Guest Post: A Major Inflection Point Is Upon Us

Tyler Durden's picture

Submitted by Michael Krieger of KAM LP

A Major Inflection Point is Upon Us

 

Great things are done when men and mountains meet.  This is not done by jostling in the street.

Always be ready to speak your mind, and a base man will avoid you.

As a man is, so he sees. As the eye is formed, such are its powers.

Excessive sorrow laughs. Excessive joy weeps.

I must create a system or be enslaved by another mans. I will not reason and compare: my business is to create.
If the doors of perception were cleansed everything would appear to man as it is, infinite.
The weak in courage is strong in cunning.

What is grand is necessarily obscure to weak men. That which can be made explicit to the idiot is not worth my care.

You never know what is enough unless you know what is more than enough.

- All Quotes by William Blake

A Major Inflection Point is Upon Us

I have not commented on the financial markets in a detailed way for quite some time now.  This is not because I do not have strong opinions on them, rather it is because I see the current ongoing crisis as just as much a political and social crisis as an economic one and so I am compelled to address those concerns as I think it is in that arena that the greatest dangers exist.  Additionally, the major macro investment themes that I outlined well over a year ago remain the same.  Namely I think long investments in the United States stock market should be focused on precious metals miners, oil related energy shares and the agriculture theme.  Anything related to the ponzi economy like financials, real estate (commercial and residential) and traditional retail with little international presence should be avoided.  The final reason why I have not been more market focused is that with liquidity so bad and countless players seemingly exiting positions and taking risk down, sometimes I wonder who is really driving these markets.  Are the moves expressions of investors and their views on the future or is most of the trading actually related to sovereign interests engaged in financial warfare?  If it is indeed the later influence that is most profound then you can forget any possibility of rational moves on a day to day or even week to week basis.  Nevertheless, the market always wins in the end and this happens at major inflection points.  I think we are at one of those moments right now.    

When Oil Breaches $80/b Watch Out

I have mentioned time and time again that the broad stock market has never been able to rally sustainably once oil moves above $80/b.  We first saw this back in 2007 when the market top occurred just as oil was about to embark on its surge through the $80/b level on its way to $150/b.  Oil has since topped $80/b on several occasions, in October 2009, January 2010, and then the March/April 2010 period.  In every case the oil price correlated very positively to the market and in my view was a key factor preventing further gains.  Well here we are again with the S&P500 on a nice bounce to the 50 dma and oil at $79/b.  If what we have seen in the past occurs once again the market is about to run out of steam.  So the question everyone needs to ask themselves is what are the likely scenarios from here.  There are two in my view.  The first one would play out as many of the previous ones have.  Namely, oil and the stock market pull back meaningfully as the “risk on” trade evaporates.  This is what I think most people anticipate.  The other likely outcome would be the decoupling trade we saw between fall 2007 and mid-2008 where the dollar lost serious purchasing power and commodities and ROW stocks surged in value relative to all other asset classes.

Is a Decoupling Trade on the Horizon?

I think there is a much greater probability of the second scenario playing out than many anticipate and here is why.  First, very few are set up for such a trade.  It first started almost three years ago now and as we all remember it ended in tears for those that had it on with leverage and couldn’t get out.  Investors are now sufficiently conditioned to the idea that oil and the S&P500 are both part of a “risk on” or “risk off” trade.  This is likely what the computers are trading on and so it would actually be a huge surprise if that correlation was to break down.  That said, just because it would be a surprise to see oil rise and the market decline concurrently isn’t a reason for it to happen.  I think one of the reasons relates to the dollar.  The U.S. dollar should have completely collapsed versus many of the better managed and fundamentally sound currencies in the last year or so.  By these I refer to the Australian dollar, the Chinese yuan (and most emerging Asia currencies), the Swiss Franc and the Brazilian real.  While the dollar has certainly lost a lot of value to many of these currencies in the past year or so it would have been considerably worse if not for active intervention by central banks in other countries.  Effectively, when the crisis hit the U.S. still had a lot of credibility and so the leaders of all nations decided to support the U.S. and its currency in an attempt to get things “back to normal.”  This is why I have mentioned repeatedly that the dollar index is so useless as an indicator (also because the main components are the euro and yen and I do not believe these to be sound currencies either).  There is investing in the dollar versus the euro or versus the yen.  I think all three will end up in the currency graveyard. 

