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Are We Heading Into a Hyperinflationary Storm?
In the last
month and a half, stocks have COMPLETELY returned to the atmosphere of
March-April 2010: an atmosphere in which stocks are overbought, overstretched,
and yet KEEP rallying.
As you can
see, the daily RSI has just touched “overbought” status at 70. From a strictly
technical standpoint, the next lines of resistance are 1,180, then 1,205 on the
S&P 500. We’ve now got layers upon layers of support as well:
Most market
analysts would look at this set-up and say that we’re in a new bull market. I
do not think that is the case. Instead, I think the market is discounting major
inflation and possibly hyperinflation.
Indeed, if
stocks are overbought and overextended, their performance is nothing compared
to that of Gold:
As you can
see, the precious metals have erupted higher since mid-August. As I write
this, bullion is up 23% since March 2010.
Compare this to the S&P 500’s performance of 1.3% over the same time
period, and it’s clear which asset class is the one to own. Indeed, priced in
Gold, stocks have done nothing since April.
This final
chart is key to understanding what’s happening in the markets. In plain terms,
stocks are NOT creating wealth, they are rallying based on Dollar devaluation,
If you price them in non-paper currency (Gold), they are LOSING purchasing
power.
This is also
clear when you compare the S&P 500’s performance to that of the US Dollar
over the last few months.
As you can
see, we have a near perfect inverse correlation here, with stocks rallying as
the US Dollar falls. With that in mind, we need to focus on the US currency,
since its drop is what’s fueling this rampant speculation in stocks and
commodities.
The US
Dollar is now oversold and nearing its multi-year trendline. If we DO NOT
bounce here, then the next line of support is at 74. After that, it’s the 2008
low (also the 20 year low) of 71.
I have to be
blunt here: if the US Dollar DOES NOT bounce soon, a hyper-inflationary
scenario is INCREASINGLY likely in the US.
Indeed on a
weekly basis a break down past 74 on the US Dollar would trigger a MASSIVE Head
and Shoulders pattern which has a downside target of 40 or so (roughly 50%
lower than where the US Dollar is today). If this collapse were to occur, you
would see hyperinflation erupt in the US similar to that of Weimar Germany.
Precious metals would erupt higher and the US Dollar would no longer be the
reserve currency of the world.
What’s truly
worrisome is that the Fed is hell bent on enacting the exact same policies that
have created the Dollar collapse (and the rally in stocks) over the last few
months, namely, additional Permanent Open Market Operations (POMO) ramp jobs.
The name sounds clever, but it really just consists of the Fed buying US debt
from the large private banks, which in turn take the Fed’s money and buy
stocks.
Indeed, the
Fed just announced it will be monetizing an additional $32 billion worth of US
debt in the next few weeks. The schedule for these ramp jobs is as follows:
§ October
15:
§ October
18:
§ October
20:
§ October
22:
§ October
26:
§ October
28:
§ November
1:
§ November
4:
§ November
8:
In plain
terms, the Fed is going to keep doing what it’s been doing: trashing the US
Dollar to pump stocks. And it’s going to do this to the tune of some $10
billion per week over the next month.
Thus, as
ridiculous as it sounds, the stocks up/ US Dollar down trend of the last two
months is likely to continue into early November. But if the US Dollar doesn’t bounce soon and start rallying
with force, we’re heading into a VERY nasty period.
Good
Investing!
Graham
Summers
PS. If
you’re worried about the future of the stock market and have yet to take steps
to prepare for the Second Round of the Financial Crisis… I highly suggest you
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I call it The Financial Crisis “Round Two” Survival
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Short answer, no hyperinflation. Any market weakness will bring everyone around the world into USD "safe haven". Hyperinflation only comes into play when almost every other currency has already crashed, burned and been replaced by something with more confidence.
Make sure you have your silver...
http://www.businessweek.com/news/2010-10-19/silver-exports-from-china-ma...
Silver Exports From China May Slump by 40% This YearBut we have bundled, securitized and sold it off to China.
How do we get deflation if the Fed is monetizing debt? Unless of course you're arguing "we have deflation now" which is ridiculous. Second in order to have any significant inflation we must have a significant recovery, something I believe is now underway. Third as this day has shown "this is what an economic recovery looks like." The dollar strengthens, commodities sell off and stocks get hammered as "the actuality of strength" suddenly appears. If we get the reverse tomorrow then "congratulations, you're on the road to recovery Fed and Treasury." By definition "all recoveries are inflationary" and begs the question "is the Fed operating on a theory or a thesis"? If it's the latter then, yes, "adjustments can be made." If it's the former...well, "prepare for the sacking of Rome." In short "what caused the entire Obama economic team to flee for their lives"?
We have deflation now.
We just haven't filed the paperwork to foreclose on it.
No, we're not. Read Reggie Middleton's articles.
Capital is being destroyed at the rate of tens of billions at a time.
