Shaky Ground

When I wrote my Twilight Zone post a few weeks ago, I didn’t realize how weird things would get, and quickly. The markets are one thing, although the speed and magnitude of this rebound wave in equities is not that different than many others I have witnessed over 25 years. This one is just big and is taking a while. What really concerns me, however, is the accelerating disintegration of our social fabric and polarization of everything. Recently an old man was beaten by an attendant at a nursing home, recorded on video no less so everyone could see the horrible act. A couple days ago a man was pinned down by police officers, and then later died. It is not clear how he died, but the officer appeared to be using excessive force on his head and neck area while holding him down during the arrest. The media reaction to these two events has been different, although I am not contending they have equal weights. One event was given very little press in the mainstream and very little commentary by government leaders. The other has been broadcast for 24/7 since it occurred, with various leaders speaking out and calling for immediate punishment for the officers who have since been fired. I actually saw one comment on social media stating the officer had intent to kill.

The varied reaction to these horrible acts is a great tell as to how divided and polarized we are as a society. It seems everything has to be viewed through a political and often racial lens. However is it about race, or is it something else? Is it a broader socio economic decay that is augmented along racial lines? A breakdown in civilized society? Perhaps it is just that these things have always occurred, with the exception being they are now caught on camera more often, intentionally or otherwise.

The media, in my view, is at the root cause as to why things have become polarized. Media correspondents no longer report the news, they want to make the news. Social media companies want to provide a narrative for everything. If you don’t agree with that narrative, you may be “fact-checked” or outright censored. I have a big problem with this as it has been going on for years, and accelerated during the Trump era. It is one thing to have a different opinion and a robust discussion on the pros and cons of an issue, but it is entirely another to completely dismiss another vantage point simply because it doesn’t align with a narrative. If facts need to be omitted, then so be it. To me this is a fundamental breakdown in a basic pillar of democracy…and completely unacceptable.

Does it mean our current form of governance is no longer sustainable? Stay tuned.

Money Printer in overdrive

Whoa, there was a big move up overnight in futures, first buoyed by Fed Chairman Powell’s comments on 60 minutes, i.e. “there’s a lot more we can do” which translated means they can print more money and possibly even buy equity ETFs outright. The optimism continued this morning on promising early results in a small scale human trial for a Covid vaccine conducted by Moderna. I welcome the news of a possible vaccine, however we have been this route before with the market overreacting to early stage results. Regardless of a vaccine or not, the macro issues remain that were present before the virus – too much debt, political chaos, and a new cold war emerging with China.

I present to you an updated Dow chart below, showing the big move overnight circled in blue on a four hour chart in order to give broader context.

These are the times in investing when money is made or lost. If you believe the financial media, it is all unicorns and rainbows and we are headed to new highs in a V shaped recovery. Not so fast, I say. This is the psychology of the market, it screams to buy at the worst possible time as the herd stampedes in one direction.

Therefore I am not only continuing to stay short but adding to my positions. We could go a bit higher, perhaps hitting the 61.8% fib line on futures which would equate to about Dow 25,148 (approx. 25,400 in the cash market). Until then, I will sit and wait patiently as earnings continue to collapse and debt increases exponentially.

Quick update

A lot of news flow lately, none of which is good. I will cover most of this over the weekend as I highlight four seismic events that are converging at once. Currently markets are gyrating a bit however the overall trend remains down in spite of the Fed and Treasury providing massive stimulus. Capital has a way of moving in a way such that it will force the hands of weakness and inefficiencies. For example after Chairman Powell downplayed the use of negative interest rates the other day, the market immediately started placing bets to the contrary. In other words, the credibility of his statement is weak and the “market” doesn’t believe him.

As it stands, the thesis of short equites and long gold is playing out well. Below is a daily chart of the Dow showing Fibonacci retracement levels.

You can see that the Dow retraced about 60% of the March crash at the peak of the retracement, and has oscillated around the 50% retracement level for about 6 weeks. If you recall, I closed short positions that I had accumulated from December to February on March 16th which turned out to be a few days prior to the ultimate intermediate low on March 23rd.. During the 2nd week of April I began accumulating new short contracts as we approached the 50% retracement line. The expectation of a 50% retracement or thereabouts came from review of the fractal from the initial wave down. To watch a wave scale-up from its fractal underling is an amazing and beautiful thing to watch. It’s like having a mini time machine that can see into the future. Currently, assuming we have started the next wave down which I contend we have, I expect this initial impulse to bring us down to approximately Dow 21K ish and SnP 2600ish. It is possible we have one more push higher before collapsing to those levels however I accept that risk. After the initial plunge I expect some kind of rebound which may be violent, followed by an even nastier plunge that may last years.