The U.S. has Lost All Credibility

The United States political and monetary authorities have lost ALL credibility in the eyes of the world ever since the crisis hit and for very good reason.  The main reason we are still held on life support is so that China can go out and buy up all of the world’s resources while the dollar still has value (and they allow us to bury ourselves) and we have a strong military.  We can see the loss of credibility in the fact that we went to the G20 talking about more stimulus and were rebuffed.  So when the crisis first hit all other nations defended our system and currency but now I think all nations are going to focus on what is best for them and believe me it will NOT be what is best for us.  China has already slowed itself down materially to deal with its irresponsible housing bubble but based on comments recently from authorities it is clear that they are committed to stimulating domestic consumption.  Furthermore, while the yuan has only strengthened slightly since they changed policy let’s not forget that it HAS strengthened.  While they are proceeding cautiously, this was a change of policy.  So to summarize I see a world emerging over the next few months where other nations publicly talk a nice game about the U.S. and its importance but in reality talks will go on behind our back as to how to gracefully cut the cord.  Any cutting of the cord would reflect itself in a decoupling trade in my view.  Unfortunately, politicians in the U.S. will never admit that they are the reason we are in this mess so they will likely start a war or create some other event (cyber attack to shutdown the internet?).  This is precisely why I call on all Americans right now to refuse to get involved in a war.  This would be a war to defend our empire plain and simple.  We do not need an empire.  China needs an empire to feed itself and to provide energy.  We are the most blessed large nation on earth as far as land, agriculture and water resources.  Plus we have a brilliant social document called the Constitution that the vast majority of Americans would die to defend if necessary against whoever would threaten it.  Let’s just get our acts together here and not fall for the trap that I see being set.  Also, remember that if the authorities are about to lose control of the precious metals and oil market the best thing for them to do would be to start a conflict so the rise can be blamed on that.  If you haven’t learned that Washington D.C is not to be trusted by now I do not know what it will take. 

Mike

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Turd Ferguson's picture

Right on, baby.

I hereby nominate Michael Kreiger for SecTreas in the new Sprott/Hendry administration.

Peter Schiff will be the new head of OMB and Ron Paul has accepted the job as Chairman of the Federal reserve.

 

I don't know why but I felt it was time to re-post this, too.

http://www.youtube.com/watch#!v=Ei2WhctlRHY&feature=related

Mr Lennon Hendrix's picture

No Fed, but he can Chair the Committee to oversee the State Chartered Banks.

Translational Lift's picture

"The Fed"  Which he will promptly and rightly desolve..............

jomama's picture

yeah, right. and they all get 'suicided' as soon as they try to implement any kind of sweeping overhaul.

Cognitive Dissonance's picture

NOT if WE do our job and start hanging them from the street lights down town. We are the power behind any change. Let's not shirk our responsibility.

goldfish1's picture

"I must create a system or be enslaved by another mans. I will not reason and compare: my business is to create.
If the doors of perception were cleansed everything would appear to man as it is, infinite."

and, may I add, possible.

Overleveraged_and_Impatient's picture

The Doors got their name from that quote

Max Hunter's picture

I've been saying it for over 2 years when I figured this thing out... "A light pole for every traitor".. and I mean EVERY !

Pez's picture

Go long on light pole manufacturing (made in the USA).

sweaty7's picture

turd, you just know Paul's first day would consist of him firing everyone, padlocking the doors and then resigning.

cossack55's picture

Ronnie would probably do a phys inventory of Ft. Knox before pulling the plug.

Cognitive Dissonance's picture

Ron Paul: "Let's see. Tungsten, tungsten, tungsten, Gold, tungsten, Gold, tungsten, tungsten, tungsten <sigh> tungsten, Gold. This is worse than I thought. Tungsten..........."

Rotwang's picture

would go quickly with an ultrasonic thickness gauge.

fiddler_on_the_roof's picture

Peter Schiff has lost a ton of money for a lot of people by investing in Foreign Stocks and his decoupling theory

He should not be anywhere near power. Have also heard about bad experiences dealing with his Euro Pacific capital from others. Hendry looks like a crook talking his book. Ron Paul is the only decent person on the Horizon. But the Tea Party movement will be hijacked and another elitist will be pertched at the top(may be Palin)

ATTILA THE WIMP's picture

Peter Thiel is one of Ron Paul's main advisors and Mr. Thiel is a Bilderberger.

http://www.nndb.com/people/030/000124655/

PS: 911 Inside Job

 

goldfish1's picture

PS: 911 Inside Job

Speaking of which, Paul's refusal to entertain the thought in the face of a mountain of evidence speaks volumes.

