Is a Monster Reversal In Stocks, Commodities, and the US Dollar in the Works?

by | Nov 10, 2010 | Headline News, Rick Blaine | 21 comments

Do you LOVE America?


    The last couple of weeks have been quite eventful for economists and world leaders. First, Ben Bernanke announced the much anticipated next phase of US strategy to get the economy back on its feet, even though the recession has been over for many months and recovery is purported to be in full swing. The Bernanke Plan, to no one’s surprise, entails more monetization of US debt and further injections of liquidity into the system. To the chagrin of Nobel Prize winning economists like Paul Krugman, the announced $600 billion just isn’t going to be enough.

    To world leaders in countries like China, Brazil and Germany, $600 billion is just the next round in what promises to be unfettered monetization of US debt until either the US economy is back to the boom times of exponential expansion and asset price growth , or goes completely bust. President Obama and Ben Bernanke are betting on boom times.

    China and the rest of the world, on the other hand, seem to think that the likely outcome is a bust – a bust for the multiple trillions of dollars they hold in US debt. They have put serious pressure on US leaders to reverse their policies, with China implying that it is the US, not them, that are the currency manipulators. They’ve already taken steps to curb inflows of cheap US money into their economies in an attempt to prevent further bubble creation. The Chinese have even gone so far as to say that they and other Asian nations will act in unison to counter the threat of a depreciating US Dollar. The head of the world bank has even proposed that gold, a relic of empires past, be considered as part of a new global reserve currency system.

    In a nutshell: The international community is putting massive public pressure on US policy makers. Whether the show being put on by the G20 and other influential organizations and individuals is real or not is yet to be determined.

    Let’s assume that the surface level mainstream news is what it is for a moment, meaning that the international community really does want the US to strengthen the dollar and they are prepared to take steps to protect their economies through various means.

    Naturally, in an environment like this, we can’t expect Ben Bernanke or President Obama to admit that they made a mistake, or that they intend to take steps to strengthen the dollar. In this global pissing contest, the last thing Earth Idol Barack Obama wants to do is lose face.

    Plus, the only way to strengthen the dollar significantly would be to find a funding source for US debt.

    The powers that be must come up with a simple solution to strengthen the dollar, fund US debt (at least in the near-term), and make our foreign creditors happy because their dollars aren’t losing purchasing power to wheat, oil and other commodities as they have for the last year.

    Enter Europe.

    In March of this year we wrote that Europe Goes First, Endgame Will Be Collapse of the Dollar:

    For the time being and since March of 2009 the place to put money for growth has been the stock market. With sovereign debt issues in Europe coming to the forefront and the potential for a massive real estate meltdown starting later this year the next phase of the crisis will likely involve a transfer of capital wealth from stock markets (including China) back into the US dollar via the purchase of US debt instruments like bonds, bills and notes. After this short-term dollar pump, the severity of the crisis will set in as US job losses continue to mount, US GDP goes negative, real estate prices spiral downward and US government spending continues to expand unabated. This is where the endgame will take place — when domestic and foreign investors lose all confidence in the US government’s ability to manage the crisis.

    Of course, nothing is set in stone, but this scenario is becoming much more plausible given recent events.

    The dominoes seem to been lined up, and in the next few days, someone might tip the first one over (if they haven’t already).

    According to reports funneling in today and leading the Drudge Headlines:


    We turn to Karl Denninger for further insight and analysis:

    So for those who believe that Europe “avoided” an explosion in Greece by coming up with their “bailout’….. have you looked at Irish Bond Spreads lately?

    They blew through 600bps today.

    That’s beyond the event horizon.  The singularity is somewhere around 800bps.  At the present rate we’ll get there in another few days, and we might get there at a greatly “accelerated” rate.

    I strongly recommend that you pay close attention to this.  The Irish banks were basically carpeted-over much like ours, except that this is a much smaller economy and the lies are harder to maintain.  Now the dead fish has rotted the floor joists, and the creeking noises are getting louder.

    Should the ECB intervene, and I expect them to, it will not fix anything.

    The possibility of a monster move – southbound in equities, northbound in the dollar, southbound in the Euro – is definitely on the table here.

    In coming days and weeks this is going to play out in full swing (unless, of course, the mainstream can distract us with another random missile launch off the US coast or a printer cartridge scare from Yemen) and we may see a total reversal of recent trends, or in Denninger’s words, a “monster move.”

