It’s All out the Window Now
Excerpted from NFTRH 204:
In the run up to last Thursday’s FOMC announcement of open ended ‘asset’
(mortgage debt) purchases, ZIRP extension and Twist continuation, NFTRH
had been using the average US presidential election cycle, sentiment
backdrop and of course technical analysis to stay bullish (with
associated rising risk profile). We had incorrectly minimized the
potential for QE right here and now in the interest of not running with
an increasingly over bullish herd and with respect to risk management.
Well, that is all out the window now because the US has apparently
conspired with Europe to jointly enter the currency depreciation
sweepstakes with the US springing out of the gate to a healthy lead.
Sentiment is becoming dangerous, speculation is breaking out and
liquidity warning indicators like the Gold-Silver ratio, US dollar, US
Treasury Bonds, TED Spread and LIBOR have all been dispatched on a
southward journey in the interest of greed, speculation… and
desperation. This is the moment of maximum hubris by Ben Bernanke and
powerful policy makers the developed world over.
This is the moment
that this newsletter’s name comes to the forefront because we as market
participants, as participants in society are down the rabbit hole now.
We have actually been there since 2001 (some would argue since 1971) but
now all pretense of normalcy is gone. The somewhat clichéd title of
the main website ‘but it is what it is’ (biiwii) comes into play because
this is the system they have created for us. Our dear leaders actively
manage the environment in which we operate and thus far, survive.
“There is nothing wrong with your television set. Do not attempt
to adjust the picture. We are controlling transmission. If we wish to
make it louder, we will bring up the volume. If we wish to make it
softer, we will tune it to a whisper. We will control the horizontal. We
will control the vertical. We can roll the image, make it flutter. We
can change the focus to a soft blur or sharpen it to crystal clarity.
For the next hour, sit quietly and we will control all that you see and
hear. We repeat: there is nothing wrong with your television set. You
are about to participate in a great adventure. You are about to
experience the awe and mystery which reaches from the inner mind to —
The Outer Limits.”
You just knew this was coming… 
Why the little smiley face? Because since day one (for biiwii.com
that was June of 2004) I have felt that the system (of Inflation onDemand)
is phony baloney and began preparing in line with this view in 2002.
Precious metals, debt elimination, alternative heating, personal
protection and other initiatives have been combined to augment a
relatively happy lifestyle, while always remaining aware of the artifice
and embedded moral hazards of the system in which we operate.
Excerpted from first thing I ever wrote, which may have also been the
last thing I actually needed to write, FrankenMarket Lives http://www.biiwii.com/frankenmarket.htm, in 2004:
“Whereas a less mature, formative America worked and produced
itself to the stature of superpower, we now find a bustling, mature
society that sadly feels entitled to its riches and stature. In short,
hubris has set in to the American consciousness, and it is hubris that I
believe will be its downfall. We are simply not seeing things through
the same eyes that our great grandparents, grandparents and even parents
saw them through.” And…
“The market will look to the economy, and being a forward looking
monster, I expect it to see one of two things; The Fed taking away the
punch bowl for real, deciding too late that the party is over, or more
realistically, it will see a Fed doing all it can to sustain the monster
it created. This market was stitched together with debt, and it will
require more of the same to keep it going. We are knocking on the door
of hyperinflation, and I believe the Fed will choose to open that door,
given that it is too late for our economy to de-leverage in any orderly
fashion.”
Since this was written I have come to respect the idea of deflation
as an eventual terminator of the system. This would be the alternate
ending to von Mises’ Crack Up Boom hyper inflationary blow up. I am not
learned enough to be able to predict which will win out, so NFTRH will
just proceed with the simple picture it has used since its launch in
2008.
Monthly 30 Year Yield, AKA the ‘Continuum’
The Continuum AKA the multi-decade decline in long-term T bond yields
acts as a backbone to the Federal Reserve’s main body of work; i.e.
inflation. When the lower boundary of the Continuum is threatened the
Fed acts in an inflationary manner, ostensibly to save the system from a
deflationary unwinding. When the upper boundary (the 100 month
exponential moving average) is threatened, a red arrow gets inserted
into the picture and just kills anyone foolish enough to go in hard on
the inflation play; like ‘Bond King’ Bill Gross did concurrent with the
most recent red arrow’s appearance.
So, according to the Continuum at least, we see why Ben Bernanke went
steroidal last week. He had the implied permission of this chart. It
has been after all, a neatly mocked up deflationary backdrop ever since
Europe started to unwind and the Fed and those who follow its
breadcrumbs began sopping up T bonds to epic and over bought status.
But that play is out the window now as the frightened millions who
bought the deflationary bear argument at the exact time they should have
been looking bullish sit squarely in the line of fire of inflationary
bazookas being manned by the Federal Reserve and ECB. Folks, we are
going off the charts now and risk will continue to rise with market
prices. It’s a high stakes game after all. All or nothing. With gold
and silver prices above 1700 and 30 respectively, crude oil at $100 a
barrel and the S&P 500 above 1460 backed by a lame economy, one
wonders how much upside certain asset markets have in them. It is a
long way after all, to the next red arrow. We’ll leave aside (for now)
the question “what happens if the Continuum does not paint a new red
arrow at the EMA 100 but rather, just smashes through it one day?”
Well, here’s a hint… we would hear a lot of the name ‘von Mises’ and a
lot about his ‘Crack Up Boom’.
But that is what bubbles are. They are all until eventually they are nothing.
We may be forced to speculate and make our funny munny that would be
created out of debt monetization. I personally enjoy this process in
warped sort of way. I understand the terminal nature of what is in
play. I understand what happens when money gets so frightened that it
just flies up its own ass in a panicked display of unbridled greed and
fear. But this is what I have been preparing for since 2002.
I was created first by Robert Prechter and then nurtured by Marc
Faber, Bob Hoye and a notable and unnamed person I met down in the
Rabbit Hole. He also played a role in activating others, including some
who are widely known now. That was a weird and scary time in my life.
Today is just destiny I guess.
So it is all out the window now, with “it” mostly defined as
conventional analysis by conventional market analysts. The lunatics are
taking over the asylum and you are about to participate in a great
adventure. You are about to experience the awe and mystery, which
reaches from the inner mind to – The Outer Limits.
Be ready for anything; like risk, riches, martial law, the system’s
end or a brighter future. We are going off the balance sheet and off
the charts. Okay, now NFTRH 204 reels in the loony talk and returns you
to your normal programming.
And with that NFTRH 204 transitioned to more traditional analysis
because there are fortunes to be made, there is capital to be preserved,
perceptions to be cemented and and a willfully created speculative
environment to be managed.
