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Question: If the US is to maintain it’s quantitative easing (QE) policy by at a
minimum reinvesting the interest from maturing bonds, which should still be
enough to keep official interest rates subdued for a while, then why would
the dollar ($) rally in coming months? Answer: Because major US trading
partners will begin to debase their currencies at even faster rates, making
the $ more attractive. Thus, by July at the latest, and likely sooner given
Japan has already begun this
process (not surprising considering their economy is
crashing because of the radiation problem), the $ should have made a bottom,
which is normally associated with a resumption in the credit crisis these
days, but in actuality, as per above, would not be the reason. All we need to
make the turn in the $ a reality is for the euro to top out, where with
troubles in the zone heating up once
again, this should come sooner than later. The larger
understanding here is the credit crisis never went away even though the
economy appears to have been recovering since 2009, and now the weaker States
in the Western alliance are crashing again, allowing for the fiat currency
differentials on the global chess board to be realigned
temporarily.
And any strength in the $ should prove quite
fleeting in fact because not only are periphery economies crashing once
again, but now, core economies, including the US, are threatening to do the
same with their exploding deficits, increasingly unsettled debt markets, and
out of control bureaucracies / plutocracies. So, it’s important to
understand this is why only short lived cyclical corrections in US$ priced
asset / commodity groups into the fall at the latest should be expected once
they arrive, which should be sometime around mid-May in a perfect world. I
say ‘perfect world’ here because a goodly number of market timing
services are expecting this to occur at this time, so, don’t be
surprised in the present trends run longer in order to frustrate initial
waves of speculators looking to capitalize on what should prove to be
intermediate degree turns. Of course I could be wrong in this regard with
currency speculators now in a position to
affect such a turn, so at a minimum, one should likely be applying hedges /
lightening long position now to be safe.
Again however, and as with the central message in Martin Armstrong’s
latest, with no other avenues (think fiscal policy) to
pursue that would be effective (late stage fiat currency economies are
eventually consumed by the need for speed [in currency debasement] rendering
all other measures impotent [hence the need for hyperinflation eventually]),
don’t expect any correction in the inflation trade to last long (expect
a cyclical correction [less severe and temporal] lasting no longer than
six-months), because the markets will react to a continued acceleration in
currency debasement rates eventually no matter how well its hidden. We know
this not just because of history or logic, but because signals are now
arriving in the empirical world that work together to confirm such thinking.
A good example of this is the monthly buy signals on the major US stock
indices we got last week. As you know from above this does not mean they will
go straight up from here. What it does mean however is even after a
correction that takes prices back down, which again, should be cyclical in
nature, new highs are expected next year, which is consistent with our
thoughts on the unrelenting inflation being the bureaucracy’s
continuing modus operandi no matter what happens to the $, or bonds, or
whatever, until it blows up. Then they will care eventually, when its too late, but not until then.
Until then they will play the game, which means
printing money / expanding the monetary base and
hoping nobody notices, creating distractions to keep the ever-increasing
ranks of the poor (being taxed by inflation) occupied
while the rich get richer. And the plutocracy has its larger bureaucracy in
place in order to attempt maintaining the status quo, which again, means
attempting to hide inflation at any cost. (i.e. note the smack-downs in gold and
silver
this week.) However this won’t work for ever, where as alluded to
above, eventually either the currency and / or bond market will blow up no
matter what, which could also have a disastrous effect on
stocks as well. For now however, our view is that starting sometime over the
next month or so the inflation trade will have a cyclical / intermediate-term
correction that could last up until November at the latest (May tops often
lead to November bottoms), to be followed by a wild ride into next year as
both inflation rates and prices explode higher. That’s what the bond
market is telling us, where although its been
behaving well of late with weak data points and monetization practices still
in full force, it should be noted that if the count below is accurate,
Treasuries could begin misbehaving sooner rather than later. (See Figure 1)
Figure 1
 
This is of course not news to anyone who believes
the end of QE2 will have a negative impact on Treasuries starting in June,
where in fact it appears this timing could coincide with a continuation of
the price slide that started last October, as can be seen in the inverse
30-Year US Treasury ETF above. Of course the system still has self-correcting
mechanisms operating that could delay the day of reckoning for Treasuries
despite all the manipulating to this end already by the bureaucracy’s
price managers, so speculators considering shorting long bonds soon should take this
into account before acting. Here, with implied rates and
credit spreads
both on the rise, it’s likely stocks begin a correction no later than
June as well, which should keep a bid under Treasuries (despite QE2 ending)
until equities find a footing sometime in the fall. And in speaking of
equities, to be clear, we are expecting one more push higher off of the
weakness experienced this week to end the larger degree sequence before the
cyclical correction referred to above sets in, and the $ begins the
counter-trend rally that we have been expecting to
begin in late May / early June – right on time.
Just watch for a non-confirmation in the Gold / Silver
Ratio (stocks rally set against a divergence), along with
the VXO (see below) re-entering the diamond it had traced out since 2008.
(See Figure 2)
Figure
2
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