Saturday, October 15, 2011

THE MOST IMPORTANT DECISION BERNANKE WILL EVER MAKE

As many of you know who have read my work in the past, the dollar put in a major three year cycle low back in May. It has been my expectation all along that the rally out of that major bottom would coincide with another deflationary period and the next leg down in the stock secular bear market. So far this has been the case as stocks topped in May at the same time the dollar bottomed. 


After a 15 week consolidation the dollar has initiated its first powerful thrust up out of that major bottom. As you can see in the chart below the rally out of a three year cycle low generally lasts at least a year and turns the 200 day moving average back up.



I've also noted that once the rally out of a three year cycle low rises above the 200 day moving average, it shouldn't dip back below that level, at least not for the next year to year and a half.

Sometime in the next few days the dollar will put in a daily cycle low and bounce. My expectation is that it will either bounce off of the 200 day moving average or bottom slightly above that level. It's what comes next after that bounce that is absolutely critical.


Bernanke is now about to make the most important decision of his life. The correct decision is to allow the dollar to appreciate, which in turn would continue to drive the stock market down into its next four year cycle low in the fall of 2012, and would  facilitate a much-needed recession to cleanse at least some of the massive debt that has been accumulated in the last two years. That is the correct decision. It is also a very hard decision because it will lead to severe short-term pain and undoubtedly another depression on the same scale as 1932.


However if Bernanke chooses to kick the can down the road again and continues his failed policy of monetary debasement then  the dollar is at great risk of forming an extreme left translated three year cycle.


For those of you that are new to cycles analysis, a left translated cycle is generally associated with a bear market. Left translated means that the cycle tops in the front half of its cycle timing band. In this case any top that forms prior to 18 months would signal a left translated three year cycle. Furthermore the more extreme translated a cycle is the more severe the decline tends to be, simply because the cycle has a lot more time to move lower.


If Bernanke decides to avoid short-term pain and kicks the can down the road again with further currency debasement, then the dollar is at great risk of having already put in the top of this three year cycle.

The unintended consequences of a three year cycle that tops in only four months are, to put it mildly, horrendous. That would indicate that the dollar is going to head generally lower for the next three years culminating in a hyper-inflationary event at the next three year cycle low in 2014.



The next couple of weeks and months are going to be of grave importance. The dollar needs to find support at the 200 day moving average and resume moving strongly higher. That would of course put pressure on the stock market and probably terminate the current bear market rally somewhere around the 200 day moving average (roughly SPX 1270ish) before the next leg down begins.

If however the bounce out of the now due daily cycle low is weak and the dollar rolls over quickly and moves back below the 200 day moving average then all bets are off. Stocks could even rally back to marginal new highs. However that would also guarantee that the CRB has put in its three year cycle low and we are now at the very beginning of an inflationary Holocaust.




If Bernanke makes the wrong decision then gold is on the verge of moving into the bubble phase of the secular bull market. That being said gold should still experience one more move down in the next couple of weeks as the dollar rallies out of its impending daily cycle low. After that, everything hinges on Bernanke's decision whether or not to continue his failed monetary policies.

15 comments:

  1. This is never down to the decision of just one man...you can just f*****g forget about that thesis. Otherwise there would be statues of John Law everywhere.

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  2. Bernanke is going to do the same thing he has been doing. Kicking the can down the road until it all collapses. Its the New World Order for power and control. Everything is planned by the elites in this world. Glad to see Gary telling it the way it is. No doubt in my mind we are in for bad times. Thanks Gary.

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  3. If Bernanke were making the 'correct decision' as Gray hoped, where the bullion price will go?

    I don't think Mr.Rob McEwen would be wrong and thrown away his own few hundred million dollars gold investment into the water, I do believe most major gold producers' CEOs' outlook for the future gold prices because all of them are not only have decades of experiences, but they are also the insiders.

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  4. Finally..reality...and clarity.
    Certainty, is the only missing ingredient.
    If only markets were that easy to forecast. Unfortunately they are now as predictable as cycles and the only surety going forward, is volatility.
    One other certainty is very clear imho...
    The Fed will print to infinity.
    I have held this view based on the belief that retention of power & control (by the CB/Govt/Elitists) will be achieved via the obfuscated prostitution of the world's reserve fiat currency until it is entirely worthless.
    QE will increase in both frequency and magnitude with each debt addition suffering from the laws of diminishing returns. The once virtuous cycle is now a severe death spiral. The debt trap is truly one from which there is but one escape route.
    For those that dont believe QE n then consider all of the bureaucrats /govt agencies and how they are remunerated/financially supported. The govt is bankrupt and will require deficit funding indefinitely just to keep the government/country functioning.
    Expect the unexpected and then some...in that way you can to some extent, prepare for what's ahead.
    On that part Gary, I agree entirely with your much darker synopsis. There is no fairytale ending to this nightmare.

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  5. As long as nas keeps powering higher, rest of market will follow.

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  6. He can't let this happen, that is selling america (all the stocks) for free. Exchange bonds (paper) for stocks (real asset).

    No matter what, using all the fed tricks, military etc.

    That'd be the most unpatriotic thing ever.

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  7. Hi Gary ..Nice work again . You have been one of the few who do a very difficult JOB with good accuracy....R u talking about the November 1-2 meeting ???

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  8. GOLD will not be in a bubble until the DEBT situation has been resolved. Paid off(impossible)currency collapse (possible). I can't believe anyone would believe GOLD will be in a bubble. BAD SCIENCE.

