new debt into the system turn into net outflows, the Ponzi has but a few months to live.  The Ponzi requires new debt buyers all the time and if the herd looks at a big player like UBS and wonders why it is selling NYC debt then others could follow soon. The result of this paper hitting the market along with the continuous debt floating of the city itself would drive down debt value and drive up their interest rates, thus making the service of any new debt very painful.

Chris Christie effectively raids public pension fund to pay for budget shortfall

Chris Christie, chief con man of NJ admitted today that the state had an "unexpected" budget shortfall.  The question is, unexpected by whom?  A blind rat?   By the elite who don't know that the middle class is in full-on collapse?  In any case, those complicit fools who have been helping the state get bigger and fatter (AKA government employees) turn out to be the biggest patsies of us all because their pension is controlled by government.  When government runs a shortfall revenue budget, it can just fail to make required payments to the pension fund.

But not to worry man.  The short fall was unexpected, not normal.  So don't expect it to happen again.  It was a one off, act of God, definitely force majure.  In fact, next time a $2.3 billion payment is due, we'll just double down on that payment and make up the shortfall.  Aw, come on.  Don't look at us like that, don't you trust us??   We're good for it!  It will probably happen in a year or two because we foresee clear skies going forward and there should be plenty of free money from the dying middle class in order to support your fat, undeserved pensions of the kind that nobody outside of government ever gets these days...

What cannot be paid will not be paid.  Public pensions are going to collapse before the credit crash is done.

Tomorrow is likely to be the most critical technical analysis data point since 2009.

First off, my current model says that the DJIA likely peaked back on Tues the 13th.  I have made financial bets that this model is correct but I acknowledge that EW is about odds not certainties so I'm open to be proven wrong.  But the markets will in fact have to to that - to prove to me that my model is wrong because as of now I think it has merit on enough levels that I actually started up my subscription to Bob Prechter's short term forecast which I had cancelled years ago while unemployed in order to reduce cash burn.  What I found is that, while getting to it with a slightly different count than me, his team pegs the same day as the peak. 

Does this assure anything?   Not at all.  It's just another data point.  But keep in mind that they also look at all the sentiment indicators whose data feeds are paid subscriptions of high cost.  So they are looking at the chart which I can see and other things which I can't.  Besides, the January effect suggested a Walk Away May and the length of this bull market is at the long end of the time scale as bull markets go.  Also, the fed is talking about not only more tapering but also unwinding their balance sheet at a time when the middle class is collapsing.  The odds just keep piling up against higher stock prices.

If we start with that assumption that the 13th was the peak, then mid day on the 15th was the end of wave 1 and wave 2 finished Monday the 19th.  I think that today's low was thus 1 of 3 and that the a-b-c into the close was 2 of 3.  IFF this is correct, we should see a very  rapid move down tomorrow and it could be a candidate for the 500 point loss of the DJIA.  Why?  Because it would be a 3rd of a 3rd.  One thing I like about this model is that wave 2 retraced exactly back up to the 38.2 fib before deflecting downward again.

Other scenarios are possible.  Today might not be 1 of 3 but rather 5 of 1. This is in fact my secondary count, the one I will fall back to if the DJIA breaks 16410 tomorrow.  If this secondary scenario plays out then mid day 15 low in that case would have been 3 of 1 and not 5 of 1. 

The picture above is too zoomed in to give another critical bit of information which is shown in the picture below.  Namely, that the recent breakout to new highs was a throwover of a very long term trend line shown in orange.  It took a LOT of energy to break that resistance and so many will consider it a strong support level.  That doesn't mean it must provide strong support, simply that many are not expecting a break below that line.  They think they have broken out and new heights await their fantasies.  If that line breaks down, the wings melt of of Icarus's Dream and it will be a moment of recognition that the breakout was a head fake and that means lower prices should be expected.

With this in mind, a 3rd of a 3rd could happen tomorrow that would take out that support line and, as 3rd waves are designed to do, become a point of recognition for the markets. Once the herd gets wise that the pump is over and the dump is on, they will not be squeamish about selling because the pros know how fake the valuations are.  They are based on government support and the use of margin debt.  This is not real investing, it is pump and dumponomics.  So when they see the herd turn south they will NOT try to stand in front of it, they will just sell first and ask questions later.

If we don't see that kind of selling tomorrow then I will begin to wonder if I got the model wrong.  I expect a small move up at the open - perhaps 15 meager Dow points to finish a subwave and then reverse and head down very hard.  So, perhaps we see 16390 right after the open but should not be more that 16405 or a rethink is needed.

If this breaks down below that orange line tomorrow, this will be a major, major technical turning point, in fact the most important one since 2009 IMO.

