Bloody Well Right
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I took some stick over the past week for my predictions that the market was about to "come a cropper", in the Message to Wall St and Friday's Candlestick Warnings articles. So it is gratifying to see markets plunging today, and US markets breaking down from their weakening uptrends to enter what is expected to a be phase of protracted and severe decline. The classic atmosphere of panic is nicely captured in the photos inthis Bloomberg article.
Fundamentally it was almost inevitable that the markets would turn lower after the latest Fed meeting. They had been rising for a month or so in the hope that the Fed would "pull the rabbit out of the hat" by announcing QE2, not to be confused with the old ocean liner QE2 which stood for Queen Elizabeth 2. QE2 in the financial world stands of course for Quantitative Easing 2. Even if they did announce a full fledged QE2, what would it mean? - it would mean that their bankrupt and desperate policies up to now have not been sufficient to straighten things out, and if they didn't the wilting economy would continue to stall into outright deflation. So it was a lose - lose situation for dim-witted investors expecting the Fed to come to the rescue.
You don't fix the problems created by excess debt by creating even more debt - you "pull your horns in" and exercise discipline and restraint and get your house in order, but like some hopeless drunkard or junkie the US government and Fed don't want to do that - they are caught in a vicious cycle of servicing debt and obligations by creating ever more debt. We have all as children watched some younger child blowing a balloon up bigger and bigger until it explodes in his or her face. That is exactly what the Fed and US government and Treasury are doing with their expanding debt game, and they are getting ever closer to the whole thing exploding in their faces.
Alright, so what now? The problem is that the Fed is "out of bullets". They got away with QE1 in 2008 - 2009, but now that they have little or nothing of long-term value to show for it their credibility is in tatters. So if they attempt an all out QE2 the result will be to crash the dollar and ultimately the all-important bond market as well. The market's verdict this morning is that the deflationary train is on track and is not going to be stopped by these shenanigans. What the world actually needs now is a good deflationary depression, good not because of the economic dislocation and privation that it will cause, but because it will purge the system of debt and other accumulated trash like derivatives, and clean out the vast layers of parasites that have bred like flies in this cesspool of debt, like much of the financial services industry. Actually, these forces of depression and deflation have built up over many years to reach explosive proportions and are now regarded as unstoppable, and continued attempts to obstruct them will simply add hyperinflation into the mix.
What should investors do to sidestep this maelstrom? The best investments during another deflationary episode, which will be like 2008 in its effect on the markets, only worse, will be cash and short-expiry bonds, and bear ETFs. The dollar should recover strongly and is already beginning to as predicted on the site. Pretty much everything else will crash, including most commodities and stocks. Gold should hold up better than in 2008 and then go on to recover with great vigor once the crash phase is over, as it will have ultimate safe haven status and really come into its own. Silver will get treated as an industrial metal during the crash phase and be smashed as in 2008.
After the crash phase spike the dollar should go into renewed decline and will eventually be incinerated along with the Treasury market, as the paper of a bankrupt country are finally recognised as the worthless trash that it is.
Bloody Well Right was a song by a band called Supertramp in the 70's. This was a crude song, which Maund doesn't like, but it is very appropriate in its association with last week's articles on the broad stock market. Fortunately, this band composed much better songs.
Clive Maund, Diploma Technical Analysis
[email protected]
www.clivemaund.com
Copiapo, Chile, 11 August 2010
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Clive P. Maund’s interest in markets started when, as an aimless youth searching for direction in his mid-20’s, he inherited some money. Unfortunately it was not enough to live a utopian lifestyle as a playboy or retire very young. Therefore on the advice of his brother, he bought a load of British Petroleum stock, which promptly went up 20% in the space of a few weeks. Clive sold them at the top…which really fired his imagination. The prospect of being able to buy securities and sell them later at a higher price, and make money for doing little or no work was most attractive – and so the quest began, especially as he had been further stoked up by watching from the sidelines with a mixture of fascination and envy as fortunes were made in the roaring gold and silver bull market of the late 70’s.
Clive furthered his education in Technical Analysis or charting by ordering various good books from the US and by applying what he learned at work on an everyday basis. He also obtained the UK Society of Technical Analysts’ Diploma.
The years following 2005 saw the boom phase of the Gold and Silver bull market, until they peaked in late 2011. While there is ongoing debate about whether that was the final high, it is not believed to be because of the continuing global debasement of fiat currency. The bear market since 2011 is viewed as being very similar to the 2-year reaction in the mid-70’s, which was preceded by a powerful advance and was followed by a gigantic parabolic price ramp. Moreover, Precious Metals should come back into their own when the various asset bubbles elsewhere burst, which looks set to happen anytime soon.
Visit Clive at his website: CliveMaund.com