Gold has finally broken out of a multi week oscillating triangle as I show below.

If you can discern the notes on my chart, I expect gold to rise to 1940 at minimum, likely in the next couple months. It could go much, much higher. The gold thesis is simple. Gold has been used as an anchor to financial transactions and to financial systems for millennia, until the past 50 years. With governments increasingly becoming unstable due to massive debt and political chaos, central banks continue to do the only thing they know how to do, that is print money out of thin air and finance deficits. That of course is extremely bullish for gold. There is also a risk of complete system failure and reset, and an expectation that the new system may be tied to gold again. Maybe, maybe not. Either way, it is very wise to own gold right now, both physical gold and synthetic derivatives for speculation. It is protection against monetary insanity.

The Twilight Zone

It sure feels like another dimension

Here we are, about 6 weeks into a pandemic induced lockdown with many states starting to “re-open” to some degree or another. When I venture out and talk to other humans, you get a sense people are in a haze, waiting for something, anything, to wake them from this bad dream. Most are optimistic and put on a brave face. “We are fine” and “we are well equipped to get through this” are the phrases I most often hear. Really, is everyone “just fine”? I think not. To even the casual observer, one can sense that something bigger is afoot, meaning this is not about a pandemic. I had referenced this thought previously by saying the novel coronavirus was a just a trigger or catalyst to bring about great change. Many are not sure how to articulate this, bounded by political dogmas or general beliefs that can never be violated. If this is in conflict with my belief system, it CAN’T be true. Well yes, it can.

One of the striking and downright terrifying things that is accelerating due to the pandemic is online censorship. Matt Taibbi wrote a nice piece recently on this subject, and many others are chiming in as well. Basically, big tech firms have taken it upon themselves to censor what they feel is “dangerous” content with respect to the pandemic or otherwise. This is occurring as the normal partisan split has occurred within the electorate as to what is happening, how it got started, and how to proceed moving forward. Anyone who thinks lockdowns should be lifted immediately are labelled red team, conservative, Trump sympathizer etc.. Anyone who is in support of lockdowns is blue team, liberal, hates Trump etc.. Would this occur in a normal, functioning democracy? What does “normal” mean? Why can’t people have a rational conversation?

This question is part and parcel as to why I believe we are headed to complete social and economic collapse. My way of understanding this is through extensive study of social and economic cycles, as well as the history of previous empires that preceded the United States. Therefore, what is the bigger picture? Simply stated, the current economic system with the United States having the world’s reserve currency has reached its breaking point. Because of this, we are on a direct collision course with China who is viewed as the ascendant power to our decline. However is that the case? Is China ascendant? Is China’s *system* preferable? Many domestic propagandists here in the US would say yes. I would say no, however would expect the pendulum to swing in that direction as a new equilibrium is found.

It is the opinion of this author that capital and money flows have dictated all of the great conflicts in the history of modern civilization. Empires are made and destroyed by the “money changers” who essentially are the gatekeepers of global commerce. To them, it doesn’t matter who is right or wins, it just matters that goods are exchanged in mass quantities and they get a cut. Therefore if we are near the end of the “American experiment” as some would call it, then the gatekeepers will need another golden goose to exploit. That golden goose may very well be China, ironically enough, with “climate change” used as a tool to redistribute wealth.

Right now people are becoming complacent again as states begin to re-open and the stock market surges to recapture some of what was lost. In reality, we are only in the 2nd inning of the “great change” and things will get worse, much worse. The media regales in stories of how housing prices have held up and even moving higher, when in fact they are just about to re-collapse. Soon, inflation will scream higher in things we need. Food inflation has already soared, with oil and the energy complex to follow. Asset prices will continue to fall, first because they have absolutely no connection to the economic fundamentals they supposedly represent, and secondly they will soon draw the ire of the taxing authorities. We continue to add debt as if it doesn’t matter, when in reality it threatens our way of life and our national security. That said, I continue to be short equites around Dow 24kish and long gold while trading around my positions on silly spikes such as today. I happened to successfully navigate the oil price collapse last month, and was actually short oil believe it or not (currently I don’t have a position in oil and will trade in and out, long or short, as the situation arises).

We are close, very close. I can smell it. So here we are, six weeks into a pandemic induced lockdown…