The Circus Starts Next Week.

Who are our real masters?

I think there are 1200-1300 of them all over the world and their names can be found here. ( http://www.forbes.com/wealth/billionaires  )

They and the businesses they control are the true masters of the universe. Every politician in every country is at their service. Why do you think the members of Congress are exempt from the insider trading laws? Is it because of the special relationship the politicians have with these masters? If we could follow the portfolio of the US Congressmen/women we would retire rich.

Given the above, how do you think the politicians will react to the current crisis? Bear in mind, this crisis is just the continuation of the crisis of 2008 which never went away. Here, we have a president who came to power on the promise of change and changed nothing. He has a war chest of $80 million for the coming election and most of this money came from Wall St. On the other side we have Tea Partiers who have been brainwashed to protect the interest of the rich by refusing to tax them and we also have union freeloaders who suck the system dry.

In a normal world, economy should drive the stock market. But 30 years of bull market have changed the character of the country. Now it is the stock market which drives the economy and the economic policies. Remember during the debt debate, both the Democratic president and Republican speaker would invoke the stock market for speedy resolution.  All the actions for solving the crisis of 2008 have been centered on saving the stock market, Wall St. and “Too Big to Fail Banks”. That is where the masters of the universe keep their wealth. Uncle Ben created QE1, QE light and QE2 just to restore the wealth of the masters which eroded during the 2008 banking crisis. And you thought he wanted to create employment! Silly you.

So now we see that the politicians and central bankers of the world are holding emergency meeting over the week-end to solve the looming crisis. And they will do the only thing they know. Pump in more liquidity in the system.  They mistake this credit crisis as liquidity crisis. But when one continue with the same mistake for three years, it is not a mistake any more.  It is a way of life for them.

Do whatever they may; the response to these emergency measures is getting smaller and weaker. Like in Japan, where debt is 200% of its GDP, the debts of America and Europe have socialized the losses and created Zombie banks. And at some point all the kings’ men won’t be able to put “humpty dumpty”  back together again.

As I said on 4^th of August, the politicians will not give up without a fight. So we see the fight started. Between Fed and ECB they will introduce some sort of liquidity measures, which will keep the money flowing in the stock market. Short term, we might see a vicious rally. Let me again show you the  SPX weekly chart. 

Like in 2008, SPX made the first touch of the 80DMA on the weekly chart. So the next move should be upward and possibly a new high. Sounds ridiculous today, but it is a possibility.  I do not think a bear market will start on such high negative sentiments. There has to be euphoria before the plunge.  A speculative market top is formed when everyone who can be sucked in has been sucked in. And it is a stock market driven by speculation not by fundamentals.

The debt deleveraging has started and it is going to be a long process.  Rest assured that the bear market is also going to be long and vicious. I do not think it will be one straight line down. It will be more of Chinese torture, 30% down followed by a 20% rally, untill such time all the excess has been cleansed out of the system. The central bankers will fight back hard and when everything fails the politicians will create war to divert attention from their failure. That has been the history of mankind and there is no reason to think that it will be otherwise now. The military industrial complex is there for a reason.

The next three weeks are going to be interesting to say the least. Last week’s sell-off was a complete insider job in a completely rigged market because they knew about the coming downgrade. If my thinking is correct and a deal between FED and ECB and world politicians are done over the weekend, we will see dollar weakening and stocks rallying. Gold will reach new heights. That will be an opportunity to go short 200 %.