by
Clive Maund
CliveMaund.com

Recently
by Clive Maund: Heads
a Deflationary Implosion – Tails a Hyperinflationary Depression…

Most investors
were duped by the mainstream financial media into thinking that the
broad US stockmarket made an important upside breakout last week,
but according to our charts it did no such thing. Sure the market
did breakout to new post 2008 – 2009 crash highs, but it DID NOT
break out to new highs on longer-term charts, and DID NOT break
out upside from the large bearish Rising Wedge that it remains stuck
in.

Our 4-year
chart below, which shows the uptrend from the 2009 lows in its entirety,
makes plain that the market is in the late stages of a huge strongly
converging, and thus strongly bearish, Rising Wedge, which results
from a steady diminishing of buying power. As we can see it must
soon break out from this pattern and if the breakout is to the downside
it is likely to plunge, which is likely given the looming Fiscal
Cliff which will ravage corporate profits – if it succeeds in breaking
out upside it will buy it more time, but this is considered a much
less likely outcome.

Our long-term
20-year chart shows that the market has risen up into a zone of
strong resistance approaching its 2000 and 2007 major highs – so
much for the great breakout. Looks more like a great place for it
to turn tail and start another bearmarket.

So what has been happening elsewhere while investors in US markets
have been led to the edge of the cliff by the QE pied piper? Investors
in Chinese markets do not seem so enthralled with the future outlook
at all, as our 4-year chart for the Shanghai Composite index makes
clear. It is incredible to think that while the US markets have
wafted higher by about 26% since the start of 2010, the Chinese
market has slumped by 36%.

So which group of investors is right about the outlook for the global
economy? – before you go ahead and place your bets you ought to
consider the following chart for the Baltic Dry Shipping Index…

…and we can
put this all together on one disturbing chart that enables us to
make a direct comparison between these 3 elements…

This Baltic
Dry Index is a truly frightening chart, as it is already at the
dismally low extremes plumbed during the depths of the 2008 market
crash. If it is a reflection of the true state of affairs it means
that world trade is imploding – and that means that the US stockmarket
is hanging on a thread, with investors smoking the QE hopium pipe.
Don’t believe it? – before you go off searching for evidence that
this chart is somehow skewed and no longer functioning as a true
reflection of the state of the world economy, you might like to
take a look at the following 2 charts, and then try your hand at
finding an excuse for them too…

The 1st is
a chart for the US trash index, and while there is scope for distortion
here as this is trash carried by rail freight, it is certainly not
encouraging, and as we can see it nosedived around the time of the
2008 crash and is plummeting again right now.

Before you
dismiss the previous chart as a load of rubbish take a look at this
next chart which shows the Velocity of Money going back many years,
as we can see it has recently slowed to an alarmingly low level
– well below its lows at the depths of the 2008 market crash. Are
you starting to get the picture yet? – is the penny starting to
drop?? Knock knock – is there anybody in there???

A big reason for the US stockmarket’s rally last week was nothing
to do with the economy and everything to do with the steep decline
in the dollar, so it was just rising to compensate for the dollar
drop. The main thing about the dollar is that it has been written
off by many commentators as “toast” – and every time that has happened
in the past it has made a comeback. Could it be different this time?
– Could it really be toast this time round? – anything is possible
but the probability of a rebound here is high for reasons that we
will now examine.

The entire
uptrend in the dollar from the lows of July last year can be seen
to advantage on a 14-month chart. On this chart we can see that
it appears to have broken down from the main uptrend, a development
presaged by the earlier weaker impulse wave that took it up to about
84 in July. This may mark the start of a breakdown from a bearish
Rising Wedge, or the channel may be becoming less steep as shown,
but with adjusted channel support and support from earlier highs
and a rising 200-day moving average close by, it is believed to
be too soon to write off the dollar. We see also on this chart that
the dollar index is at its normal oversold limit for this uptrend.
All this means that the dollar could turn up soon.

With 90% of investors in US markets now looking to the Fed to save
the day by waving its magical QE wand, the scope for disappointment
is now huge – and there may be nothing to look forward to after
the FOMC meeting on the 13th – and what if they do a big QE immediately?
First of all it would take time to take effect, and there is no
more time. Secondly, even if the banks stopped greedily sitting
on all of the QE cash and let it out into the real economy, the
result would be roaring inflation, and inflation is already high
enough in the real economy, given that it is teetering on the verge
of collapse. This inflation would impoverish consumers who would
then spend less, thus adversely impacting corporate profits, resulting
in falling stockmarkets – so they are damned if they do and damned
if they don’t.

Given that
stockmarkets generally discount the economy 6 to 9 months ahead,
it is clear that the situation for the market is already extremely
dangerous – the only reason that it hasn’t started down already
is false hopes over a QE rescue.

The great
thing about the current situation is that the latest new high by
the market is giving us an opportunity to offload stocks at generally
very favorable prices and to reverse position into bear ETFs and
Puts, so that we can then feast on the ensuing severe decline while
others are losing their shirts.

What will
happen to gold and silver if the stockmarket goes into the tank?
– well, past experience demonstrates that things could get ugly,
although this time we have to factor in that before too much longer
the bond market could tank too. Right now after a near vertical
ascent silver has become super critically overbought on a short-term
basis, meaning that there is a very high probability of it burning
out, at least temporarily, very soon.

The latest COTs show Commercial short and Large Spec long positions
for silver are at levels that in the past have marked reversal points.
Could these readings get even higher? – anything is possible, they
could fly off the scale, but this is clearly becoming an increasingly
dangerous trade on the long side on a short-term basis at least.

It is suspected
that Smart Money, well aware of the trap that has been set, will
be taking profits ahead of the FOMC speeches on the 13th, leaving
the news orientated little guy holding the bag as usual, so prices
could start to come off the top even ahead of this date. It is therefore
considered prudent to ditch the vast majority of any remaining long
positions in the broad market early this coming week, and also to
take positions in bear ETFs and Puts, according to personal preference.
If prices rise after the statements any such rally is expected to
be short-lived once reality sets in – with so many now bullish,
there can’t be many left to buy whatever comes out of the Fed.

One erroneous
theory doing the rounds is that the markets “won’t be allowed” to
drop before the election, because this might damage Barack Obama’s
chances of re-election. There are 2 points to make regarding this.
One is that the Democratic and Republican parties are 2 heads of
the same hydra, and they are both controlled by the same ruling
elites, so that the US elections are a farce. The second is that
Israel is known to like Mitt Romney, the Republican candidate, so
a market crash to get him in would suit them, although either candidate
would serve equally well.

Now that their
coats have grown back, it’s time for US investors to get fleeced
again…

September
15, 2012

Copyright
© 2012 Clive
Maund