Turd Ferguson's picture

Rep. Paul denies the "truthers" because he wants to be seen as a serious political figure not a raving lunatic. 

NOTW777's picture

this is the guy that has been spending time on his obama prayer rug.  now he wants to give advice???

 

foul - excessive blake quotation; any original, timely thots?

unwashedmass's picture

 

the fact alone that they pumped the market today to the moon -- up over 200 pts -- to save the Chairman more embarrassment shows exactly what kind of banana republic we've become.....

TeddyRoosevelt's picture

exactly.  the equity market is a zombie.  i still think the energy market should be shifted to the ponzi list.  oil to $30.  pm's to new highs.  equities... DON'T MATTER.

Chicago_CTA's picture

Come on, guys!  Not everything is orchestrated; look at OIL and S&P futures.

Crude held very well above $76 and the S&P put in a nice reversal pattern the last few days.   There was simply more money to be made on the upside than the downside so 'they' pushed it higher.   Makes sense to me!

 

 

This said.....GREAT POST FROM THE AUTHOR.  I hope every US National reading this would literally 'die to defend the US Constitution.'   I know I would.

 

--The Chicago CTA

TeddyRoosevelt's picture

well first, i could care less if the 401k-ometer that is the equity market goes up or down.  second, depends on who your 'they' is.  if you think it is individuals, pensions, swf's, and banks (that are trading something other than your money) with legitimate interests, so be it.

I think it is my money, given to zombie banks, levered into equities at the direction of FRBNY, like a joystick that controlls whether joe u.s. is :) or :( when he opens his 401k statement.

johnnyBoy's picture

Me, too!  I just don't want Barney Frank to be the one that shoots me!

TeddyRoosevelt's picture

barney frank should be entertaining children, not getting sore knees and mouth sores on K street.

NOTW777's picture

LOL - letting barney near the children might not be a good idea

Ripped Chunk's picture

Frank should be no where near children. They should pass a law to that effect.

TeddyRoosevelt's picture

well i see your point.  but the blithering... it's out of warner bros.

Geoff-UK's picture

Topic:  In a just and fair society, what would happen to Barney Frank next week?

Discuss.

Red Neck Repugnicant's picture

Topic:  People named Jeff, who - quite ridiculously - spell their name GeOFF, wear pointed shoes and socks with tassels. 

Discuss. 

jeff montanye's picture

you get junked but pliers and a blowtorch for just another corrupt politician made exceptional by his temerity to be an out homosexual, nada.  somehow the entire republican party, which shares perhaps a touch more than half the responsibility for this fiasco but is more closeted, or the weasels dodd and lieberman don't stir the juices like "bawney".

Geoff-UK's picture

Agreed--next week's topic should be "in a fair and just society, what would happen to a President (Bush) who admitted he was throwing his principles out the window to pass TARP"?

 

 

SheepDog-One's picture

Thats why we at zerohedge should open our own FED short fund, watch what they pump, usualy very easy thats the top DOW components, then short the top of their pump. I have a feeling it would take much at all, a few million dollars and that should be EASILY coughed up by all the master wizard market gurus at zerohedge. So lets do it!

Manipulism's picture

I just discovered the site - http://projects.washingtonpost.com/top-secret-america/

Maybe journalism is not complete dead.

 

trav7777's picture

Kate Graham is a member of the Tribe and a bilderberger.  She's big shit elbow rubber dyed in the wool elite.

Never trust anything emanating from the 3 major rags in this country, they are all controlled by cousins of the financial titans

tip e. canoe's picture

agreed, just a continuation of the masonic pissing match between meister obumma & grand master dick C.   will get interesting only when the real bones start to fly out of the closets.

jeff montanye's picture

katherine graham is nine years dead and was, by u.s. msm standards, a fairly good newspaper publisher.  her granddaughter, katherine weymouth, current publisher of the now execrable washpo, not so much.  your skepticism about msm is well founded.

anarkst's picture

It's interesting when people finally begin figure out the illusion, but the thing is that it has always been an illusion and will ALWAYS be an illusion.  Systems are created by human beings for the express purpose of defrauding the rest.  It's never been any other way.

CrockettAlmanac.com's picture

Folks just have to realize that living in Galt's Gulch would provide a much richer existence than living in Hollyworld.