Why this time it IS different…the case for discounting tradition

This post is probably going to end up pulling a bunch of pieces together and I will likely be adding to it over the next few days - as there are a lot of components to pull together.

Run for cover…or cover for the run?

I think the answer to that question depends on the actor…If you are a normal person I would say “RUN FOR COVER” if you are the FED or the ECB, I would say “Cover for the run”…and that appears to be exactly what they are doing…I find it truly disconcerting and troubling that on the day the news flow from North Korea ramps up, the FED is quietly talking about winding down QE towards the end of the year and suggesting to do it in $10 billion increments. I am quite aware that the FED is now preoccupied with the covert bank run that is currently threatening the financial system. Certainly, it would be highly convenient to look for anything that could be used for cover and potentially distract people from the on-going cataclysm that is bellowing.

Technicals & Sentiment:

Bears and Bulls:

The state of the markets is perpelxing. We have weekly and monthly charts with little or no divergence. We have bears and bulls alike suggesting the market will only pullback and then rush to new highs…none of them have any real basis for this other than “a central banker will buy”. We have 16 year old stock pickers blabbering about in the media. We have David Tepper suggesting that a totally bankrupt “America IS on the verge of greatness”. We have a country where the top 500 companies in the S&P have less than $40 billion in cash because they are so addicted to BURNanke’s drugs that they simply must borrow so they can buy their own stock and render management stock options in the money.

I beg to differ.

Japan with public debt estimated to reach 245% of GDP, seems to allowing Shinzo Abe's government to just attempt to inflate this debt away…interesting to see how that idea goes.

Bonds:

US Treasury bonds continue to highs and seem ready for a larger move...

Commodities:

We have consumable commodities that have been weak to absolutely crashing for quite a while now. From corn to lumber to wheat to copper to soybeans its just weak, weak and weaker for quite some time. This diverges significantly from the arbitraty behavior of people who seem to think of equities as the new BitCoin and safer than a bank store of purchasing power.

Precious Metals:

Gold and Silver have been in huge downtrends for a long time now. Since GLD became the biggest ETF of them all GLD has done nothing but retrace…now EVERYONE sees the triangle seeting up and is betting that instability and banking problems will drive Gold and Silver to new highs. They would be wrong, in my opinon. When SPY became the biggest ETF ever and of them all that was in the year 2000…after that event SPY has spent the last 13 years doing nothing and had some gargantuan declines in the process. Moreover there are other factors that suggest that the declines in Gold and Silver are just barely started and that this non rally state for them will go on for many years. 

Fundamentally, Gold and Silver do not function as money because they are NOT transactional. They rather function as collateral. Collateral most often held by institutions and banks. If you happen to be in the midst of a demand for deposits (bank run) the most easily liquidated collateral on your balance sheet will be liquidated first. The reason that Gold and Silver have been in long drawn out downtrends it that they were so overly hyped (again due to our sanitation services skilled BURNanke) and EVERYONE got in…hence the GLD becoming the biggest ETF of all EVER. 

There are other considerations regarding gold and silver aswell that could limit the next few years potential if the bank runs were to promulgate, in my opinion. One of the biggest ones is the need for people who have withdrawn money from the banking system and in their distrust turned to other stores of value (Stocks, Bonds and Precious Metals) only to find consistent liquidation suppressing prices and buying power, will reach a point where they too could need to liquidate their precious metals to pay bills, buy clothes and pay for life’s necessities. This would no doubt continue the cycle of pressure on precious metals. Though all this sounds like “How could it happen” all that is required is an imploding banking system and distrust of institutions to create the exact opposite effect as expected for Gold and Silver. Until Gold and Silver become transactional there is no real alternative…people will need to convert them into something else in order to use them.

FreeMarket Currencies...BitCoin:

I think BitCoin is NOT a bubble in thevery BIG picture and can see it going up 10x from here over and extended time and as it matures on its sure to be volatile path…there are many reasons, which I will get into as I ammend this post and add charts. But as it seems for just about any investment these days, you will need seatbelts and airbags. People need free market money and they need transactable money…BitCoin is just one of the type of free market money that will be developed. It will be very volatile, but it will be a free market. I think people will end up chosing free market over government manipulated. I also, think that we will most definately need to see competing free market money…which will ultimately include sovereign currencies. I also think that the FED will be so busy dealing with trying to prop up their antiquated debt money system that they will not effectively be able to suppress people from allocating their buying power in ways they feel enable them to function.

As indicated, please keep coming back to this post as I will be updating and adding to it for a few days.