Henning: The Musings of a Stock Market Curmudgeon
By Thomas Henning
A hustler walks into a Klondike gold camp with a dozen eggs. This camp has had slim pickings and, because there is little gold to be had, the hustler could not sell his eggs for more than a nickel each. The hustler then schleps down to the next camp where they've struck it rich. He sold his eggs for ten dollars each. Lesson: Little money, deflation, low price. Lots of money, inflation, high price. The price is a reflection of the money supply relative to the available goods and services.
You can now conceptualize monetary theory. The rest is nothing but understanding the mechanical procedures. This is done through the process of going to some business graduate school and getting a Master's Degree in Fed babble.
In the central banking hustle, when excess fiat funds are made available through cheap rates, many loans are made, which explodes money supply relative to goods and services. Like our second mining camp, money supply goes up, inflation results, prices rise. With inflation, the buying power of the currency goes down. The helots lose money in terms of buying power, but the bilderboyz simply add zeros to their account books.
Historically, the Dollar's buying power has declined to about a nickel since the Fed's creation in 1913. The lie that the Fed is supposed to maintain a stable price environment has always been a crock. Old Joe Goebbels was right. Tell a big lie often enough and the idiots will believe it. The Curmudgeon's comment: invariably, some university intellectual will develop a belief system to rationalize the lie.
Bankers love debt. Debt pays interest at a gazillion-to-one leverage. Let's have more debt, more inflation. We add zeroes, the debt slaves pay up. Goody, goody.
Problem: the debt slaves are tapped out with 5000 square foot mansionettes and can't service the mortgage debt, credit card debt, car loan debt, ad nauseam. All of this easy debt was made available by the central bank hustle and by the cheaply-bought politicians who encourage the easy money to buy votes through a lot of moralistic claptrap justifying the dead beats to buy everything that they can't afford. A politician can't buy votes with the word "No."
Now that the debt defaults are accelerating, the banks that hold the debt are starting not to get paid off. Oops! Bank solvency is non-existent because the garbage paper on their books is worthless.
Enter the central banks auctioning off money to try to reliquify. However, the banks, who are scared stiff and who have been hoarding cash to try to reliquify, have tightened up lending standards. Result: lower lending, lending creates money, lower money supply and like our first mining camp with little money, lower prices. Defaults are rising, prices are starting to go down. Enter deflation.
Of course, as this game turns from inflation to deflation, the central bank hustlers and their Fed-babbling followers have moved into massive denial. Given the human precondition of always living with inflation, this is understandable. One well-known asset enterprise that is owned by readily recognizable persons is being hammered. These fools actually believe their own bull manure.
However, the markets have a beauty and life of their own in spite of the plunge protection team. Not everyone is a total fool. Hence the markets are reflecting this debt implosion via a cyclic gold bull market, implosion of the banking stocks, and massive distribution within the stock market, setting up a cyclic bear market having a life expectancy of about a decade.
 The gold complex is in a cyclic bull market and has most probably started the III wave as illustrated in the Monthly XAU chart.
In recent articles, I've been beating the drum about playing this cyclic bull market using the KISS principle: Keep It Simple Stupid. Hold the positions using some major moving averages and, when they lose momentum, start scaling out of the position. If you overtrade, you'll get whipped out.
This gold market is being over-analyzed. While much of the analysis is very good, it tends to be superfluous and lacks perspective by ignoring that a cyclic bull market is in gear. We do this work to make money, and over-analyzing the market will probably cause you to make less money. While I do count the wave tea leaves on a minute by minute basis in virtually all markets that I follow to validate the larger road map, the big money in gold is going to be made following the major upcycle and having the leather cajones to take profits when the helots pile in at the top.
Perspective must be kept in mind. What is occurring here is a massive international asset strip through inflation, taxation, and outright thievery, by the builderboyz banking gang who, by and large, believe their own bull manure. Thus half of England's gold stock was sold out at the "Brown Bottom" at below $300/oz. The question remains as to who was on the long side of that trade. I do have a fair hunch who the buyers were and, if I'm right, it's a cinch that the boys who bought that gold surely figured out that the fiat currencies were going to fail along with the banking hustle. It's my very strong hunch that the gold bought at the "Brown Bottom" will not see the light of day again in my grandchildren's lifetime. This means that the "Brown-Bottom" gold is off the market and the boys who bought it don't give a darn if a weekly RSI is overbought or not. Also understand that these boys don't have to buy votes from the helots. Understand, too, that the buyers of that gold don't care about making money. They care about power, and they'll win too because they're applying the "Golden Rule" which says, "The guy with the gold makes the rules." The super-savvy player must think on that level and must accept that the bilderboyz who sold the gold are a pack of fools whose game is falling apart as they flounder around giving tax rebates so that the deadbeats make their mortgage payments hoping that the banks don't fail. As we say in the trading business, the fools are fighting the tape.
