I've been pointing out for several months now that the recent rally in the dollar was a mirage, an illusion generated by the yen, euro, pound, and Canadian dollar all dropping into yearly, or intermediate cycle lows together. This selling pressure in the four major currencies that make up the dollar index spawned what looked like a strong dollar. With Bernanke printing 85 billion of them a month, there is no such thing as a "strong dollar". I've been saying for months that once these four currencies completed their bottoming cluster it would be the dollar's turn to crash. The recent collapse in the yen was 23%. The Pound 9%. I think the dollar will be somewhere in between with a loss of 9-12% as it drops down into its yearly cycle low. As this process starts to accelerate over the next couple of months the dollar bulls are going to get a rude awakening, as our currency shows its true colors. The acceleration began today as the dollar has now completed a lower low and a lower high.
Once major support is breached at 78.50 there will be nothing to stop, what I think will be a waterfall decline, until the dollar reaches the 73-75 zone. And don't forget this is just the beginning. The much larger degree, 3 year cycle low, isn't due until late next year. It's time for the unintended consequences of QE infinity to come home to roost. This should drive either another C-wave in gold. Or as I'm now starting to believe, gold may be in the initial stage of the bubble phase of the bull market. 2015 will be 15 years. That's about a normal during for a secular bull run. Let's face it, commonsense would tell most people that you can't just print 85 billion dollars a month and not have something bad happen. The last time the Fed embarked on this kind of insane policy it was during the real estate bubble implosion. Instead of rescuing the housing market the Fed drove oil to $150 a barrel and spiked food prices around the world, triggering riots and wars in many third world countries. I expect the same game plan this time is going to reap the same results. We have all the ingredients in place. Gold has probably completed its yearly cycle low. The COT is showing a max bullish position by commercial traders. Before every bubble phase there is always a devastating correction that convinces everyone that the bull is over. I would say that describes pretty much what has happened over the last 6 months. And to top it all off the recent manipulation to run the stops below $1523 has triggered massive shortages in the physical market, especially in silver. Now add to that a collapsing dollar over the next year and a half and everything is in place for gold to generate at the very least another C-wave advance and in my opinion we probably have the conditions necessary for the bubble phase to begin.
Just another quick post tonight. As I
have been saying for over a year now, the dollar will not make new
highs, and it will collapse as the consequences of QE infinity
ultimately take their toll.
Today the dollar confirmed that an
intermediate degree decline has begun by closing strongly below the
previous daily cycle low. A new pattern of lower lows and lower highs
has now begun. (Although the dollar is due for a bounce sometime soon, but it should fail to make new highs and quickly continue the pattern of lower lows and lower highs.)
As I've been saying for months, the
dollar rally was a mirage. The only reason the dollar index was strong
was because the yen, euro, pound and Canadian dollar were all moving
down into intermediate or yearly cycle lows together. That gave the
illusion that the dollar was rising. The dollar was simply benefiting
from people selling everything else.
But now it's the dollar's turn. Let's
face it, in the real world you can't print unlimited amounts of money
and not have something bad happen. The real world just doesn't work that
way. Maybe in fairy tale land were magic works, but not here in the
real world.
Over the next 2-3 months we will see the
dollar drop down to, and I fully expect it to crash through support at
78.60, and maybe even test the 2011 lows. Of course that is only the
beginning. Before this is done we will have a full blown currency crisis
in the US dollar at the next three year cycle low that is due in late
2014. Who knows how much damage will be done during that catastrophe. I
expect we will see something similar to what is happening to the yen
right now.
As a matter of fact the yen is only the
first of what will almost certainly be a rolling crisis as the cancer
works it's way up the food chain from the yen, to the pound, and finally
the dollar.
Brace yourself folks, it's time the lipstick comes off this pig, and it ain't going to be a pretty sight.
Until recently I was expecting the bubble phase for gold to occur as we came out of the next 8 year cycle low in 2016.
However with the panic sell off over the last two days and break of support at $1523, I'm now starting to think what we are seeing is the washout prior to the bubble phase. The Nasdaq in 98, and oil in 2007 are perfect examples of the transition into the "bubble"
Notice how these very harsh corrections all tend to reverse violently from severe oversold conditions and then never look back. I'm starting to think that's what is
transpiring in gold right now. We are in the washout phase and once the
bottom forms gold will launch straight into the bubble phase over the
next year and a half/two years. That will necessitate a rethink on how
the next 8 year cycle is going to play out. Instead of the eight year
cycle low generating the bubble as originally expected, it will signal
the end of the secular bull market.
This means the bubble phase may come
earlier than I was expecting with a final top in late 2014 or early 2015
instead of 2017/18. A top in 2015 would still be a 15 year secular bull market which is about normal for these things. More in last night's report...
We are now at the point in the bull market where traders think that stocks are bullet proof. Back in December I
warned this was coming. I said at the time that this round of QE was
going to be different. That it would have a much bigger effect on the
market than the analysts were expecting. I remember at the time analysts
were claiming each round of QE was having less and less effect.
I was confident that QE3 & 4 would
usher in the euphoria phase of the bull market. Actually Bernanke is
putting in place the final components to bring about the end of the
bull. Let me explain.
QE infinity has, and is generating a
runaway move in the stock market. The problem with a runaway move is
that it's artificial. Let's face it anyone with a shred of common sense
knows what's driving this move and it isn't the economy. Bernanke is
crazy if he thinks the stock market is acting normal. Well, this is the
guy that said the subprime crisis was "contained". Any artificial move
is destined to end badly, just like the artificial housing market ended
badly.
The problem with runaway moves is that
they stretch way too far above the mean in both price and time. As this
process progresses institutional traders become more and more nervous,
so the market becomes more and more shaky. Kind of like a heavy
snowfield just waiting for that last snowflake to turn it into an
avalanche.
And that's exactly how these runaway
moves end. At some point all of these nervous investors try to get out
the door at the same time and you get a crash or semi crash. My best
guess is that it will come in June or July. Until then the market will
probably continue to creep higher with occasional 40-50 point
corrections. That's another characteristic of runaway
moves. They set a standard correction size early in the move and all
corrections there after fall in the range. Then at some point one of
those corrections spikes through the range and months of
gains get wiped out in a matter of days, or even minutes. The flash
crash in 2010 is an excellent example of a runaway move crash.
So here's what I think is going to play out. Unknowingly, Bernanke has put in motion a runaway move that will end in some kind of
crash this summer. Depending on how long and far above the 200 day
moving average this thing stretches will determine how violent the crash
will be when the forces of regression take over. If this lasts till
summer, as I think it could, we could see a crash of 15-20%.
When that happens Bernanke is going to
freakout and crank up the printing presses even faster. 85 billion may
become 150 billion. When that happens, commodity markets are going to go
crazy just like they did in 07/08 as Bernanke tried to print away the
real estate implosion.
When commodity prices spike, economies collapse...just like they did in 2008.
All the pieces are starting to fall into
place. QE infinity is driving a runaway move in stocks that will end
like all runaway moves, with some kind of crash scenario. That will
trigger even more printing which will spike commodities next year, and
that will be the end of the economy and the beginning of the end for
this stretched and extended cyclical bull market. Look for a final top
late this year or early in 2014 and a much extended topping process as
the fundamentals slowly overwhelm Bernanke's printing press.
