Into the No World Order, Part II
There has been a massive build-up of debt for decades. As the debt implodes, triggered by higher rates, the world's financial structure, which has been built upon the foundation of that rotting debt, will implode. The world's economies will move into a void as the builders of the debt will be incapable of comprehending that the new world order has imploded into the no world order.
As this void evolves, the name of the game for the savvy player will be to make a buck. However, the hard part will be keeping the buck, because there will be a good chance that the checks will bounce in an atmosphere of complete social hostility that condemns anyone with the foresight and ego strength to try to survive this void. Savvy players will be branded as "the rich."
What is important to comprehend is the intrinsic nature of the pernicious animal that will attack and then to survive that attack.
Since Adam and Eve, governments steal, either outright, or through taxes and inflation. Given the approximate 90% decline in the buying power of the Dollar since the 1913 Fed Act was passed, anyone doubting this concept must be dismissed as an uninformed, naïve fool.
Social Security is a classic example of the governmental thievery. The Social Security Act was passed in the mid-1930s and was nothing but a tax scheme paying benefits at age 65, the passers of the act figuring that actuarially speaking, few people lived that long at that time. Being a piece of free lunch, Social Security was an easy sell. Then, some wise guy developed penicillin to complement sulfa, which was introduced in the late 1920s, and lo and behold, people lived longer and the hustlers had to make good at age 65. The tax hustle evolved into a Ponzi scheme that pays off in depreciated Dollars that are taxed yet again. To rub salt into the hustle, the inflation factor is minimized by cooking the books in the CRB Index to lower the inflation numbers, which lowers the payments. To further compound the insult, the latest Social Security modification suggested "means testing." Translation: if you said your prayers, took your vitamins, stashed away a few bucks and worked hard for your old age, you don't collect.
An example of outright thievery was F.D.R.'s seizure of gold in the 1930s by proclamation. While it was paid for at $21.00/ ounce, a number of lawyers have stated that his gold grab was patently unconstitutional.
In broad terms, what has evolved is a massive governmental bureaucracy which has a pernicious and insatiable appetite for tax money. This is supported by an in-hock populous whose main objective in life is immediate gratification fulfilled by assuming more and more debt. It's a Frankenstein monster that must be fed tax money, tax money, tax money. Given a bond breakdown with higher rates, debt default will implode the debt, which will implode profits, which will implode tax receipts, which will starve the pernicious tax money, consuming the Frankenstein monster along with the financial structures that feed the monster. In short, the natural selection process will assert itself in one massive stroke. While bleak, this is an analysis based on the cruel reality of money flow, the only force that is in control. All else is pure noise.
No doubt politicians, needing to feed the monster, will react as they've always reacted thro ughout history: they will steal. Thievery will be dressed up using word like "fair," "share," and "common sense." That's the bad news. The good news is that the monster, unfed by tax Dollars, will virtually dissolve into an impotent void incapable of doing anything. The government, not collecting tax dollars, will not be meeting the bureaucracy's payrolls. The mechanism running the monster will dissolve as politicians move into a world that they will not comprehend, and that will be the advantage for the savvy player.
No doubt this is why gold has begun to breakout against the Swiss Franc, the Yen and the Euro. The markets are beginning to discount the coming no world order by selling paper currencies backed by debt, in exchange for gold.
The key to survival will be adaptability by pragmatically operating understanding the nature of the beast. More in the next article, but let's review the markets, starting with gold, then bonds and stocks.
The gold complex bottomed in late 2000 and has legged up as illustrated by the XAU chart. Technicians have been wrestling with the Elliott Wave python, trying to define the right wave count. Frankly, I have two counts that would be operable, with the jury still out. One count suggests that the May lows completed the correction , with an alternative count suggesting another downleg. All of this wave confusion is okay, because we've developed some clarity. A close above XAU 96, with some follow-through with the spot gold punching through 460, would suggest that the juicy #3 wave is in gear. However, a retest or a close below the May lows would be loaded with bullish divergences too numerous to define. What we have here is a question of form. The substance is that the cyclic bull market in the gold complex looks intact.
Harmonizing with this gold picture is the Dollar Index, which has rallied up consolidating a major downleg. The rally looks old and is leaking oil. A close below 87 basis the Dollar Index would be bullish for gold, bearish for the Dollar, so keep an eye on the buck along with the aforementioned gold complex levels.
 The bond market, the key to the whole shebang, has completed a cyclic bull market with the wave count illustrated in the Weekly Bond Chart.
A few weeks ago, the bond market peaked out at the 120 area and has legged down to the 114 level with the Daily Hard Momentum turning bearish.
Near term, the bonds have been consolidating the recent 5-point downleg and a close below 114 would confirm the top and bust the Weekly Hard Momentum to the downside, confirming the start of a cyclic bear market in bonds with a cyclic rise in rates, which will bust the economy. The debt load will get squeezed by higher rates.
The stock market has been in a bull cycle since August 1982. The dot com bubble burst was a correction within that larger cycle. The market bottomed in 2002 and legged up in the 5th and final upleg within that 22-year cycle as illustrated by the Weekly Value Line.
The Value Line illustrates the 5-wave construction as marked with the 5th wave having 5 waves internal to that 5th as marked. In short, this baby looks waved out, but until the market responds to the downside, the uptrend must be respected simply because it exists.
However, as of early August, internals are beginning to bend over, suggesting that the near-term uptrend is terminal. Sensitive closes below Dow 10,570, Transports 3732, would confirm the start of a downtrend that the favored count suggests that the cycle is done.
Moving over to the Comparative Dow/Transport charts, closes below the April lows of Dow 10,000/Transports 3340, would confirm the start of a cyclic bear market with a life expectancy of about a decade. Tattoo those levels into your brain.
In sum, the gold complex has either bottomed or is putting in a bottom needing an upside confirmation to signal the start of the next upleg. The bonds have cracked to the downside signaling the start of higher rates and the stock market is waved out with internals starting to bend over, having clear marker points to signal the start of a bear cycle having the life expectancy of about a decade.
To recap the larger picture, given the previously described market situation, a breakdown will cut off the tax lifeblood of the pernicious Frankenstein monster, starving and imploding the monster long with the structures that feed the monster. Kill the monster and a void will result. The globalization hustle will evaporate. In the next article, we'll expand the picture by looking at that globalization effort. Stay tuned.
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