America Votes for National Suicide

Those on the left who read my columns will of course take exception with the title I have deliberately chosen, but that is and was a given. So let me start this by saying that I believe their euphoria at having seen their man win, will be short-lived, faced with the extreme problems facing this nation and their utter lack of anything that remotely resembles a plan to deal with them other than the usual class warfare tact of "soaking the rich" further and further enlarging the size and scope of an increasingly intrusive Federal Government.

I have written on this site repeatedly that the problems afflicting the US economy cannot and will not ever be solved by Uncle Ben Bernanke's alchemy of turning paper into "money" and multiplying it in ever larger doses. What ails the US is structural or deep seated. To tackle that involves a serious plan, a plan which by its very nature will involve making choices that will surely bring about some short-term pain but which would put the nation on a sound footing for long term growth and lasting prosperity. Foremost among this is reducing the spending binge in Washington DC and getting America's fiscal house in order. That WILL NOT HAPPEN now that the profligate spender Obama has been re-elected. He has no serious plan to reduce the deficit and never has. One can tax the "rich" into oblivion but even confiscating the entirety of their wealth would not so much as to put a dent into the burgeoning national debt.

Business owners, particularly small business owners, the backbone of this nation's economic health and the primary source of all job creation, had been holding their breath, hoping against hope, that the nation would be delivered from its national nightmare. They either went to bed last evening or arose early this morning to learn, much to their consternation and dismay, that the nightmare will continue for four more long years. A system of nationalized healthcare, with the IRS being the chief enforcers of the penalty for non-compliance now awaits them along with a set of growing, job-killing regulations guaranteed to put further burdens upon them. Not only that, the beginning of the year 2013, will see a massive set of tax hikes hit the nation, further depressing economic activity.

An energy rich nation, blessed by Providence with an abundance of oil, will see its federal lands shut off to any drilling. Any hope for a pipeline delivering Canadian crude to the lower 48 has now withered and died on the vine. China - enjoy that Canadian oil because we are not going to see any of it.

The Dollar, while getting a respite today due to the fact that a near panic has seized upon the investor class, is destined to further weaken, resulting in higher prices for the basics of life such as food and energy. The fiscal cliff is drawing ever nearer with the very real possibility, nay strike that, probability, that the rating agencies will further downgrade the US credit standing.

In short, get ready for the continuance of the same set of woes that have become all too familiar to us for far too long now. In the markets, expect the wicked volatility to become even worse as they swing wildly between euphoria and despair, based on whether or not the latest dose of funny money injections has temporarily boosted economic activity for a few weeks before its impact then fades once again.

If you have any doubt as to what the markets believe the result of this election is, take a look at the following chart of the S&P 500, the broader measurement of the US stock market. The collapse in the equity markets tells us everything that we need to know about the election results as far as the impact on the economy goes.

This brings me to my last point and to my most controversial one. In observing those election results I have become convinced that this nation, as we once knew it, is a house divided, to the extent that it cannot survive in its present form. There is absolutely nothing "UNITED" about these United States of America.

Among my close friends, I have been speaking to this topic for more than a decade now, having become convinced as far back as the 2000 election, that the nation was headed down the road to dissolution. Let me explain...

As a commodity futures trader, my task is to study TRENDS, particularly longer term trends and by so doing to hopefully profit thereby. There are trends in markets but there are also trends in a society. The trend in this society is an increasing divide between two diametrically opposed political ideologies.

The first of these is conservatism. Those who adhere to this view, and I include myself in this camp, believe in a system of limited government as envisioned by our Founding Fathers. The powers of the federal government are few and well defined with those not specifically delegated to it by the Constitution remaining within the providence of the individual states. "Unalienable" rights procede from God, and as such, are not subject to intrusion upon by the state. The state exists to protect and preserve these "rights".

The other view is that of the European statist model. The central government, that which is furthest removed from the people, has the lion's share of power. It view "rights" as those which those in power at any particular time, decide to grant (case in point - the "RIGHT" to medical care). The notion of "unalienable" rights, those which the government may not intrude upon, is an outdated, ancient concept which has no place in a modern society. The Constitution, while given lip service, is more often than not, a "flexible" document which may be ignored should it interfere with the desired outcome of those in power at the time.

