The financial press is awash in verbiage about the markets: "It's a new bull stock market; it's a bear rally; interest rates are low and the high priest Big Al will do such and such; the crashing dollar is bullish; gold is overbought; inflation versus deflation," ad nauseam.
       It's time to step back and fit the pieces together in a harmonic manner. Let's outline the bond, Dollar, stock, and gold markets to try to build a cohesive picture to gain some perspective.
       The Bond Market is dead meat and interest rates are rising. After legging up in a cyclic bull market and peaking at 123, the bonds have legged down to the 103 level and have been consolidating the downleg. The consolidation looks old. A close below 106 and then 103 would suggest a downleg to the 90 level. Do note that long rates have legged up from 4.0% to 5.5%. Meanwhile the Dollar has fallen out of bed, kicking off a cyclic bear market putting the double squeeze to foreign holders of U.S. bonds in the form of a falling Dollar and falling bonds. In addition, a bond breakdown would crank long rates to the 6-1/2 to 7% level putting the squeeze to the state and federal governments, to the in-hock lemmings, not to mention what a 7% long bond rate will do to the housing bubble.
       The financial propagandists faithfully avoid any mention of the bond and dollar breakdown. However, the mere fact that Big Al and the boys are flooding the system is a testament that they are in a sweat over that breakdown. Of course, pumping up the liquidity only facilitates the lemmings in buying more plastic junk, thus getting deeper in hock, increasing the tension on the debt bubble which will make the eventual bust more violent.
       The stock market outlook needs a dose of perspective. There's a lot of verbiage floating around about how we're in a new bull market. The stock market has been in a cyclic bull market since 1982. Within that cycle the market bottomed last October, 2002, after a purge of the hot-air stocks. This bottom was highlighted at that time. The upleg that evolved was one of a lesser degree within the larger cycle. The wave up off of the October low was indeed a bull market, but, I would suggest, the terminal phase of the larger bull cycle that started in 1982. Do note the wave pattern as delineated in the schematic A/D Line. The point of perspective is that if this is the terminal phase of a bull cycle and that if this count is right (and at this stage, it's still an "if"), then a bear cycle of about a ten-year duration is in the cards when this upmove is waved out.
       Near term, for the last few articles, I've been honoring the uptrend for the only valid reason there is. It's there. At this stage, a close below Dow 9580, confirmed by the Transports below 2830, would suggest the end of the uptrend. A more sensitive level of breakdown would be closes below Dow 10,350, confirmed by the Transports below 2,980.
       The gold complex is in a cyclic bull market having legged up to the 425 level. The Elliott count looks like chop suey, but the thing to keep in mind is that there appears to be a cyclic bull market developing and that probability should be enough guidance.
       Near term, the gold complex is overbought by any measurement and is due for a breather, which appears to be developing. From a strategy standpoint, it may be smart not to get cute and try to grab profits only to re-instate the position at a lower level after paying the taxes. The risk of losing the position in a cyclic bull market is simply too great.
       Injecting a second concept: if the gold complex is just launching a cyclic bull market, the complex is in upside gear, not because there's a shortage of gold production or because the central banks have stopped selling or producers have stopped hedging, which are all valid reasons, but because given a debt implosion, the world's worthless paper currencies are being regurgitated in favor of gold. Given that concept, to measure gold in terms of the usual methods would be like measuring steam pressure on a 1,000-pound boiler with a 200 pound gauge. I would suggest that the favored strategy would be to hop on gold and "ride 'em cowboy." When the major momentum loses steam or when a major brokerage house starts selling bullion, that's the time to begin scaling out.
       To blend the four markets together, bonds, stocks, the Dollar and gold, one key concept must be kept in mind: this is a cyclic or long-term, major turning point, with the new cyclic trends probably measured in years. The bonds are most likely kicking off a cyclic bear market. The Dollar has started a cyclic bear market. The gold has started a cyclic bull market, and the stock market is most probably in a terminal stage of a cyclic bull market that will be followed by a cyclic bear market of about a ten-year duration. One must render unto the cyclic that which is the cyclic, which leads us to inflation vs. deflation.

       The bond market, being busted, only needs a close below 103 to confirm the bear cycle and a move up to 6-1/2% long rates. No doubt, this is motivating Big Al, via low short-term rates, to flood the system with money to try to keep the debt dam from busting when bonds break down and rates move up.
       However, in this case the money flood is being flushed against a busted cycle. We have a tug-of-war between the flood of money, which dogma dictates is inflationary, versus a potential deflationary bond market bust, which will force rates up and bust the debt dam. In addition, a busted buck and bullish gold are thumbing their collective noses at Big Al. On one hand, we have the economic cancer of inflation, versus the heart attack of deflation given a bond breakdown, rising rates and accelerated debt default as an in-hock society suffers a massive case of the shorts. It's Big Al against the markets. Inflation vs. deflation.
       While Big Al and the fed-babblers are having their near-term fun, the markets, via the bonds, buck and gold, are saying that they'll win with deflation. Why ?
       Foreign holders of bonds, who have been getting hurt in the bond and Dollar decline, constitute an exterior market force that couldn't care less about some lemming having a few more debt bucks to buy plastic junk. I've often heard it said that there is an international banking cabal that puts this whole gang in bed together. This may or may not be true. Banking cabal, or no banking cabal, the territorial imperative will not be negated. It's been inculcated into the human condition after three million years of the natural selection process.
       The foreign holders of bonds are worried about major capital preservation as the Dollar is being devalued and bonds move down. Given a bond breakdown, it will be nuts to any cabal and "Every man for himself" to dive off of the bond/Dollar Titanic. In short, don't have any faith in verbiage, just the ebb and flow of money to see which way it flows, and, if those bonds break down, the money will flow out, and interest rates will rise along with deflationary default.
       Given that breakdown scenario, and given the size of the whole debt load, any hint at economic equilibrium can only be believed by a brainwashed fool. We have an economy built on a hollow shell of debt. There is relatively little capital versus relatively high amount of debt, which history and markets suggest that a cyclic implosion will be the only result.
       Big Al is fighting the tape. If he wins, then inflationary cancer will result. However, if he loses, the cycle will win in only a major way, a cyclic way.
       Editor's Note: Thomas Henning's column appears regularly in The Bull & Bear Financial Report. His latest market comments appear in the Investment Newsletter Digest section.