Is It All About The Donald?

By: Captain Hook

While everybody's attention is glued to The Donald on this side of the pond (for all the wrong reasons?), big things, national election things, are happening in Europe this year, starting next month. First we have the Dutch General Election on March 15, which could start the ball rolling towards a breakup of the Europe Union (EU) this year, and not a word from the mainstream media (MSM) in America, only a month away now. Then we have French Presidential Election in April, and Legislative Election in June, which are more important than whatever happens in the Netherlands, but not as important than the coming Federal Election in Germany this Fall, on September 24. And if this weekend's election of a pro-Russian President in Germany is any indication, the EU is in big trouble.

As you can see then, while last year was all about the US Presidential Election, this year could be all about the cavalcade of upcoming elections in Europe, each gaining importance in order, but all still critical in terms of being potential dominos that could topple the entire union. So again, while this understanding appears lost on the US MSM, the money has noticed, make no mistake, which partially accounts for the strength in US markets (capital has been fleeing the EU), given the dollar($) has been on waivers since the beginning of the year. That said, this might be set to change again however, as election time approaches/EU's demise looks probable, where the $ might be set to surge again.

Of course once you listen to this pearl of wisdom courtesy of Grant Williams, one could think what's happening in China this year might be more important to the financial markets given the Dragon's role in the global economy these days, especially concerning gold. So although not billed as an official election, the 19th National Congress of the Communist Party of China this Fall could be the stopper for the financial markets, again, with gold's role at center. As pointed out in an article earlier this year, this is the Year of the Rooster in the Chinese zodiac - the year of the Fire Rooster - that tends to favor both the color gold and metals. Given the deteriorating backdrop in China right now, which is scary, visions of a fiery rooster seems appropriate.

Circling back to Europe before leaving this part of the world, it should be pointed out that although thus far traders have seen fit to reward stocks over gold with this backdrop, a breakup of the EU, euro, etc. should be viewed as a very bullish development for gold (and silver) in the full measure of time, as a great deal of reactivated sovereign currency printing will need to take place - you know - French Francs, German Marks, and so on. Now that might not matter for some time because such liquidity would go where the algos tell it to go initially - where who needs gold when stocks are going through the roof - right? At some point all the games will come back to haunt the social planners however - maybe sooner rather than later.

In the meantime however, the news under the economy's hood (see here, here, here, here, and here) on both sides of the pond (see here, here, and here) just keeps getting worse, not that it matters much with central banks (including the Fed) still printing money, and using that freshly manufactured currency to prop up stocks, bonds, and any other tape they choose to paint. If you were wondering why stocks keep going up despite an increasingly bearish backdrop this is the reason, where central banks are now so beholding to buoyant equities, literally (because of all the stocks they own and implications associated with the wealth effect), they can't afford to let them go down. Stocks have become an integral part of the economy unfortunately, and eventually we will all pay a heavy price due to this harebrained thinking.

That said, as noted in previous recent commentary, one must be aware it's quite possible they intend to rid themselves of Donald Trump by backing off this strategy however, if only temporarily, evidenced in contracting money supply growth rates, so don't be surprised if it hits the fan later this year when it doesn't look so obvious. The plan goes something like this: 1) Pull the rug out from underneath Trump once he owns the responsibility for the economy to discredit him with American voters; 2) Let stocks plunge like 2008, only this time delay the bailouts until closer to the mid-term elections in 2018 in order to get the House under right wing/liberal control; and 3) Then reinflate the bubbles later on once Trump is humiliated, disenfranchised, and possibly impeached.

The fact the powers that be (TPTB) were able to stop the decline in the S&P 500 (SPX) right on the sign of the devil (666) in 2009 is testament to their cockiness in this regard. They think the printing presses can fix anything and as long as COMEX is around gold and silver are going nowhere. And who knows - maybe they are right. But what if they are wrong and the genie gets out of the bottle this time around. What if they need to start monetizing everything that isn't nailed down? It's difficult envisioning hyperinflation as being a ‘good thing' no matter how America, and the world, arrives there. We are getting a taste of such conditions right now as the SPX melts up for all the wrong reasons, where if present resistance doesn't hold, 2450ish is likely just around the corner. (See Figure 1)

Figure 1
SPX Weekly Chart

Naturally, the rally in stocks could end before touching the bottom of the long-term channel shown above, but the big question would be for how long? One would think with all the signals out there flashing caution right now (see here, here, and here) any kind of top in stocks would be lasting, especially considering what's happening in Europe and China (see above). However again, The Donald is an insistent fellow, so who knows for sure.

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