DRD update including valuation analysis

It's no secret that I like DRD gold at these levels.  It went through the high flier stage years ago and has now worked off all of the excesses, sold the riskier assets of those days.  It is also putting the finishing touches on a new mill that will greatly improve gold recovery.  So now it is time to look at the close in chart and see what the model says.  In this sequence, the 3rd wave is extended.  The height of the blue bar to the upper left measures what I modeled as wave 1.  Wave 5 should be about the same length.  The blue bar lower right is a clone of the upper left.  This suggests the possibility of a move to somewhat lower prices. 

Whatever it is will likely not last very long nor dip very deeply because of the high value of this company (shown below) at these great depression prices. I think the big bounce will begin somewhere within the red oblong.  So if it fell to $2.50 I would not be shocked.  Neither would I be shocked if the 14 year decline actually turns out to have finished literally today.  I've always had trouble catching the 5th of 5th of C/5th.  That's a pretty clear gap in 3 of 5 of C below that took the shares to $2.71.  Then there is a clear bounce to $2.82.  today we had a lower low than 2.70.  The question is whether this is 5 of 5 of C or just the end of 3 of 5 of C.  If the former then this thing should begin to bounce very soon.  If the latter then it will move back up into the $2.82 range and then fall again probably to the $2.65 area before being completely done.

I could try to trade the turns on this but I don't think that I will.  Instead I will just buy more if it goes significantly lower and I will be considering it a long term hold.  Why?  Because the goal of this company is to pay 30% of its profits as dividends.  That means I am buying a portion of their labor at very, very depressed valuations.  Below are the current numbers on DRD now that the shares have fallen to these low prices.  These are literally great depression valuations, exactly the type that Prechter talked about in his book that would allow you to buy "an $18 stock for 50 cents" (close paraphrase from memory). 

If I recall correctly, he wrote that we will be able to find companies trading with P/E of 0.5 and (more important to him) P/B (price to book value) of about the same.  These companies would be paying dividends of 6-7%.  DRD's metrics are almost spot on to these great depression specs.

Prechter isn't a big fan of P/E as a metric because E can be manipulated by deferring or pulling in expenses in order to match earnings revenue expectations.  But I think that gold mining is one of the industries where these numbers are actually meaningful since the cost of gold production is well documents and the price of gold does not depend on clever slogans and tricky marketing or even vendor finance scams.  Gold mining is really a unique industry because its really just digging money up out of the ground.  There is ALWAYS a global gold market.  It cannot go out of style.

Prechter likes P/B as a real metric because book value is supposed to tell you what it would cost to replace the assets of the company.  You you are buying a company for less than it would cost to start a new company to replace them then you are getting great value.  Even if gold prices don't go up much, DRD could still quadruple in the form of PE and PB expansion.  In other words, investors start looking for dividend payers and DRD pays dividends.  With only 38 million shares outstanding it will not take much buying interest in order to expand the PE and PB numbers from here.  Note that the vast majority of the shares are in the float (not in the company treasury) so we don't have to worry about the company needing cash in a pinch and dumping shares onto the market in order to raise it.  In other words, no latent dilution to worry about.

While the annual dividend here is a very Prechter-esque and respectable 7.2%, the payout ratio of > 100 says that part of the divvy is being paid for out of cash on hand (i.e. past earnings, not ongoing earnings).  That is not a long term sustainable position so it is a flag to consider.  However, it could also just be that the company has plenty of cash on hand and it anticipates that the recent issues with the new mill will be fixed and so it wants to start compensating loyal shareholders who have stuck it out with a short term payout.  You can see that it was actually increased from the 4.9% dividend paid out last year.  Their goal is to pay out 30% of their profits in the form of dividends which are taxed in the US at a scant 15%.   Finally, their cash to debt position looks good, especially given that they are just now finishing up their big new capacity improvement programs.

If DRD share price goes lower,  I will add to my current position. I don't think many things should be a long term hold but with the gold miners at a multi-year low and DRD at a 14 year low I think a small amount of money like $2500 can be put into this one with a very good chance of getting a 10 bagger return on the overall investment (which would include share price increases along with dividends paid).

Margin debt in 2014 is DOUBLE that of 2010

Use this link to see how margin debt (i.e. debt used to buy stocks) grew since 2010.  Scroll down to the bottom and you can see that it was $233.6 billion in Jan 2010.  In Jan 2014 it was $451.3 billion.  That is only a few billion shy of being double.  Since then it has eased back to $437.1 billion as the smart money has been edging for the door.   All of these folks effectively naked shorted the dollar by going long stocks with borrowed money.  As interest rates rise, these guys will want OUT of these loans in a hot hurry.  The contracting debt will strengthen the dollar and cause more of a short squeeze for the margin boys.

