The lifeblood of the central bank Ponzi scheme is debt. If the debt implodes, the central bank implodes. As the implosion has been evolving, the Fed babblers have been wallowing in denial, adhering to their holy dogma, for they are incapable of comprehending that their god, the Fed, is impotent because the foundation of its existence, which is debt, is imploding. Recently, the babble box has had a couple of very bright guys on the Exchange floor who simply told the truth about the probability of bank failures, given the fact that roughly half of the bank capital is tied up in real estate loans. They were insulted and ridiculed. While these guys are very bright, they were trying to save members of a herd that can't comprehend buying low, selling high and ringing up more money in the cash register than one pays out. Reality is wasted on these fools. My stomach runneth over. Obviously the debt-dependent society is also imploding. However, the mortally wounded beast will thrash. The holy Fed will inject funds, jawbone, lie and steal. Let them. No doubt the Marxist ex-hippies, who control the press, universities, and political climate that goes down to the lowest common denominator to buy votes, will engineer a final death rattle in the form of an elected banking stooge/messiah who will express readily saleable mythological buzz words which are designed to steal. Instead of the covert theft of inflation, no doubt there will be overt capital confiscation via taxes to try to keep the Ponzi scheme alive as the debt implodes, triggering the only thing that results from debt default, deflation. Unfortunately, this is an immediate battle that must be fought against an enemy that will be impotent because of a lack of tax revenue as the world moves from the new world order to the no world order. The markets are reflecting this transition. The external stock market has cracked to the downside, reflecting the internal deterioration that has been outlined in previous articles. The gold complex is bullish but still locked in a major consolidation, needing an upside breakout as the gold stocks got purged with the rest of the market. The bonds have been leaking oil, needing a close below 105 to confirm a breakdown. The Yen looks like a bottom, suggesting that the Dollar will bust the 80 level eventually. The Yen carry trade is reversing as the hedge funds implode. Let's review starting with the Yen. The Yen has been in a major corrective wave for the last couple of years. The favored wave count is diagrammed on the Monthly Yen chart. The Stochastic has moved into a bullish divergence as recent lows have evolved and the recent upside goose has triggered a buy signal. In all probability, the next upleg in the Yen has started, which has put the screws to the carry trade/hedge fund game. The hedge funds have had their 5% equity cleaned out. Now they're staring at the 95% debt as the holy Fed has cranked up the printing press to keep their pals, the banks, afloat, who are holding the garbage paper. ------------------------------------------------------------- The gold complex is still locked in a major consolidation digesting the upleg from the late 2000 bottom. To confirm the start of the next upleg, the XAU has to close above the recent high above 160, confirmed by the spot gold above 705. The shape of the consolidation as marked as II on the XAU chart has been frustrating to the tea leaf counters. Suggestion: walk away, go mechanical and watch the indicators, such as Stochastics (as illustrated), along with the gold stock ratios and moving averages. In short, they're bullish, but frustrating. As the recent market purge has evolved, the gold stocks got hammered too. I suggested that this might happen; however, the downleg still looks like part of the II corrective wave as the metal has stayed relatively strong. At this stage, the indicators are oversold and any buy signals, which are unidentified at present, should be the real thing. The weak hands have been shaken out. The bond market has started a cyclic bear market that should be confirmed by a close below 105. Near term, there has been an obvious run to "quality" into the bonds as the stock market has done a pratfall.
----------------------------------------------------------- The question arises as to when the Asians, who are holding a great bulk of U.S. paper, will start running for the door. While there is run to "quality" bonds, the currency market via the strength in the Yen is hurting the Asian bond holders. This strength could trigger a break and a close below the aforementioned 105 low would be ominous.
The stock market has waved out a final upleg within a cycle that started in August 1982. The final upleg is counted out on the Value Line chart. If the count is right, a cyclic bear market having a life expectancy of about a decade has started. This concept harmonizes with the idea that the banks are probably insolvent. I do have an alternate count that suggests another upleg. There always is. Frustrating. However, closes below Dow 12, 500, Transports below 4485, would confirm the breakdown. At this stage, if another upleg evolves, that upleg would be unsustainable because of the extreme deterioration by the internals. In short, this baby is busted. To sum it up, the stock market has had an initial external breakdown; the Dollar is on the brink of a breakdown, as the Yen has turned strong; the bonds are close to a breakdown and the gold complex needs a breakout to confirm the bullish hot air. What is occurring here is a debt implosion, which is imploding the banking structure, which is the instrument of control for the one world order. Implode the banking system, implode the one world order and move on to the no world order. Since 1913, the banking boys have stolen 95% of the Dollar's buying power via inflation and taxed the daylights out of the remaining 5% as the savvy player has fought to stay ahead of the game. Now that the debt has become onerous, the debt is imploding with deflation the obvious result. The boys don't want deflation. Well, boys, you got it. The inflationary epoch is over. Now it's payback time. Editor's Note: Thomas Henning's articles appear regularly in The Bull & Bear Financial Report and Bull & Bear's Monetary Digest print editions.
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