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  9. Critical point Gary,
    Debt destruction (a "when" outcome) in EURO LAND will be deflationary.
    Money printing by ECB (not if but when) will be inflationary.
    IMHO the risks of both occurring are equal.
    Concurrently, the Fed has no immediate "debt destruction" to deal with unless the first part of the EUR unfolds (US Bank exposures and contagion resulting from that).
    So, isnt it feasible to conclude that the world can have some debt destruction (deflation) with money printing (mild inflation) ?

    In that scenario, hyperinflation would be difficult to achieve when the money supply is being replenished to a marginally greater degree than it is being destroyed.

    Indeed price inflation brought about via higher import prices are a given. Perhaps inflationary trends are contained sufficiently to keep interest rates low. The endgame is a very protracted period ( a decade or two) of mild inflation and minimal growth. Ultimately real rates are zero or below. The US finds a way out (as does EUR) of their debt quagmire by a slow and relatively painless inflation. In this way it avoids the extremes of deflationary scenarios as witnessed by Japan and Hyperinflation as experienced by many nations in history.
    (I say relatively painless as more acceptable as compared to the "Hyper" alternative ...which is an extreme). One could argue that US corporates/consumers have been the recipients of an overinflated currency for multi decades. An unwinding of that position can be achieved on an economically acceptable platform over a similar timeframe.
    Just some fodder for more discussion.

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  10. LM,
    You are missing the point of the article. I'm not concerned with the short term moves.

    I'm just concerned that the current three year cycle may become extremely left translated. If it does this early in the cycle it would imply a severe currency crisis at the next three year cycle low.

    I tried to explain the concept of left and right translated cycles in the article.

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  11. I agree with Elaine, in that Bernanke will kick the can down the road and has already hinted around to doing just that.

    The Big Setup said, "I can't believe anyone would believe GOLD will be in a bubble."

    He must have been one of those that didn't believe gold would ever go over $500 and stay there too.

    The gold and silver dollar coin value will rise dramatically in this scenario.

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  12. The massive debt that has gotten worst since 2009, Bernanke can't do anything else but a QE3 or people will starve sooner rather than later without their food card. No cutting back in debt being done now or in the future unless we have a change in power in this country to straighen it out. That will take years if not decades to get under control. That will send gold and silver to the moon. The chart shows the dollar to collapse in 2014 well, if might be sooner than that. This could be the worst crisis in this country since the 1930's.

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  13. Gold Signals The End

    This is taken from

    http://hubertmoolman.wordpress.com/2011/10/12/gold-signals-the-end%e2%80%a6by-hubert-moolman/


    What I wanted to highlight here is the fact that according to my fractal analysis, it appears that gold has reached a critical point where it is expected to rise really fast. Also, this analysis suggests that we could peak as early as the end of 2012 to 2013, and we should as a minimum reach $ 4000 by then. This is consistent with the above analysis regarding gold and the monetary system.

    I believe there are enough signs that indicate that we have entered a period where we should expect the worst. We should thus prepare for the worst, with the hope that we would be able to cope with whatever comes our way.

    Due to the great probability that the fiat money system might come to an end soon, it is not desirable to exchange physical gold and silver for fiat money. Where possible it is better to exchange them for real goods and services and productive assets.

    An economic depression is virtually assured due to the bankrupt monetary system as well as the extreme debt levels.
    -----------------------------------

    Gold saying at some point, the end is near?

    So, the timing to get out, is when you are satisfied but not to try to get to the top.
    Yea, in a way you can call it a bubble. Just think the bubble will be huge before the end.

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  14. Gary,

    With all due respect I didnt miss the point of the article. Your analysis of the big B's decision is conveniently linked to left/right translated cylcle theory and vice versa in the short term which has longer term issues. Got it.
    My point was that maybe we wont be subject to the extremes that you alluded to (hyperinflation + depression + currency crises).
    You also introduce the "moral hazard" argument into one side of your article...to print is to save....what/who ? The financial system, the Banksters, the Bureaucrats, the Economy, the populace. Yes I know kicking the proverbial down the road is the phrase, but its become so cliche.
    Kicking the can is akin to giving the system time. You can't unwind decades of growth & debt accumulation in a recessionary phase. This is simply not feasible unless you have an Armaggedon event which would be a disaster. My point. Call it a potential contrarian point.
    A decade or two of some debt purging (sovereign/govt/corporate/bank/individual bankruptcies)combined with $$$ printing could very well be the "play".

    For as long as the USD is the worlds reserve currency, it will attract capital in times of fear and uncertainty. We saw this occur very recently (the point you refer to as the USD 3 yr cycle low). An expected catastrophe in EUR and money floods into US treasuries...voila ....USD appreciation. Let us not forget the Debt and state of the US economy ...and yet money continued to flow !!!! Go figure ??
    Perhaps the decision that Bernanke makes will be one that will go into the history books.. but for an entirely different reason. If his plan is to allow some $$$ to be cleansed from the system while replacing those with fed $$$...then we have a very slow unwinding of multi decade debt accumulation with simultaneous debt repayment through deflated $$$$. The downside is multi years (perhaps decades) of volatility.

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  15. The dollar needs to find support at the 200 day moving average and resume moving strongly higher. That would of course put pressure on the stock market and probably terminate the current bear market rally somewhere around the 200 day moving average before the next leg down begins.equity stocks

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