If you want to know why shares skyrocketed since 2009, don't look to the boomers.  They got their asses handed to them and will never recover from the drubbing they got back then.  I think many boomers have called it splitsville with the equity markets.  They are probably kicking themselves for not catching the big ass bounce since 2009 but they will eventually breathe a sigh of relief as shares will eventually create  lower low.  Misery loves company don't you know.

OK, tables of numbers are fine but how do we know that the peak is really in?  Why can't the borrowing continue on and on and on for years to come?   For that we need to see the data in chart form which appears below.  Right now I'm assuming this is a corrective bounce and thus a-b-c not 1-2-3.  But in either case, a massive margin debt pullback is indicated to AT LEAST the level of the prior 4th wave.  Far more likely is that the concept of using debt to buy stocks with is going to cripple the global banking industry so badly in the coming years as stocks go into "last man out is a bag holder" mode that new laws and limits (Glass-Stegall II) will be imposed on the bankers. 

Once this happens the con men and thieves will no longer be able to leverage up using our savings and checking account to back their market bets.  When that stops, the stock markets will be dead for decades to come.  Without massive leverage by bankers, who is going to buy into a collapsed stock market??  Boomers?  I don't think so.  They will be spending their retirement money, not gambling it.  Young people?  Sure.  As soon as the 30 somethings move out of their parents house and get a job they might have something to invest.  Face it, the concept of investing is structurally wounded unless massive leverage is in play.

Be sure to check out the C wave of that margin debt since Elliott waves seem to apply to everything in the universe.  5 clear waves up so far.  Clear alternation between waves 2 and 4.  Parallelism between 1-3 and 2-4.  Wave 3 is the strongest of the series and even though the monthly resolution does not provide enough detail, you can see that wave 3 seems to have 5 sub-waves in it. 

Without the presence of ever increasing of debt, a debt Ponzi is doomed.  These stocks were all bid up using debt and without more and more debt being used to bid them higher and higher, the margin service (the cost of borrowing money to speculate in markets) will eat the gamblers alive due to the extreme leverage tricks they are using.  So you see, a debt Ponzi cannot just have a Permanent Plateau of Perpetual Pleasure and Prosperity.  No my friends, the game of the Ponzi is grow or die and this margin debt chart is most likely rolling over right here, right now.

When will the wake up call happen? My model predicts very soon...

I'll start off by saying that this is only a model, not all of my models have played out as expected, and the usual disclaimers about odds versus certainties, etc.  I'm being asked by several sources when I think Prechter's moment of recognition will occur.  Of course, if you read this or other EW blogs at all, you will know that it happens only during 3rd waves and the cause of the recognition is sudden massive, scary moves which cause the herd to lose confidence.  In charting we call those "gaps".

Well, I expect to see some gaps coming in the next 2-3 weeks.  If Wal-mart cannot do well then earnings are going to suck across the board.  I suspect that we will see my long predicted one day 500 point drop in the Dow somewhere within the blue rectangle below.  It will most likely lead to a 3rd wave that takes us to a lower low than the Feb 2014 low.  That's when people are going to start getting afraid.  We've heard this tune before back in 2007-early 2009 and we all know what happened that time: a 50% hair cut.  But we recovered from that and then some using every ounce of stimulus that the federal reserve could muster.  This was not a US event, it was  global event.  So here we are with all the central banks of the world having balance sheets that are chock full of worthless debt based assets that will certainly be defaulted upon as the world caves into the crushing force of credit deflation.

The result will be a lower low than the last low.  This post contains charts that show the very high level model that I expect to play out (scroll down to see the charts of expanding triangle).  That means it will be at least 60-80% loss (perhaps 90%+) and it will not recover quickly the next time because the fed will be holding a bloated, defaulting balance sheet.  The fed has shot its wad.  It cannot bail the financial system out again.  They need time to recover and time is what they do not have.  This is how Japan's stock market tanked 86% from its peak (so far - it will go down much lower before the collapse is over).  It's also how the Icelandic stock chart collapse from 9000 down to 250.  Chinese stock market was down 60+% already and will crater even more from here before the collapse is over.   

The US is no different, just a bigger flywheel, that's all. 

Everything else is structurally the same and so the result will be similar.  Math is math.  It will not be denied.  All of the "market cap" valuation that we have been sold is vaporware which will evaporate into mist as soon as the massive defaults begin.


Those who think the fed can just print money to avoid asset price deflation don't understand 2 basic points.

