Gentle Parabolic Insanity

If the definition of insanity is making the same mistakes over and over again, then the capital markets are certafiably insane.

In the last decade, government, bankers and market participants have been eager to “create wealth”. And why not? The initial cost seemed cheap, the capital was plentiful and the plan worked like magic.

But right now the credit destruction that began in 2006 is reaching a critical stage, perhaps “the top of the ninth” to put it in a way you tobacco-chewing degenerates can understand. Hey, I think Dr. Fly is rubbing off on me! My new moustach is making me a mean Hombre`.

We are about to get some “ok” earnings announcements that reflect lowered expectation. The job market stabilized for the back to school time frame. But the recent past does not reflect the current reality. Like the march to the Iraq war during the recession of 1991, American’s are glued to their idiot boxes watching the latest musing from the highly intelligent folks who are running for higher office, and the media folk who cover them. The best of the best of the best, yessir.

We’ve had a multitude of Fed-Heads out over the past month promising the world, and the market has chosen to believe. No political hacks here! They’ve promised another Trillion or so dollars that will bring long-term yield to 1-2%, kinda like Japan. Like how the past is prologue, the remaining equity investors know that this one will be “balls to the wall”.

I was looking at a “bunch of things” that led me to the forecast that we are currently living,  and the world transpired to make our market forecast right. Not just on price (almost), but time as well. That is a rarity but has a lot to do with the calendar, dudes. It has certainly been a factor.

Don’t worry about the employment number. It is just another red herring. We’ve made it back to DOW 11k, much to the chagrin of “normal-thinking people”. The beat can go on for a little while longer, but what is coming will dwarf everything since the actual freeze in late 2008.

You know that the housing market is done. Finished. The only thing left is the elevator down. After that will be the tar and feathering of all bankers and bank Nationalization or perhaps just the forvigness of trillions, with the stroke of a pen. Then states will default on pensions and Washington won’t be able to bail them all out. It’s gonna get ugly and we may test the lows of 2009 sometime next year.

But out of the ashes will come a cleansing. Creative destruction at its finest for us American folks, who happen to live in the finest country in the world…The only problem with this forecast is that it is quickly becoming the overwhelming consensus. That won’t change the eventuality, but will change the timing.

So get ready for a new low for the dollar, the blow-off in commodities and equities and the plunge in yields. The endgame is in sight. Don’t be in a hurry to bet on the reversal just yet. But certainly be ready to step away from the minefield that will be awaiting.

The mortgage mess that you are reading about is bad. Very, very bad. But it will not derail this rally just yet. I liken it to when the subprime mess began and you were told that it was “contained”.

The legal mortgage structure/ownership issue will clog up the foreclosure process for a year until legislation will have to be passed to protect the banks and their minions. In the meantime, house prices will stagnate and then plummet because you will not be able to transfer a property. That will be the bottom of the housing market.

This issue has not derailed the markets yet, but they will be the blame for the post-election “correction” and this action will last well into next year. Just get ready for it…

“The most effective stimulus is rising stock prices, not government spending”. Alan Greenspan, September 26, 2010.

When Greeny said this a few Sundays ago, it was obvious that the current “powers that be” were about to take a page from the Maestro who got them into this mess in the first place. He had been in this place before and was able to successfully navigate up, up and away from it each and every time. But when he knew the pyramid was way off balance, he stepped out and away. You must admit, his timing was perfection.

The Jawbonig by the FED and the execution of lowering long-term rates through Treasury buying has served to add more liquidity to the liquidity trap that we are building for ourselves. But that won’t stop the delirium of Wall Streeters who “know” that buying commodities and everything else is the answer.

Forget about the mortgage mess for a minute and think about how this is done. As we already know, the Algo’s are first-line programmed to follow the DXY. When it drops, the Dollar carry trade grows. Add to it that the Japanese are giving away free money and you get more rocket fuel. Bless those Central Bankers and those liquidity-providing computers!

As we have forecast, we will rally to test the yearly highs. The speed in which this is happening is beginning to quicken. We will get close or make a marginal high. Then all those smart folks who sold everything for the safety of bonds will feel the need for greed.

As of right now, considering all the really horrible fundamentals, there is little–short of nuclear war or an oil supply disruption–that can derail the test of the highs. The run in gold and other commodities is semi-parabolic now and the performance anxiety of the remaining market participants is intense.

Our march towards “burning the hedges” is almost complete. Another few weeks and we will be there. Don’t exit just yet, but prepare your sell tickets…

Our last post on copper on these pages was at the tip of a contracting triangle near $2.75. It is up over 35% since then–along with many other commodities.

It looks like now is the time to be careful…

 CREATECOIN IS MORE THAN JUST GREAT MARKET CALLS…

YOU WANT STOCKS? WE GOT STOCKS…