Additionally, under this view, government exists to be the Great Leveler. Income inequality is something that cannot be allowed but must be rectified in the name of some nebulous form of cosmic "justice". That means wealth redistribution from producers to takers, overseen of course by a group of all-wise, good-intentioned central planners.

One model is that of liberty and has given rise to the greatest, most free, most prosperous nation in the history of the world.

The other model, see the case evidence in modern Europe - Greece, Spain, Portugal, Italy, etc. - produces soft tyranny and economic stagnation and inevitable decay.

Think about what we are already seeing - we have a central government dictating what kind of washing machines we may have and what kind of light bulbs we can burn in our own homes. We now are faced with the incomprehensible notion that the federal government can compel individuals to purchase health care insurance or pay a fine, a fine which I might add is now going to be under the purview of the Internal Revenue Service.  What's next - what temperature we may be allowed to set our home thermostats at? Wait until Obama finally gets his chance at a CARBON TAX.

This being said, where is the commonality in these two ideologies? Quite frankly, there is none. Just how are those who adhere to the conservative vision supposed to react when they find their sacred liberties being curtailed, their children's opportunities being shrunk, the fruit of their labors being increasingly demanded from them and the incentive for hard work disappearing? What portion of their deeply held and cherished convictions and traditions are they supposed to surrender in the name of getting along or the famously empty buzzword -  "bipartisanship"?

I submit that the common bond which once held Americans together, across a variety of states, has been torn asunder by decades of class warfare, the politics of resentment and an education system which has failed to teach the unique genius of the original American system of government combined with the virtue of self-reliance.

We are divided along ideological lines in a chasm that is as wide as any time in our nation's history going back to the War Between the States in 1861- 1865. Let's face it, the people in the red states have very little in common with the people in the blue states other than the fact that they happen to reside within the geographical boundaries of a set of lines drawn on a map. What pray tell does a conservative state such as Texas have in common with what is often referred to as "The People's Republic of California"? The Old South might as well be a completely foreign nation to the majority of people who reside along the Northeast corridor when it comes to values and traditions.

That fault line that existed in our nation's Civil War past was settled not by a bridging of the differences, a finding of common ground, but by a horrific war in which the victor imposed its will upon the defeated.

I submit that these "DisUnited States of America" should procede with an amicable divorce while there is still time. Let those states in which the majority choose to live under and be ruled by a European statist model form their own union. Let those states in which a majority desire to remain under the system devised by the Founding Fathers form their own union. Incidentally, let this union opt for sound money.

Let the two nations trade freely with one another and enjoy a friendly relation with each other. Let the citizens of each respective nation be free to immigrate or emigrate to one or the other depending on their convictions and belief set. But let them do this before the internal tensions in this nation rip it apart at the seams.

I do not say this lightly as it pains me exceedingly to even contemplate such an occurence but try as I can, I do not see any earthly way possible for this ever-widening ideological gulf to be bridged. The left in this nation will not rest until they have imposed their statist model upon the rest of us who reject it. The right merely wants the government to leave us alone and let us get about our "life, liberty and the pursuit of happiness".

I leave you with the words of Jesus Christ: " A house divided against itself cannot stand and a kingdom divided against it itself will fall".

Quo Vadis America???

Trader Dan on King World News Metals Wrap

Please click on the following link to the listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/11/3_KWN_Weekly_Metals_Wrap.html

Gold Chart and Comments

Gold was on the receiving end of a bloody bear mauling in today's session as the downside breach of what had been a rock-solid level of chart support (courtesy of Far-Eastern buying) gave way in a tremendous avalanche of sell stops. Apparently the physical market buyers decided to step back and pick up their gold cheaper as they have come full well to know what happens to hedge fund long positions whenever a large contingent of stale longs meet up with the usual monthly payrolls number.

