West Texas Crude is now officially in a bear market, down 20% from its peak. There is a reason for this folks: the debt Ponzi has entered the collapse phase. People aren't spending. They are hunkering down in much of the country. It is a deflationist's dream and an unfolding nightmare for anyone who doesn't understand what is going on and how it has to play out. Don't walk under tall buildings because it will be raining bankers again soon!
It is only fair to again credit Bob Prechter for waking me from The Matrix. His books taught me the Elliott Wave principle and his understanding of socionomics taught me to think differently (or to outright ignore) much of the conventional wisdom regarding economics and markets. Everyone has been worried about hyperinflation and while that will someday come to the US, we first have to deflate all the bad debt out there. And there is a lot of bad debt which is denominated in dollars. That's what happens when yours is the reserve currency in a global fractional reserve lending situation. There are faaaaaaar more debts out there which are dollar denominated than there are dollars to pay them off. When they default it will effectively kill the naked short on the dollar which is the technical term for "debt".
So as we witness the final days of the DJIA and S+P "record territory" articles on Yahoo finance, grow ever more confident that a massive deflation is upon us and it will strike with incredible speed and power because, while it takes time and energy to rack up debt, it is nearly instantaneous to default. You simply stop making payments, pick up the phone and tell the creditor to pound sand. This is why housing is going to tumble big time along with pretty much everything else. Expensive paintings? Wait until deflation gets a hold of them. Diamonds? Same thing. These valuables are too difficult to value by the average person and the market is too thin. They are not divisible. They are not money. Even gold and silver are due for a pounding according to the wave chart with gold eventually bottoming ~$700 - $750. But then oil will be $20 a barrel, cars will be half price, homes will be 60, 70, 80+ % off just as happened during the Great Depression because when people cannot make the payment, the banks get flooded and they just have to move the inventory or pay property taxes.
By the way, as the pundits have been screaming "new record high" right into the Sept 19th peak for the DJIA and S+P 500, what about the small caps like the Russell 2000? We never hear much about them on CNBC, do we? Folks, they are already into their 3rd wave down! As you can see from the chart below, their high was early July. The Russell 2000 is down more than 12% off those lofty peaks already and the decline is accelerating. If you are worried at all about the next year (at least) of being in TVIX, stop right now because, as only the immortal Tom Petty could sing it, "break down, go ahead and give it to me...".
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