Thomas Henning: Musings of a Stock Market Curmudgeon
Gold:
What the Game Is All About, Part III
In the last two articles I suggested that the world's Monopoly money currencies were backed by an onerous debt load, with a gang of bankers collecting the vigorish in the massive international transfer process. When the bond market cracks to the downside cranking up rates, the debt will be impossible to service, which will trigger an implosion of debt due to default and an undermining of paper currencies. A bubble burst. As the Monopoly money game has been going on, much gold has been sold off from various treasuries, which was readily soaked up by the gold market as a cyclic bull market in gold has begun to evolve in the last few years. The gold sales were suspiciously simultaneous and anti-nationalistic, undermining currencies and were most probably engineered by a power that had the muscle to force the sales. In all probability, that same power was in the gold market soaking up the gold sales.
 Obviously, one might question the implications of the power, etc., but one does not question the simultaneous gold sale and the gold market's ability to soak up the sale. This is the way the money flowed, and money flow is truth.
To take the next step in the scenario, much has been debated by some very bright people about the two opposing forces of inflation and deflation. Ironically, both sides are right. To reconcile this paradox, let's look at the Old World Order and its evolution into the New World Order.
The Old World Order was codified in the early part of the twentieth century by a gang of bankers with the passing of the Fed Act in 1913. In order to get the Fed Act passed through Congress, reportedly J.P. Morgan bought up 23 Eastern newspapers to promote the hustle. Sound familiar? The Fed Act facilitated fractional banking, which increased the money supply that started the secular rate of inflation which was flat for the previous century. To buy votes, the free lunch was started in the 1930s, and the public debt was expanded to pay for the lunch. The sheeple were taxed to maintain the debt and pay for the vigorish that went along with the debt, and also to pay off the free lunch with inflated Dollars having less buying power. In later years, an enormous private debt was added to the public debt to fulfill the urge for immediate gratification for toys. All of this was anointed by the sacred theology of Fed-babble.
The whole debt-laden hustle is a Ponzi scheme, but like all Ponzi schemes, a saturation point will be reached whereby an implosion will occur. At present, the debt load is unsustainable, and implosion is near as the bond market has begun to leak oil.  The New World Order was openly identified by Bush the Elder in the early 1990s during the Mid-East War. The word "World" was pounded home ad nauseam in a number of speeches. The New World Order is an openly international expansion of the Old World Order. The Old World Order was patently international in scope, but it was not an open and obvious movement. In short, a denationalization is occurring with a transfer of manufacturing capital to Lower Slobovia to utilize cheap labor. The grand plan is to make the goods on the cheap, ship them around the world and make a good buck in the banking transfer process. To be fair, the readily do-able transfer process is a reflection of the economic facts of life because of the relatively high domestic wages, lower productivity, onerous taxes and miscellaneous pain-in-the-butt factors (read sensitivity training, phony law suits, overwhelming regulation, etc.). If one ships the banjo pick factory to Lower Slobovia, one gets rid of those factors.
However, there are a few flaws in this hustle as this gang plays their little game of King of the Hill. The main flaw is that their hill is built not on a pile of dirt, but on a Ponzi card house of debt. When the bond market busts 109 to the downside, the bull cycle in the bond market will most probably be terminated, and a cyclic bear market in bonds will be launched along with much higher rates. The private debt will implode as the yuppies with the cell phones, 6000 square foot mansionettes and maxed-out credit cards suffer a killer case of the shorts. Debt default enters the picture on a massive scale, which causes the value of loan portfolios to implode and bank failures to erupt. Tax receipts will crash and the various central governments won't be able to pay off the free lunch. In Russia, Vlad the Putin is starting to have serious problems along these lines. We're also getting a preview of coming attractions in a lot of individual states that re suffering the shorts.
What will be occurring with this scenario is an implosion of the financial structure that facilitated the whole hustle that started in 1913 and evolved into the New World Order. Only financial chaos will result. The financial structure that the Ponzi scheme is built on will implode because of the debt load, because of internal rot.
Therein lies the key to the seeming conflict between inflation and deflation.
Given the Ponzi scheme structure in place since 1913, and the rules that it operates under, inflation is the result as money supply is expanded as debt explodes. But when the debt implodes, and there is a following implosion of loan portfolio values, the ability of the hustlers to expand the money supply implodes. Given the old rules, the inflationists are dead right. Bust the Ponzi scheme, bust the old rules and the deflationists, while wrong now, become right. This crossover point will be the end of an epoch.
What is critical for the savvy player to understand is that the world's economies are moving into an implosion of sacred, established and holy concepts and institutions into uncharted territory void of the rules in place since 1913. It will be a sudden injection of food chain cruel reality.
Now, most people will readily dismiss this scenario, usually suggesting that "they" will never let this happen. "They" will be impotent. At this stage, there is usually a generous injection of ridicule. However, the savvy player, who views the markets in terms of money flow tunnel vision, and who lives to play the game, lives on bread alone-and on good cigars, German beer and Duke Ellington -that too. The savvy player bets the markets to make money.
Let's look at the markets to see if the implosion is near.
 The bond market is hanging onto the uptrend by bloody fingernails having waved out a cyclic bull market that started in 1982. The weekly bond chart has the wave count illustrated with the final 5th just about complete. The Soft Momentum has turned bearish with any new rally highs sure to be bearishly non-confirmed. A close at 109 or lower would bust the Weekly Hard Momentum to the downside, and this would confirm the start of a probable bear cycle having a life expectancy of about a decade. Higher rates would be a lock and would trigger debt default. An early hint that the bust is starting would be a close at 113 or lower basis the March Bonds.
The gold complex started a cyclic bull market a few years ago and has waved upward evolving a wave count that has turned to chop suey.
Near term, the anticipated correction has developed nicely and the chop suey wave count has developed a bit of clarity. A close above XAU 97 would be very bullish.
 Conversely, the Dollar Index topped out in 2002, legged down in a fairly clean pattern, consolidated in mid-2004 and appears to have begun a #3 down move. Near term, the buck is consolidating a downleg from 91-80. A close below 80 will probably harmonize with an upside move in the gold complex.
Meanwhile, stay with the main uptrend in the gold complex and don't trade the trend. The chance of losing a good position is too great.
The stock market has been in a cyclic bull market since August, 1982, with the blah blah bubble burst that bottomed in 2002, being a corrective wave within the larger upcycle. A glance at the Weekly Value Line will illustrate the final upleg within the 22-year upcycle having 5 waves within that pattern.
Near term, the market topped in late 2004 and has slopped downward undermining some very key indicators, which suggests that the upside fun is nearly over. My favored near-term wave count suggests an upleg until about mid-February, which will be terminal. It would be interesting to see if a new Dow high is scored unconfirmed by the Transports. Meanwhile, we'll pay homage to the uptrend because it is there, but closes below Dow 10,300, confirmed by the Transports below 3400, would suggest that the downside fun is starting.
In sum, the markets are overall terminal with the stock market peaking out or nearly so with the bond market waved out only needing a crack below 109 or lower to signal a major move up in rates busting the debt bubble.
Complementing this picture is the gold market which has started a cyclic bull market as the Dollar has harmoniously started a bear market. The markets are saying that given final signals, a debt implosion is in the offing.
Meanwhile the gang is in Europe at a G-8 conference deluding themselves that they'll be able to keep their house of cards from caving in as gold has been accumulated, because it's all about gold. Tune in for Part IV in the series.
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