Suffice it to say, gold has now experienced a technical break to the downside and has some chart damage to repair. Just how far and how deep this correction will go depends on the willingness of those big physical market buyers to absorb the metal coming onto the market.

The level of chart support that provided an initial downside target once $1700 gave way was the $1680 level. It failed to stem the selling acting as an upside cap to gold during the aftermarket trading once the pit session closed for the day.

My analysis suggests we have a strong band of support beginning near the $1665 region and extending towards $1658. That will need to hold to prevent another drop this time to $1640.

ON the daily chart, gold is now trading firmly below all of the major shorter term moving averages (10, 20, 50 day) with both the 10 day and the 20 day having made bearish downside crosses below the 50 day. That means the posture of the market is now bearish. The metal is closing in on the longer dated moving averages. The 100 day comes in just below today's low at $1670 and should provide a temporary respite from the selling. If it does not however, the all important 200 day moving average comes into play. That currently is at $1666.

I wish to point out that the 50% Fibonacci retracement level of the entire rally from off the May low, at the $1664 level, is in very close proximity to the 200 day moving average noted above. That will tend to reinforce this level as an expected strong buying level.

As also noted above, if this level fails to hold the metal, then it will drop towards $1640 and just below. You can see both a horizontal support level that I have drawn going back to late May. Interestingly enough, the next important Fibonacci retracement level, the 61.8% retracement, comes in very near there at $1633. That zone, as far as I can see things currently, is the absolute bottom of this correction barring any change in monetary accomodation, something which seems highly unlikely given the tenuous nature of the economy.

I must repeat something I wrote earlier this week, namely, the US election could ultimately prove to be very influential on gold. I am of the firm opinion that should Governor Romney win, given his statement that he would not reappoint Ben Bernanke to the Chairmanship of the Fed, some traders might have an initial knee-jerk response to such an event by selling gold out of fear that he would appoint more of a hawk than the dovish Bernanke to that position. That being said, while the Chairman wields tremendous influence, his vote is just one of many on the FOMC. There yet remains many dovish voices on that committee and last I checked, the majority of them still seemed to be of the opinion that accomodative monetary policy, namely ultra low interest rates on out through 2014 and further QE3, will continue a change in the chairmanship notwithstanding.

One last thing about this market - taking a look at the intermediate term weekly chart shows the third failure of gold to best the formidable $1800 level going back into fall of last year. Taking out that price and holding it is the key to a fresh leg upwards to match the all time high. Once gold failed to clear this level yet again, down it went. While today is disheartening to many bulls ( to longer term oriented buyers of the physical metal it is an absolute delight) the fact is that gold is still in a RANGE TRADE and has been for well more than a solid year now. The top of this range is $1800 and the bottom of this range is $1530. It is just now approaching the middle of the range. It just so happens that the MIDDLE OF THIS RANGE IS $1665. Savvy readers will immediately catch the significance of that number when taking another look at the daily chart shown above and the support levels noted there.

Nothing has changed in regards to the longer term trend in the yellow metal; it is just marking time and meandering in a wide range for now awaiting a fresh catalyst to take it higher. I am of the firm opinion that we are going to need to see a CONFIRMED BREAKDOWN in the US long bond market before we get such a catalyst.

IN looking at the chart of the long bond you can see that is remains mired in a Range trade of its own. It has given a bit of a hint that the next big move will be lower, based on the series of lower highs (see the declining blue downtrend line) but so far support from 145^10 down towards 144 has not been tested. I maintain that once that level gives way, and I believe it will if Romney is elected (probably sometime into his second year in office) then gold will go on to make new all time highs. That is a good way's off however and a lot can change in the interim so we will continue to monitor economic and fiscal developments and hopefully react accordingly.

If Obama were to somehow dupe enough idiots to put him back into office so that he can finish his task of destroying and remaking the nation, then my thinking is that the economy will continue to sputter along with both gold and the bonds remaining in a wide range trade. I would see nothing coming from that quarter that would lead me to believe the economic activity will pick up sufficiently to generate a real fear of inflation amongst investors/traders. QE would then continue ad infinitum, ad nauseum, with periodic bouts of optimism giving way to periods of economic despair. In short, the insane volatility would continue wreaking further havoc to traders and investors as the nation plunges ever deeper into debt. At some point a currency crisis would then occur which would boost gold but oh my, at what dreadful cost!