1. The money supply is made up of 2 components: the monetary based which is federal reserve notes authorized by the federal reserve, and the fractionally reserved credit.  While they spend the same in the economy, they are actually different kinds of money. One of them is used to buy bread, milk, gasoline and clothing.  The other is used to buy long term assets like cars, houses and yes, financial assets like stocks.
2. The credit portion of the money supply is at the very least 10x the monetary based.  Some data suggests that the leverage is even higher, especially when you factor in the value of all future government promises for social security, health care, etc.  For example's sake, let's say the monetary base is 4 trillion (which it is) and the credit is 40 trillion (we know it is more than that but 10:1 makes easy numbers).  Let's say the credit supply contracts by 10% because there are no more willing lenders or borrowers.  That is 4 trillion gone from the money supply.  If the fed tries to make up for it with the monetary base then they have to double the monetary base.  So in other words, in order to prop up the market value of real estate and stocks by 10% they will have to double the price of things not bought on credit like bologna sandwiches, milk, fruit, heating oil, gasoline.  Even electronics, which we are all used to see going down in price each year, could see rapidly rising prices.

If #2 happens then people go hungry.  Their children go hungry.  They want for the basics.  Welfare and other optional "safety net" programs like food stamps are cut off.  Store shelves begin to go empty.  People become angry and, thinking they have nothing left to lose, they "lose it" (one of my fav Gerald Celente quotes).  That's the basis of real food lines (not the electronic ones we have today) and armed revolt by the people.  That's how states finally secede from the union.  That's how martial law and military coups and civil war begin.  When people see their kids go hungry and they see government unwilling or unable to do anything about it, they stop being nice little citizens and they turn into snarling beasts. 

This is not going to end well and there is nothing anyone can do to stop it.  Any attempts to do so only kick the can down the road.  While that might sound like a good thing it is not a good thing because it comes with a price: letting a problem fester only makes it worse to deal with when the day of reckoning finally comes.  So anyone in government who enabled the can kicking simply doomed more citizens to bad consequences, including the violent deaths that always accompany civilian fighting.  This is why I think most of congress and the entire executive staff is guilty of high treason against the people of the United States.  I predict that within a few short years this extreme sounding position becomes common thought as everyone will by then learn what I already know: they are con men running a debt Ponzi using the tools of fiat currency and fractional reserve banking.  All Ponzis always collapse, no exceptions.  Those running the con knew it from day 1 and they didn't care.  In fact they laugh about it all the time and refer to those who will be culled from the herd as a result as "useless eaters".

Headline grab bag. The bad news is piling up.

Zillow says that nearly 20% of mortgages are underwater.

Credit Suisse admits guilt in conspiring with US citizens to evade federal income tax.  The concept of too big to jail is wearing thin.

Cramer still pushing "buy the dip".  This con man is just saying that it worked so many times before, why not now?  Why not again?

Home Depot disappoints on earnings.  So, people aren't buying new homes and they aren't fixing up the old one either.  Maybe our homes are good enough for another decade of just living in them.

Dennis Gartman warns that a correction is coming.  His crystal ball has been pretty good of late.

Mel Watt, the government appointed bureaucrat running fannie and freddie tells fannie and freddie investors that they are not his priority.  Yeah we know Mel, keeping the Ponzi going is the priority.

Sugar, coffee and nickel and copper metal along with oil all magically having production shortages or other cover stories that will explain the higher prices that everyone knows is coming.  In other words, excuses so that we don't blame the federal reserve.

Target fires Canadian operations chief.  They didn't even give him the courtesy of letting him "resign to spend more time with his family".  It's going to get nasty folks.

The EU charges JP Morgan and others with rigging markets, expect big fines (back door taxation) to be the result.

Vatican bank is just as corrupt as any other.  At the end of the day, a bank is a bank.

Wave 2 back up is complete. Prepare for a 3rd wave down in the major indices.

The DJIA/S+P500 decided to throw over on the 5th wave of the ending diagonal as I suspected it might in my recent topping model.  See the highlighted part in that post where I cautioned that the action to date might only have been A of 5.  And so it was.  Then B of 5 played out and C of 5 threw over.

That was very likely the peak of the entire bull market since 2009.  The chart has since taken out the upper and lower support rails and then back-tested from below.  Soon we should begin to see fear creep into the herd.  It's like a Godzilla movie.  People might hear about the carnage elsewhere but until they actually see the eyes of the monster in their own back yard, they are deer in headlights.   They should be buying puts as fast as possible while they are still ridiculously cheap (what I have referred to several times in these pages as a great depression in fear) but that kind of insurance costs money and so they hope to wait until the last minute, until there is no other choice before they buy.

Of course the price of insurance will have skyrocketed by then...