Trading the Bubblicious Market, by Al Martin

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by Al Martin

Trading the Bubblicious Market

(12-4-13) At our sister site InsiderIntelligence.com, we have been recommending for the last 30 days that traders remain short the Gold, Silver, and Sugar, as we have been, under the guise that Gold is coming down for a test of 1200 and the Silver is coming down for a test of $18. The reason why this is happening is because the Unwashed are pulling money out of all the commodity ETFs, Gold and Silver most notably, in order to pile into the S&Ps.;

The Unwashed are coming out of the ETFs – at a loss, as they always do – and now they’re piling into the ‘spoos’ which of course are at record highs. However the CNBC Grand Council of Shills, led by Cramer and Liesman, are promising the Unwashed that the upcoming Santa Claus rally will take the ‘spoos’ into ever greater heights of ‘bubbliciousness’ and therefore buying the ‘spoos’ is a “no-brainer” for the Unwashed. And the Unwashed are listening.

It should be noted that the Unwashed are always looking for the “no-brainer.” The problem is that the shills that tell them what the “no-brainers” are in financial media have no brains themselves. After all “no-brainers” are only as good as the brains of the person telling you that.

We have also been recommending that traders remain short their Euros above 1.36 and to short the Pounds above 1.64, and you see that the currencies are now coming down as the Dollar is beginning to have a year-end lift. Why? Because the Dollar is winning the race to the bottom. And so is the Yen.

The Pound and the Euro aren’t. They’ve been moving the other way despite every effort by the ECB and the Bank of England to reduce rates and increase quantitative easing, or, in other words, do everything possible to pressure their currencies lower, which is only now beginning to have an effect.

So what’s likely to happen is that the Euros and the Pound are going to play “catch-down” -- like “catch-up” but in the other direction -- to the Dollars and the Yen. That’s because everyone is so desperate to win the Global Currency Race to the Bottom. The reason for the Race to the Bottom is that whoever wins that race is the country that is able to increase its exports the most.

Since we are now in a full-blown deflationary environment, countries do not have to worry about the inflationary impact of cheapening their currency. Every country is instituting a Race to the Bottom. And how do you cheapen your currency? You reduce your benchmark interest rates and increase your quantitative easing, or in other words increase your monetary stimulus that you keep injecting into the Global Hopium Cloud. That’s what drives currencies lower.

Now countries are so desperate, particularly the G-20, to increase their exports because it is the only viable way they have of increasing revenues -- since all the statistics regarding internal spending – retail sales, durable goods sale, consumer installment debt numbers – all point to the fact that internal consumption in the G-20 has leveled out and is no longer increasing. Therefore there’s only one other way to bring in money.

There’s only two ways that countries make money – either in an increase in internal consumption or an increase in exports. Now everybody’s desperate to try to out-compete each other in the export arena which is having the tangential effect of lowering the price in so-called real terms of all goods and services that are exported between nation-states which in turn is exerting even more deflationary pressure on the planet’s economy.

This does not end well. It didn’t end well in the 1930s when there was a global race to the bottom in currencies and ultimately it’s not going to end well now because when you cheapen your currency in an effort to increase exports, you reduce the cost of goods and services which exerts downward pressure on inflation. That’s why you’re seeing global inflation rates will now very likely come under 1% and probably turn red by the end of the first quarter of 2014, in which case, every Fed chairman has always warned about – the pernicious cycle of deflation and how hard that is to break. But that is in fact what the G-20 nation-states are creating – more deflationary pressure in their desperation to generate revenues.

How it ends is in a speculative “blow-off” in equity prices because cheap and available money as they say can only support equity prices for so long. Eventually you reach that point where there is an upside blow-off followed by a crash. That’s the way the scenarios of deflationary pressures have always ended.

This is what old-time traders look for. The classic end of a bubble occurs via what’s known as an “upside blow-off.” In 2007 markets ended more or less with a whimper – not a bang, as they say. But what old-timers always look for is a bubble that bursts with a bang because it’s a definitive sign that there’s trouble ahead and a crash is coming.

An “upside blow-off” is where you get a two or three day period, where the markets go “parabolic” as the shills say. When the tapes go parabolic, the last of the Unwashed get sucked in, and then people like me mortgage the farm, as Larry Kudlow would say, not to get long – but to get short.

The reason there wasn’t a crash after the 2006 bubble is because you didn’t have that upside blow-off. You didn’t have a definitive technical signal that a top had been reached. Consequently what you had was a “rolling top” through September of 2007, when they gradually established lower lows.

When you see enough of those lower lows, old-time professional traders will start to increase their short positions with each lower low because that’s the way that bubbles end.

Overall bubbles either end with a whimper or a bang, If the bubble ends with a bang, that’s the easy thing for professional traders to trade. But a bubble that ends in a rolling top with the establishment of lower lows and lower highs, and with each successive lower low and lower high, then the shorts – people like me – will come in and increase their short position at the lower high. That’s the way a rolling top ends a bubble.

Although it’s entirely likely that there will be a Santa Claus rally, simply because so many of the Unwashed believe that there’s going to be a Santa Claus rally, and they’re the ones that make it happen through their incessant buying and those like me who trade on the short side – stay out of the way. Or they take short scalps, which is what I’ve been doing and other short sellers have been doing.

What the Unwashed need to be reminded of is that historically Santa Claus rallies do not get underway until the middle of the second week of December. In other words there is still room for a correction in equity prices and that’s something the Unwashed don’t understand.

This idea that the shills are trying to sell that a Santa Claus rally begins right away on the first of December is historically not true.

So we know you’re selling your Gold and Silver ETFs at a loss and are piling into the “spoos,” but beware of a near-term correction before the Santa Claus rally begins.

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.

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