Commodity Index Breaks Down - So Too Does Silver

Another payrolls report today; another down day in the precious metals. Not much of a surprise here as that has been the norm for many a year. In one sense, it really did not matter what the number was as there was more than likely going to be bearish selling pressure no matter what.

When it comes to silver, if the number was a poor one, the bears would point to the fact that the QE3 was already baked into the cake and so was a non-factor. They would then point to the fact that the poor number was sign that the economy was still muddling along without any risk of inflationary factors due to the sluggish growth. Silver MUST HAVE AN INFLATIONARY ENVIRONMENT if it is to mount any sort of SUSTAINED rally.

If the number was considered friendly, then the bears would cry up the idea that the QE was not going to be continued as long as some were initially thinking since the economy was mending.

In other words, Heads, I win; Tails, you lose.

Either way, take a look at the following chart of the Continuous Commodity Index or CCI and notice that it has broken out of the recent congestion pattern. The breakout however was to the downside. Guess what; silver also broke out to the downside of its recent consolidation pattern.

I have pointed this link out to readers here for some time now - Silver is inexorably tied to the hip of the broader Commodity markets and will remain so into the foreseeable future. Next stop for the metal is today's low near $31.25 followed by a test of $31.00 - $30.80 should that previous level fail to stem its decline.

The fact that the open interest in silver refused to sharply decline during its descent was a warning that the stubborn bulls were vulnerable to a breach of chart support. There were just too many stale longs in this market which had not experienced a good and necessary cleansing. We are now finally getting that which is what this market needs in order to generate a more lasting move higher when the conditions are correct for such an event.

Note on that CCI chart, that the red support line which has been violated came in very near the important 38.2% Fibonacci Retracement level. If the index cannot rapidly recover this support level by climbing back above it and holding, it implies a subsequent test of the critical 50% level is in store.

With this in mind, observe the silver chart and note how similar the pattern is to the CCI. As stated above, the two are linked together and will generally rise and fall together.

Notice also how silver has lost support at the bottom of the recent congestion pattern which also was rather close to its 38.2% retracement level. If it cannot reverse the decline and get back above the 32 level, it will more than likely drift first towards psychological round number support near $31 and stronger chart support down near $30.70 - $30.75.

Monthly Gold charts

October is the first month since May that gold has posted a monthly loss.

Initial resistance still begins near the $1720 - $1725 level. Above that, selling will show up near $1740.

The market remains rangebound with a bit of a near term friendly bias.

It remains below the 50 day moving average which comes in at $1737. That corresponds closely with the resistance level I noted above. To see the longer term bullish trend reassert itself, the market will need to convincingly close through this level.

Downside support still is holding firm near the $1700 level as bargain buying out of Asia is very solid here.

Can you see the significance of this $1800 level and why the bulls were unable to take it through there on this go around?  Clearing $1800 and holding it, is the KEY TO THE RESUMPTION OF THE BULLISH TREND.

Silver Clinging to Support Above $31.50 - Needs Catalyst

With market conditions extremely thin today on account of that monster storm churning up along the Eastern seaboard, it is tricky trying to read too much into one day's price action. That being said, it does seem that traders are leery of putting on too large of a position one week out from a critical election.

I know that the silver bulls are making a big deal out of the apparent lack of liquidation from the speculative side of the market; however, this is in truth a double-edged sword. I would have preferred to see a more sizeable flush with the market holding above critical support near the $31.50 level as that would have set the market in a healthier position to break to the upside. These stubborn bulls will flee in size IF, and I want to emphasize the "IF" part of this, support marked "INITIAL SUPPORT" does give way. There is a tremendous amount of firepower available to the shorts should this level fail as the forced selling would easier and quite quickly, I might add, would take the price down to support near $31.25 down to $31 before we would see some value-based buyers put their toes into the water.