    If Ireland blows up, and investors get scared, it could cause a sell-first-ask-questions-later style sell off panic, forcing lots of capital to safety assets.

    The prevailing wisdom will quickly become that the US dollar is, once again, the safe haven asset of choice. As the dollar strengthens, we may experience a repeat, or close to it, of what we saw in late 2008, with an appreciating dollar driving prices in stocks, commodities and perhaps even precious metals to new lows for the year.

    To sum up our current view of what may be possible in the very near term, we turn to SHTF Plan regular contributor Rick Blaine, who had this to say in an email correspondence:

    I am now “officially” calling/predicting that a asset bubble is forming and/or has formed.

    “Near” term prediction – dollar reversal…and significant pull backs in all commodities…except maybe gold.  Stocks will get hit too…eventually.

    I say this because EVERYONE is talking about inflation/devaluation of the dollar right now. I’ll go contrarian.

    If for the last couple of months we’ve been played by the grand strategists of the global chess board, then everything we think will happen will happen exactly the opposite of how we’ve imagined it.

    As we suggested in the aforementioned article, the scenario described above, if it were to occur, is nothing more than a detour to an eventual collapse of the US dollar. As Europe falls apart, the US may be looked to for safety temporarily, but when our fundamental economic problems become apparent to everyone on the planet (again) the same thing that may cause inflows into the US dollar in the near term, will cause them to expatriate as quickly as possible. Our long term trend forecast for eventual destruction of the US dollar remains intact and is best summed up by Rick Blaine:

    Long term – all fiat currencies will eventually fail…not because there is anything inherently wrong with fiat currencies…but because the world’s central banks are run by jackasses.


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      1. sketch

        short term, wouldn’t the ECB action INTO Ireland dilute the Euro and STRENGTHEN the $?? i’m not an economist here, but it sounds logical…

        /the race to the bottom continues…
        //China is getting ROYALLY pissed…

      2. TnAndy

        Hope you’re right.   IF they manage to drive silver down to 10 bucks again, I’m mortgaging the farm this time and buying a tractor trailer load……assuming there is actually ANY to find…….

      3. admin

        Sketch, that’s what I’m thinking as well… stronger dollar is going to force prices down and it may initially be interpreted as a stock sell off… and then everyone sells… and the dominoes fall… There will probably be a floor though as PPT moves in to save the day. Anything can happen, of course, but this is a short-term forecast i felt is a real possibility and one I have been thinking about for a while..

        TnAndy — I, too, hope to see a nice drop in silver and gold.. Would love to pick up more physical and paper (GDX, GDXJ, etc.). I am not sure if we are going to see $10 again.. I’d be happy with $18 – $20 again! I think buyers are standing by if gold were to go to, say 1000 – 1100 again….

      4. Tom

        I’ll bet spread fee on spot will be much higher.  Even higher than they are now on ASE’s (assuming there is actually ANY to find…) Tn.  Euro has fallen a great deal now Sketch “which I know you know”.  It’s a race to the bottom.

      5. admin

        Agreed on the spreads.. they were outrageous in late 2008/ early 2009.

        I’ve also noticed my regular stock of rolled Kennedy halves at the banks are not as available as they once were… according to the bank tellers, there are at least 3 or 4 guys in my area looking for free PM’s on a weekly basis… it’s really drying up out there.

        It was good while it lasted though!

      6. Schaef

        TnAndy, if silver goes to $10 there will be plenty of it to find because most people will be unloading it. I agree with most of this article. The only thing I would stay away from is trying to predict the timing of when the market will have its pullback. The great Marc Faber has been incorrectly predicting a pullback for 2.5 months now. He said stocks would sink as early as mid-September. Then he said definitely in October it would happen. Then he said the Fed announcement on 11/3 would trigger a selloff. He has been dead wrong on all counts lately. If Faber can’t predict what’s going to happen, no one can, and he’s the biggest contrarian out there.

      7. Tom

        I’ve been reading on another site that many coin dealers here in the states are running dry on silver bullion.   A few are selling.  The $2 take down Tue. was by the banks getting together to short the market.  We will see how much dry powder they have left.  The ETF’s (paper metal) are another ponzi game re-arranging the Titanic chairs.  They like taking down the white metal like no other commodity (which is the most under valued real money).  Little brother silver seems to be controlling its big brother now for a change.