That brings us back to the major upcycle. The cyclic bull market is big, big, big in scope and is probably moving beyond technical parameters established in the last one-hundred-year inflationary epoch. That inflationary epoch is imploding. A deflationary epoch has started. The validity of the past technical parameters established during the previous inflationary epoch is questionable during the evolving deflationary epoch. That leaves us with simply following the gold bull market using major moving averages which will get us 2/3 of the move. That will have to be good enough. It is my hunch that, when the implosion accelerates, the same banking clowns who have been suppressing the gold using various phony devices in the last decade, will hit the panic button and try to move long. Fat chance.
 Obviously, some of these suppositions may be pure hot air. But if those suppositions are hot air and gold poops out at $1000/oz, you'll get 2/3 of the move. If gold tops out at $10,000/oz., you'll get 2/3 of the move. As Solomon Rothschild said, "Give me the 2/3 in the middle." I've always believed in that old hymn, "Give me that old-time religion, if it was good enough for Solly, it's good enough for me."
P.S. Near term, gold is due for a breather and the problem still remains as to the gold complex's action when the stock market caves in in earnest. So far, the gold complex is holding up, but we'll see.
The bond market is locked in a trading range as illustrated. The best count suggests that the bonds are terminal. While the near-term momentum is still strong, a close below 116 basis the March contract would crack the daily momentum to the downside. A close below 113 would strongly hint that the 105 will be busted. Keep an eye on those levels.
The stock market has been under severe distribution as internals have been collapsing.
 From a Dow's Theory standpoint, a glance at the comparative Dow/Transport chart will highlight a massive bearish divergence evolved as a new Dow high was not confirmed by the Transports as illustrated by the trendlines.
Since that divergence, both averages have broken key lows suggesting that a bear market has started. Internals have confirmed.
Elliott wave wise, from a long-term perspective, a bear market having a life expectancy of about a decade is due.
On a nearer-term basis, my favorite count suggests that that bear market has started. However, I have an alternate count that suggests that another intermediate upleg could evolve, which would be part of a larger topping pattern. While I give this a minimum chance, the count is there and having been beat up more than once, I know that humility and paranoia are virtues when playing this game.
The key to this puzzle lies in the Transport Average, which has been a bit resistant to the downside. This has flashed a yellow light.
If the Transports can close around 4000, then I'd say that the alternate count suggesting another intermediate upleg is not valid and that the bear is fully confirmed.
By the time you read this, the puzzle may be solved by a clean Transport downside confirmation by the Transports closing at around 4000 or lower, but until that happens, a healthy paranoia is always prudent.
Meanwhile, stay suited up in the bear suit.
In sum, the gold complex has confirmed a cyclic bull market, the bonds are topping out, and a stock market Dow's Theory sell signal has evolved needing the Transports to crack down to about 4000 to clean up any doubts as to the possibility of another upleg.
 The Curmudgeon's rule: Truth is the ebb and flow of money. With that concept firmly in mind, look at the chart of the bank stocks. Burn that chart into your brain. Does the term "crash" come to mind? It should. Here's reality. Message: the banks are dead meat. The banks, being the conduit for the One World Order, means that the One World Order is dead meat. Anyone who denies this or doesn't factor it into their investment activity is flapping their arms in La-La Land.
Real world. The money supply numbers are starting to fail. M1 and M2 are bending over. Ersatz M3 has turned very volatile, which is a classic sign of a top. That means money supply is starting to head lower, which means deflation is beginning to evolve. The bilderbeast is mortally wounded, but the boyz are busy trying to cover it up as Bank of America has just bought Countrywide. Obviously the name of the game is to keep all of the banks afloat so that some bankruptcy judge doesn't force an honest statement as to the valuation of the garbage mortgage paper on the books. All of this La-La Land hot air has a stench that would gag a maggot.
Ignore it all. It is the thrashing of a dying beast as the inflationary epoch evolves into the deflationary epoch.
Again, look at the bank stock chart. This is where reality meets La-La Land.
Editor's Note: Thomas Henning's articles appear regularly in The Bull & Bear Financial Report print and online editions.
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