Even during peacetime the US economy is to a large extent a war economy, with the large corporations that make expensive armaments courtesy of taxpayer funding being a very powerful lobby that has extensive powers over politicians and government. This is a big reason why, even in relatively normal times, wars are manufactured around the world in part for them to boost profits with associated kickbacks to politicians. Now though, with the prospect of a major war in the Mid-East, the war (defense) industry stands to make windfall profits. However, a more compelling reason to stoke a major war now is that, with the debt and Treasury markets teetering on the verge of collapse in the face of liquidity problems, a major war (or wars) will provide the perfect excuse for Central Banks to create vast amounts of new liquidity out of nothing to both feed the war machine and prop up the debt markets, albeit that this will be massively inflationary, but that doesn’t matter because the added inflation is only a problem for the little people.
The reason for this update is that I have spotted evidence of an important turn in the debt and Treasury markets that I want to bring to your attention, which we can see to advantage on the 6-month arithmetic chart for the iShares 20+year Treasury Bond (code TLT) shown below which is a good proxy for long-term Treasuries, and the somewhat surprising thing is that, as we will see, the buildup to this turn has been going on for some weeks and as intimated above, the reason for it will be the opening of the financial floodgates by the Fed and other CBs to fund full-on support for a major war in the Mid-East as the US takes on the entire Arab world on behalf of Israel, probably aided by its poodle Britain, and to fund wars elsewhere such as in Eastern Europe and against China over Taiwan. Given the number of Arabs and Muslims now living in countries like Britain and France this should lead to some interesting demonstrations on the streets going forward.
So what is this evidence that we can see on the TLT chart that the debt and Treasury markets may be about to recover somewhat. The 1st thing to observe is that there has been a huge volume buildup in TLT since mid – late September. Now, if this were mostly downside volume it would be bearish, but it hasn’t been, it has been mostly upside volume which is why the Accumulation line, shown at the top of this chart, has been trending higher since the start of the month. This is a positive divergence that indicates a high likelihood of a reversal soon. The other positive divergence that we can see is momentum – the last low by TLT about a week ago was not only not confirmed by momentum (MACD) but it was not confirmed by a wide margin – the MACD is now trending quite rapidly higher. Both these factors point to a strong reversal soon which fundamentally will be due to the prospect of massive money creation to fund war, and the now wide gap between the price of TLT and its falling 200-day moving average above is a measure of how oversold it is and thus shows the potential for a big snapback rally.
What will be the collateral effects of a stabilizing debt market, even if only temporary (remember that we still have a saturated debt market) on other assets? These are easy to predict – rates should ease and the dollar drop and this will take the pressure of both stockmarkets and commodity markets that should both rally. The enormous extra money creation to funds these wars will of course be massively inflationary and will be a big stride on the road to hyperinflation so gold and silver should soar and other metals too like platinum and palladium. Oil can be expected to go through the roof as the worsening Mid-East situation threatens supplies and if it really takes off it will burst the stockmarket bubble and crash the world economy, which of course will be an integral part of The Great Reset. Oil is looking like a strong buy again right now and we will be taking an updated look at it soon.
End of update.
Posted at 8.25 am EDT on 30th October 23.