      8. Meat Eater

        The best scenario for anyone wanting to pick up additional precious metals at attractive prices is to see a few more months of Bernanke running wild, the Chinese getting more and more P.O’d, Washington D.C. in chaos over every stinking little thing and European sovereign debt defaults getting more serious every week.  Then let the fear really kick in and a rush to the U.S. dollar (one last time) crush silver back to ten bucks and gold to eight hundred.  Don’t worry; there’d be PLENTY of supply of each out there for the taking because the herd would panic and sell.  Dealers would be kissing your tookus to buy inventory from them.  It wouldn’t last for very long, maybe a couple of months, but it would be the opportunity of a lifetime if PM is what you want to buy in volume.

      9. GMAFB

        @mushroom…more $10 piece of TP oughta do it – ya think?

      10. Tom

        I’ve thought about that also ME for the last couple of years.  The problem is the pm brokers know that too.  The last BIG take down that Mac mentioned, there was a 2-3 month delivery problem.  So, in other wards, they used the customer’s money for free.  The other countries would be buying heavy at 1100.  The market is too small for AG.  I think the ETF’s were buying physical the last few months & betting short also.

      11. lostinmissouri

        I believe we will see the stock market go ballistic….can you say Dow 30,000?  maybe lots higher!

        Just remember this…in 2008 , the best preforming market in the world was Zimbabwe’s.

        YOO-HOO!   my Zimbabwe stock,  made me 100 trillion dollars!  (but it wouldn’t buy an oz  of silver)

        U.S.A  stock market will preform the same way……we’ll all be rich in FRNs!  But a trillion of them, won’t buy an oz of silver, either)

        Got Gold?   Get  Silver!

      12. overtheedge

        There is an old saying about how to eat an elephant. One bite at a time.

        So we have Ireland fixing to go the way of Greece. The EU will step in again. Just another bite out of the elephant. Each bailout effectively eats the value of the Euro.

        So if the investors pull thier money out of Ireland (and other PIIGs) and move to the US dollar, our elephant gets eaten. The Treasury will  accommodate the investors with additional bond sales. The monetary influx will get spent rather than buy back bonds as they mature.

        All this talk about China manipulating their money is hilarious. Isn’t that what the FED does? What is happening is China has pegged the yuan to the dollar. We scream bloody murder, but we have no problem with Saudi Arabian Riyal being pegged to the dollar.

        Must be because the Saudi’s can manipulate the price of oil in our favor. After all, their only export is oil and they buy US products with US Dollars.

        So could PMs drop? Sure and they will. And then they will rise again to higher levels until the playing field has been leveled. In the final chapter, the dollar will lose its reserve status. The Saudis will remove their pegging to the dollar. The US dollar will effectively be voted off the island.

        Everyone in positions of power and authority depend on respect aka face. They will do whatever they must to save it. The average citizen lacks the knowledge to comprehend the problem so they trust to the authority figures aka experts to solve the problem.

        Herein is the problem. The experts define the term expert and who qualifies. Remember that little quip from a member of the FED who basically stated, “If you don’t have a degree in economics from a prestigious university, you have nothing to bring to the table.” Under those conditions, we don’t know anything and therefore we are just a noisy distraction.

        A far worse problem is our voices cause some semi-literate people to question the government and the FED. As the MSM slowly starts to question the actions of the FED, the tide will slowly turn. The big question will be, “How do we stop this gorging on our elephant?”

        Our only chance, and a slim one at that, is massive reductions in government spending with particulal emphasis on entitlements, government employment and the military. Each creates further losses in the tax revenue stream. Without a stable tax revenue stream, we lack the money to pay down our external debt without printing more money. Damned if we do, damned if we don’t.

        We have only one option in the long run. Default.  And off the island we go. Will this save the other countries? No! Everyone is eating elephants. Once enough has been eaten, the elephant will never rise again.

        Final act? Every country will be forced to become as self-sufficient as possible. International trade will be forced to use some new transactional currency backed by tangible assets. Effectively, international commerce will be barter. Same as on the home front.

        Didn’t the FED state, “We need more consumerism?” The average American buys entertainment rather than barterable goods. Without something to barter, commerce dies and socio-economic upheaval begins. It is and always has been a truism. Commerce is the only defense against war. Without an internal system of commerce, we will go to war against ourselves; haves vs have-nots. Somebody will trade a 42″ plasma HDTV for a sack of taters, but most won’t due to a little problem with the utility of the tv to the person holding the taters. The people will storm the producers and in the process destroy our means of production. This must be prevented at all costs.

