"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, January 10, 2013

A Sermon to the Land

I am fully aware that the readers of this site do not regularly tune in to listen to my musings on the political and spiritual condition of the nation but rather to read my interpretations of market action especially in the precious metals realm.

However, I feel compelled to express what I am calling a sermon to the land, based on the events I see unfolding around me in this my beloved country.

Some who read this will no doubt mock and hurl insults my way. Frankly I do not care so spare yourself the time and effort to flaunt your mockery. Your words of contempt will do nothing to alter the depth of the feelings that I am now experiencing nor the rapidly building sense of dread that is currently arising within me.

Others will perhaps be astonished to learn that there was a time in history past in which a similar condition arose in an ancient kingdom resulting in a catastrophic series of events from which that kingdom never recovered.

If that is indeed the case and you are stirred by these words as if an echo of them has sounded within your spirit, then I will rest content in that.

We begin with a passage from the Old Testament book of First Kings, chapter 12.

1 Kings 12

New Living Translation (NLT)

The Northern Tribes Revolt

12 Rehoboam went to Shechem, where all Israel had gathered to make him king. When Jeroboam son of Nebat heard of this, he returned from Egypt,[a] for he had fled to Egypt to escape from King Solomon.
The leaders of Israel summoned him, and Jeroboam and the whole assembly of Israel went to speak with Rehoboam. “Your father was a hard master,” they said. “Lighten the harsh labor demands and heavy taxes that your father imposed on us. Then we will be your loyal subjects.”Rehoboam replied, “Give me three days to think this over. Then come back for my answer.” So the people went away.
Then King Rehoboam discussed the matter with the older men who had counseled his father, Solomon. “What is your advice?” he asked. “How should I answer these people?”
The older counselors replied, “If you are willing to be a servant to these people today and give them a favorable answer, they will always be your loyal subjects.”
But Rehoboam rejected the advice of the older men and instead asked the opinion of the young men who had grown up with him and were now his advisers.
“What is your advice?” he asked them. “How should I answer these people who want me to lighten the burdens imposed by my father?”10 The young men replied, “This is what you should tell those complainers who want a lighter burden: ‘My little finger is thicker than my father’s waist!
11 Yes, my father laid heavy burdens on you, but I’m going to make them even heavier! My father beat you with whips, but I will beat you with scorpions!’”12 Three days later Jeroboam and all the people returned to hear Rehoboam’s decision, just as the king had ordered.
13 But Rehoboam spoke harshly to the people, for he rejected the advice of the older counselors 14 and followed the counsel of his younger advisers. He told the people, “My father laid heavy burdens on you, but I’m going to make them even heavier! My father beat you with whips, but I will beat you with scorpions!”15 So the king paid no attention to the people. This turn of events was the will of the Lord, for it fulfilled the Lord’s message to Jeroboam son of Nebat through the prophet Ahijah from Shiloh.
16 When all Israel realized that the king had refused to listen to them, they responded,

“Down with the dynasty of David!
    We have no interest in the son of Jesse.
Back to your homes, O
    Look out for your own house, O David!”
So the people of Israel returned home. 17 But Rehoboam continued to rule over the Israelites who lived in the towns of Judah.
18 King Rehoboam sent Adoniram,[b] who was in charge of the labor force, to restore order, but the people of Israel stoned him to death. When this news reached King Rehoboam, he quickly jumped into his chariot and fled to Jerusalem.
19 And to this day the northern tribes of Israel have refused to be ruled by a descendant of David.20 When the people of Israel learned of Jeroboam’s return from Egypt, they called an assembly and made him king over all Israel. So only the tribe of Judah remained loyal to the family of David.

Shemaiah’s Prophecy

21 When Rehoboam arrived at Jerusalem, he mobilized the men of Judah and the tribe of Benjamin—180,000 select troops—to fight against the men of Israel and to restore the kingdom to himself.
22 But God said to Shemaiah, the man of God,
23 “Say to Rehoboam son of Solomon, king of Judah, and to all the people of Judah and Benjamin, and to the rest of the people, 24 ‘This is what the Lord says: Do not fight against your relatives, the Israelites. Go back home, for what has happened is my doing!’” So they obeyed the message of the Lord and went home, as the Lord had commanded.

My commentary:

The above story describes the event that led to the division of the nation of Israel shortly after the death of its wise king Solomon.

It is important to note that in the previous chapter, God had sent word through His prophet Ahijah that He would tear the kingdom asunder as punishment for Solomon’s sin of idolatry. No longer would the son of Solomon rule over the entire twelve tribes of Israel as ten of those tribes would be stripped from his kingdom and given to Jeroboam to rule. Solomon’s son Rehoboam, would have only the tribes of Judah and Benjamin over which he could exercise his reign.

Note this well - God Himself had determined to bring the nation of Israel to its knees and tear it apart. All that then follows is the execution of that will as it involved human agency. in its actual accomplishment.

Upon Solomon’s death the narrative picks up at the beginning of this chapter quoted above.

Here are the main points to take away from this historical event.