P.S. - Gold is still going to $1700 - very quickly, after this pause.
I so hope you are correct.
no, we are not, far from it.
"Are We Heading Into a Hyperinflationary Storm?"
No. We are not. Have a nice day.
ZH contributors and commenters short bonds, dollars or stocks since March 2009 and long gold since Dec 2009 maybe about to face the reality there is no hyperinflation, but a growing hyperdeflation marked by country to country riots, bank and market holidayz maybe coming here soon.
http://www.cnbc.com/id/39741287
http://www.youtube.com/watch?v=h6MQ-diBdNA 1:38
Will C, BAC, JPM and WFC charge $50 on ATMs to cover legal fees for scarce cash?
Dollar above 70.70 since March 2008, dollar up +2% and gold down -3% so far tell it all.
Corrective Flash Crash maybe here, held to 10% bytes by misguided authorities...
PS ZH please fix your captcha that still does not handle - signs. Is that a tell?;
For the price of gold please refer JPM & HSBC scum the major break on rises. Without these Gold would be somewhere.....I couldn't afford it.
The only reason the dollar dropped was to borrow money and invest in high risk/return assets overseas or the carry trade. Recently, most US assets had minimal returns. The POMO contributed to the dollar decline, but in a minimal fashion. When markets crash worldwide, the dollar is going to spike as the greenbacks come home in a panic. RIP Euro.
"Thus, as ridiculous as it sounds, the stocks up/ US Dollar down trend of the last two months is likely to continue into early November."
NO !
I warned of a dollar rally.
http://stockmarket618.wordpress.com
Dead cat bounce does not a rally make!
will the last person out please flush. Thank you in advance.
Now hold on just a second. The dollar dropping to 40 on the index would hardly constitute "hyperinflation." Bad, surely, indicative of serious problems, surely, but hardly Weimar stuff. Now it might set up such a hyperinflationary scenario, admittedly. But the dollar still has important political supports such as oil being priced in dollars, the still-supreme US military, etc. On the one hand, articles examining the possible demise of the dollar should receive wide circulation; on the other, articles screaming about a Weimar-style scenario and $54,000 gold "just around the corner" only serve to cry wolf and drown out the more sober analysis.
… on November 29th, 1921, the dollar was quoted at 276 marks [the mark had already lost 90% of its value since 1918]…By August 1922 the dollar rate had risen beyond 1,900 marks…On December 11th, 1922, it was at 8,337 marks; … the middle of August 1923 the dollar rose giddily to 1, 2, 3, and 5 million marks; later falling suddenly to 3 million. (Professor Bresciani-Turroni in The Economics of Inflation (first published in 1931 and reprinted by Augustus M. Kelley, London, in 1968, pages 101–102)
In the meantime, an index of German share prices (1913 = 100) rose from 126 in January 1918 to 531,300,000 in September 1923, and to 23,680,000 million in November 1923 amidst extremely high volatility. (In dollar terms, because of the currency depreciation, the same index (1913 = 100) fell from 101.55 in January 1918 to 2.72 in October 1922, before recovering to 39.36 in November 1923.) The extremely high volatility of the stock market is a typical feature of hyperinflating economies.
…the corporate sector and speculators survived this period quite well…(according to Bresciani-Turroni, entrepreneurs became accustomed to speculating on the stock exchange as a matter of habit, “hoping by fortunate speculation to make larger profits than those obtained from the normal work of managing firms” —sounds familiar!), the German public and the overall economy suffered quite badly, a fact that is evident from several economic indicators. So, while an index of nominal wages rose from 1 in 1913 to 9.9 in December 1920 and to 862 billion in December 1923, the index of real wages fell from 100 in 1913 to as low as 47.6 in July 1923
– all from Marc Faber, The Financial Implications of Reflation, June 2003
When in the bathroom watching CNN from the can it can be difficult to see Gold on the proper timescale;
Those with a fiat bias perceive the anus revolving around the TP.
The potty trained buns sit firmly, knowing all the while that Charmin ultimately revolves around the Golden Bung.
Well, something is definitely going to snap. There are several reasons:
Told ya! G.O.L.D. Bitches!
BOY, ... Where in THE hell have you been!?
(If you've ever seen "Fletch" you know how that sounds...)
Gordon!
What's up (other than gold and silver)?
Today marks an important turning point for global markets and the USD strength I warned about has arrived.
http://stockmarket618.wordpress.com
If you're gonna spam every thread with this post, I'm gonna junk 'em all.
kthxbye
These posts are the only ones I junk without comment. He never comes back to see responses anyhow.
No. It 'bounced' up over a full dollar in the last 24 hours. Is that the bounce soon you needed to avoid H-Inflation?
What do you consider a bounce, if not?
How about some specifics?
Really bad timing (and luck) on this one. Looks like we're heading to the mother of all deflations with the long awaited FINANCIAL CRISIS II.