        Haaving spent part of my life in ag, I can state with absolute confidence, each farm has a carrying capacity for live stock. Too many and most animals starve or we find another  source of inputs. Stockyards exist just because they have a dependable source of inputs. Can we permit the animals in the stockyard to break out and devour the neighboring farms? So just what are the cities?

      13. Tom

        OTE, nice rant/knowledge.  I understand the elephant is bigger than the jackass.  I’ve never tasted either but it all makes sense to me.  The reset will be difficult.  Bring out your dead!  6 head of steers purchased my first new F-250 back in 77.  $5600 then, over $40K now & a little more “complicated”.  JS is saying that yesterdays drop in AG was mostly caused by raising margins.  Weak paper metal traders.

      14. NetRanger

        Hmmm. I think I’ll sell my paper silver ($340 bought, will bring over $500 now!), bring the money home and buy another 44 magnum rifle, a couple pounds of powder and a few thousand more primers.

        OTE, I know this is putting you out on a limb. If you refuse, I understand. What kind of timeline do you expect in all of this?

      15. Tom

        Henry is made is USA NR.  Action is smooth….

      16. Durango Kidd

        People, expect more of the same for at least the next two years, until new management takes over in the US. The dems know the jig is up and they will continue to take us deeper into the hole of big government spending as long as they can. Thats the plan of the NWO.

        Expect inflation by a thousand cuts. No collapse. If the Chinese will not play ball by repegging the Yuan, Bernanke & Co will continue to print.
        Either way, currency parity must be achieved if new factories are ever going to be built in the USA.

        The game of three card monte has reached an end. Roles must reverse to level the playing field or the game is over. Remember that the US Economy is still 3 times the size of China’s. We will dictate terms. That can be achieved with tax incentives for investment within the USA.

        Helicopter Ben knows EXACTLY what he is doing. He is implementing the economic plan of the NWO.

      17. overtheedge

        A timeline is difficult to put together. Remember first, last and always, our masters of the monetary will do everything possible to keep the game from blowing up. I don’t buy into any conspiracy stuff.

      18. Orisha.

        Comments….. If you are trying to time the movements of the different assets classes out there, best of luck to you. But, I would say, regardless of the current spots prices in gold and silver, they are still very cheap given the ” interventionists policies of world’s governments”. The fallacy of FIAT paper cannot go on for ever and any smart person will try to accumulate as much gold and silver as possible. What I would will be to buy more physical while storing enough cash on the sideline in case there is a temporary downward drop caused by the PIIGS! Let’s remember also that this movement might not pan out as planned and the Chineses and Indians might try to gobble as much gold and silver available out there. Maybe gold and silver will decouple from the stocks markets as well. So, we are in a position of extreme uncertainty in the short haul and I am not willing to take a chance and I will certainly not sell my silver and gold. Keep some cash, buy some hard assets or hunt for some bargains in others commodities. Palladium has doubled in price in less than six months and it is still flying under the radar! There are a lot of commodities plays out there, just keep a eye open.

      19. MadMarkie

        Predicting the timeline for the ‘trigger-event’ that will crash the US economy is a difficult task. The PTB will continue to rig the numbers and the ‘talking-heads’ of the MSM will continue to sing; “happy days are here again” right up until the bitter end. Can’t you hear the dance band there on the Titanic breaking into a rousing rendition of; ‘nearer my God to thee’ there in the background?

        The only thing that I would be willing to predict is the speed at which our economy will come crashing down once provided with the correct ‘trigger-event’. In the aftermath, people everywhere will be left scratching their heads and asking the question; “what the f–k just happened?

        BOHICA and be sure to pick up some slip n’ slide (lubrication)before it all happens!

      20. whitewash

        enjoy the time you have left:Because now we are entering a era….,life as we know it is going to take a 180* turn for the worse.
        Welcome to the third world…..
        We in the western world have lived like kings & queens for thee last 60 years and now we are going to live though tough times for many generations to come…………..

      21. Chris C.

        Agree with lostinmissouri and Durango Kidd. No stock market implosion. If we get to 12,000 by next February on the Dow expect 20,000 by year’s end or sooner, depending on the depreciation of the dollar. Slow at first, but massively building inflation is the name of the game.

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