The way I see this, as long as the CCI, the Continuous Commodity Index, is headed lower, silver is going to face strong opposition to any sustained uphill climb. The grey metal needs an INFLATIONARY environment in which to thrive and without the CCI confirming one in the commodity sector, rallies into resistance are going to be met with strong selling. Once the CCI turns and breaks out to the upside, so too will silver. But until that time, it is likely to remain rangebound with pressure coming from risk aversion trades and buying coming from those looking further out along the horizon to an expected outbreak of inflation in the future.

Note on the following chart the breakdown in the CCI. It today has moved down to the 38.2% Fibonacci retracement level of the entire rally off the June low. Failure to garner support here and bounce higher will set the market up for a fall down to 550. Should this occur, silver will likely break chart support and move to $31 and lower. We will need to see the CCI move back through 580-585 to see silver have a real shot at an upside breakout.

One thing about the upcoming election - if Romney does win, he has said he already does not plan to renominate Ben Bernanke to the position of Chairman of the Fed. While there still remains a sizeable contingent of doves on the current FOMC, some traders are concerned that he would nominate someone less inclined to continue a monetary policy of perpetual bond or asset buying as their predecessor.

The truth as I see it is that these bond/asset buying programs of the Federal Reserve are NO SUBSTITUTE for overdue STRUCTURAL REFORMS that must be put into place if the US economy is to begin growing at anywhere near its potential. Depending on which party gains control of the Senate, if the Republicans were to win that prize and the Presidency, I would look for an extremely ambitious agenda which will excite the business community and begin to spur economic activity. In that case, the Fed would be able to VERY SLOWLY begin reversing its bond buying program once the economy were to actually turn for the better. That of course would take time as any attempt to rapidly withdraw this mountain of excess liquidity would send a shock wave through the global finance world.

If the Democrats were to hold the Senate, Mr. (everything dies in the Senate) Reid, would do his worst to thwart any needed reforms unless there was strong public support for such. In that case, the monetary pump would continue at full force with little chance of it being scaled back.

I repeat, it is crucial to the long term health of the US economy, that structural reforms begin. Without those, the economy will merely limp along and the present status quo will continue meaning the constant tug-of-war between the forces of deflation and the forces of inflation will go on with the wild volatility only getting worse.

One thing to also watch for will be a repeal of Obamacare if Romney does win the election. Should he make good on his promise to repeal it on day one, business will applaud and money that has been sitting around doing nothing in their accounts, will immediately be put to work.

Trader Dan on King World News Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.


http://kingworldnews.com/kingworldnews/Broadcast/Entries/2012/10/27_KWN_Weekly_Metals_Wrap.html

Dow Jones/UBS Commodities Index Change to Benefit the Precious Metals

Every year, the various commodity indices, that are used by hedge funds and index funds to benchmark against, have a reweighting of the various commodity inputs that are used to comprise each particular index. During this reweighting process, the percentage of some commodities are increased while the percentage of others are decreased. As a result, those funds benchmarking against the index, are forced to recalibrate their particular portfolios, selling some commodity positions while buying some new commodity positions in order to come into alignment with the new weightings.

Dow Jones/UBS recently announced that the precious metal component of their index will be increased by 2% from this year's levels for 2013. This will benefit gold and silver to the extent of an estimated (by Credit Suisse analysts) to the tune of some $1.6 Billion in new money flows. The money will be evenly split between gold and silver.

There might be some buying in the metals this AM on this news given the fact that the Dollar is generally steady this AM, which would normally see some pressure on the metals. Bargain hunting occurred last evening in Asia down near $1700 and is sitll coming in against that support level on the charts.

Gold bulls need to get the price back over $1720 however and KEEP it there to stem the recent declining pattern and stabilize the market.

Strength in the mining shares as evidenced by the HUI is aiding the metals. That bullish flag formation on the weekly chart is still in force but was chipped away at by yesterday's strong down day. Mining share bulls will need to take the index up through 510 for starters to give some further hope of validating the pattern. A close in the index below the 480 level makes the pattern null and void.