By Thomas Henning
As the banking implosion evolves, events are unfolding so quickly, one cannot keep up with them. The one over-riding concept that must be kept in mind is that the helot taxpayer will, as usual, get stiffed. It has always been thus since Adam and Eve.
The latest chapter in this imploding saga has had the Secretary of the Treasury suggesting a hustle to turn over regulatory functions to the Bilderthieves' Fed. As an aside, the Secretary stated that there was a strong Dollar policy. Not one Congressional clown that I know of, with the exception of Ron Paul, challenged that statement.
Honesty is what I like. As Fred Allen's character, Senator Claghorn, used to say, "I'm an honest politician. When I'm bought, I stay bought." This gang was bought fair and square by the Bilderbeast and it's only proper that they foist off the bank's bad debt onto the taxpayers. Just you watch those Claghorns vote for the proposal to turn over the regulatory powers to the folks who brought on the debt bubble, the Fed. Of course, the free-lunch-sucking helots voted for this hustle, so don't waste a lot of pity on them. As Plato said, "The state is what it is because the people are what they are."
Down in the real world of money flow, the muni bond market, not buying this hustle, has gone into the tank as the bond insurers have become insolvent. The individual states have developed a bad case of the shorts as the tax receipts have started to dive.
All of these machinations are part of the death throws of the mortally wounded Bildebeast as it tries to stop the bank implosion per the updated banking chart. Fat chance. The recent Bear Stearns fiasco was only a pimple on the Bilderbeast's butt. Yawn. Ho hum.
Stand back and do not become preoccupied with the various trees in the forest-mortgage debt, credit card debt, the derivative monster, Bear Stearns, ad nauseam. Instead, watch the forest, which is a massive debt implosion. This implosion will squeeze the money supply, which is deflationary. Keep this perspective and try to survive by concentrating on the markets and making a buck and hoping that the checks don't bounce.
The bond market has been moving in a broad sideways pattern as the longer wave count has turned into semi-chop suey. That's okay. In a situation like this it's smart to go "mechanical."
That said, nearer term, the bonds have waved an upleg off of the early 2007 bottom as illustrated in the Weekly bond chart. The count looks clean. The bonds have developed weekly divergences as the internals have not confirmed the recent highs. Note the divergent comparative trendlines. This is classic 5th wave action. A daily sell signal has flashed by a close below 117 basis the spot government bonds. A close at 114 or lower would confirm the sell signal and would also confirm higher rates.
The derivative monster is leveraged at a gazillion to one; thus interest rates are a vital component of that monster. When the bonds confirm downward, rates will break upward and the structure of the super-leveraged derivative debt will sink under water. That could easily trigger a meltdown, so don't take your eye off of the bonds. If you think that the Bear Stearns fiasco was fun, wait until that atom bomb explodes.
The gold complex has started the III primary wave within the cyclic bull market. I've counted out the tea leaves using the XAU.
Near term, the market has become overbought, has thrown on a couple of divergences and has started a correction, which is probably the 2 of the III. Let it correct. Apply the KISS principle here-Keep It Simple Stupid-and follow some major moving averages. When they begin to poop out, start scaling out and taking some profits, wherever that may be.
Harmonizing with a corrective phase in the gold, the Dollar Index has shaped up suggesting that a rally could evolve. Understand that the Dollar Index is only a study in the relative stench of the fiat paper Dollar versus other fiat paper currencies. Gold has broken out against all currencies. In other words, all the currencies stink. It's only a question of which one stinks more.
This universal fiat currency stench then begs the question: if the Dollar Index throws on a rally, will the gold inversely correct downward given that all of the currencies are weak relative to gold? If the gold does not fall out of bed inversely to the Dollar's potential upside correction, then one might suspect that the markets are suggesting that the Dollar has ceased being the world's chief reserve currency and that the fiat stench is universal and gold is inversely rejecting the whole fiat banking hustle. It will be interesting to see how this interplay evolves, but meanwhile play gold using the KISS principle.
Like that old jazz classic, the stock market is "Between the Devil and the Deep Blue Sea." The stock market is topping. The form of the top is questionable, but that can be handled.
To recap: the Industrials scored a high without the Transports confirming as illustrated by the comparative trendlines. The Industrials scored a low in January unconfirmed by the Transports. Compare those trendlines. What's going on here? In terms of broad perspective, the market has been in a cyclic bull move since August, 1982. A bear cycle of about a decade is due. The problem is one of nearer-term trend diagnosis and turning that diagnosis into profit.
After lighting the incense, reciting the mantra, and wiping the saliva running down from my twitching lips, I can only see three wave counts (down from 50) that have the potential of being valid.
Before I define those counts, let me suggest that when counting stock market waves, it is absolutely imperative not only to count the waves of all of the external indices, but to analyze the internal structure of the count, such as Up/Down Volume, Up/Down Breadth, etc., relative to the external indices. Various waves in the count have internal characteristics unique to the intrinsic nature. Thus, the internal structure either validates or invalidates the presumed external count. If this in-depth analysis is not done, then conclusions, which may be right, can only be superficial.
That being said, there are only three counts that I can see as valid at this time. (1) The bear cycle has started and the lateral action off of the January low is a bear market rally. (2) There could be an intermediate tag-on rally that could last a few months. No doubt this would be labeled a 5th wave in the larger sequence. That rally would be part of the topping process. (3) The sideways action off of the January lows is indeed the 5th wave and has assumed the shape of a "feeble 5th," which is similar in shape to the late 1929 to 3rd quarter 1930 feeble 5th. Remember that the high is not necessarily the top. The wave top can be lower than the high. No doubt that suggestion will cause a few eyes to roll.
Which is it? Very tentatively, I'm leaning toward #3 for two reasons. First, the internal structure of the move best fits #3. This is particularly obvious by counting out the shape of the Amex Index, which is relatively free of the present shenanigans going on in the other indices. Secondly, this count suggests that the bull cycle off of the August 1982 low is still in force, and thus the cyclic bull market is more powerful than the intermediate downside correction, which would set up the bullish non-confirmation by the Transport Average.
Moving forward into the near term, the recent move up has the stink of classic 5th wave action. The upside breadth has been relatively feeble, the upside move has been selective, and the move up has been driven by a strong withdrawal of selling with a relatively weak increase in demand. This action is that of a terminal upside move, not that of a new bull market. Obviously this previous condition can change and get strong, but as of this writing, this is the internal condition of the market.
In sum, the diagnosis is that this is either #2 or #3, but the near-term feeble strength must be honored simply because it exists. To not do so would be an exercise in fighting the tape, which is always a sucker's game.
At this stage, honor the uptrend, and when the January lows are busted a cyclic bear market will be confirmed. My hunch is that a near term top will evolve somewhere around the broad Dow 13,000 level, which will develop an early breakdown point preparatory to the bust of the January lows, but I lay this out as a tentative potential road map only.
What is occurring here is the implosion of the world's financial system, the "new world order." Intrinsic to the implosion is the debt bust, which is busting the chief controlling tool of the "new world order," the banks. Meanwhile, the bankers are trying to hold the whole hustle together foisting off the debt onto the helots as the helots are running around trying to elect the next Marxist Messiah to keep the free lunch flowing and to wave a magic wand to cure the effects of economic self abuse, which was facilitated by the central banks.
Ironically, the central bank hustle violated the first rule of a parasite, which is never to kill the host. The smart parasite only takes about 10% off of the top. Thinking that it was all-powerful, the Bilderbeast, unlike a good parasite, bled the host dry and, in so doing, conceptually speaking, tried to corner a market, which, in this case, is the economy of the whole world, by debasing currencies and facilitating mountains of debt. Market corners always fail because markets, being a function of that holy attribute greed, adapt to the cornering force. In this case, gold has moved into a cyclic bull market against all o fiat Bilderboyz garbage currencies, the real estate market has just started to crash, and the bank stocks have crashed, which is probably discounting the coming derivative implosion when the bonds confirm downward cranking up rates.
Will the Bilderbeast succeed in its hustle? I don't think so. Just look at the gold, bank and bond charts.
Editor's Note: Thomas Henning's articles appear regularly in The Bull & Bear Financial Report print and online editions.