First, even though God had promised Jeroboam that he would be king over 10 tribes he still joined with the people of those tribes and attended the coronation ceremony of Solomon’s son Rehoboam. At that event, the people pleaded with the young king to lighten the burdens that had been placed upon them and that if he were but to do so, they would remain his loyal subjects.

This in itself was admirable as it showed the extent the people of the ten tribes of Israel, and Jeroboam, were willing to go in an attempt to keep the kingdom whole and united.

Understand that prior to this, Solomon had undertaken great public works projects and built lavishly and in so doing, had basically employed a type of forced servitude among the people. My understanding was that they were paid a wage for their labors; however, Solomon had imposed a system of heavy and oppressive taxation to fund his extravagance.

The request of the people to the new king is very reasonable when viewed in this light.

Second – the new king Rehoboam showed a glimmer of wisdom in taking some time to make a decision in regards to the peoples' request and particularly in consulting first with the elder statesmen of the day. These were men of wisdom and experience and understood the times and exactly what was at stake here.

Their council was both wise and prudent as it showed they were well aware of the passions and resentments simmering beneath the surface of the polity and which were threatening to erupt into the open with devastating results for their beloved nation.

They advised Rehoboam to lighten the burden his father had placed upon the people and acquiesce to their demands for the sake of unity, peace and harmony in the land.

Third – Rehoboam then made the foolish mistake of taking the council of the young hot heads. Their advice to him was not only foolish, short-sighted and petty, but it was to prove disastrous to the nation.

If I can paraphrase their council and speak in a more modern terminology I would put their advice to Rehoboam as such:

“You are the KING of Israel Rehoboam, the lawful heir of Solomon and the one who has the right to rule. Your word is law in this land. Just whom do these upstart rebels think that they are speaking to in such a manner? How dare they make demands upon you as if they are your ruler and you their subject? Assert your rights and your power and show them who is boss! Double their labors and raise their taxes further until you break their spirit and force them to bow to your will”

As you can see, Rehoboam’s vanity was putty in the hand of these foolish and self-seeking sycophants that the new king had chosen to surround himself with. His ego lapped up their words as a thirsty camel laps water in a desert oasis. The result – the nation was torn asunder, exactly as God had said He would do to it.

Here is how I see this – there was a growing and deep resentment in the land of Israel among those who bore the burden of the expense of maintaining the society. These same people were oppressed by those in authority, the very ones who should have understood that their role was not to lord it over their citizens but to serve them as wise, thoughtful and far-seeing leaders.

This resentment continued to build and to fester, like some sort of foul wound, under many years of continued abuse. At some point this resentment gave way to two simultaneous emotions – despair and rage.

Despair,  that their miserable situation would never change and Rage, when the long years of abuse had done to them what it inevitably does to all who are crushed under the weight of continuous intolerable injustices. Yet, the people,  daring to hope against all hope that their condition might perhaps, finally, be amerliorated, approached their new king in one last final desperate plea that reason would prevail.

Alas, it did not and the fiery passions that had been smoldering for so long finally ignited with a flame that burst forth in a fury that could no longer be contained. The nation split asunder with the words of the departing people clearly articulating what was in their hearts:

“What do we any longer have in common with this king and with his subjects? He cares nothing for us nor for the depth of the burdens that we are now forced to endure in order to support his trappings and his grandiose dreams.  We have no interest whatsoever in the house of the son of Jesse nor do we any longer care to be numbered in that house. Let us go to our own way and let us be ruled by a man who at least understands our plight”.

Fourthly and finally – the nation was torn apart and was never again made whole.

America – be warned – the division proceeded from the will of the Most High but the causes were the passions of men whose liberty had been trampled upon by a young, foolish, inexperienced and arrogant king disdainful of sound wisdom and intent upon having his own way, the consequences of which be damned.

Draghi Comments; Markets Party

ECB President Mario Draghi announced that the ECB, in an unanimous decision, voted to leave interest rates unchanged. Many market observers were expecting a rate cute. The announcement was viewed as an expression of ECB confidence in the EuroZone economy and thus had a devastating effect on the US Dollar with traders rushing to ply the risk trades particularly in the commodity sector, which if you recall the chart I published yesterday, had recently been on the receiving side of a good butt whipping by the hedgies.

It is astonishing how rapidly sentiment, and thus money flows, can change in these modern markets. It is like watching an entire business cycle occur within a 24 hour period!

Take one look at the following two charts and then you will understand why nearly anything remotely resembling a commodity is higher.

Here is the first chart - the Continuous Commodity Index or CCI: Note that the price has run exactly to the 200 day moving average. The big test now comes tomorrow or early next week to see if today's Draghi-induced rally has any legs. If it does, and the index can trade back above that level, expect to see further strength in gold and in silver as fund flows will be coming back into the overall commodity sector.

By the way, all of the base metals, with palladium and platinum, were especially strong today. That bodes well for silver if it keeps up.

The next chart is the US Dollar Index. It was hammered lower today and I do mean "hammered". I find it especially interesting to see that it too failed at the 200 day moving average. Were it not for sharp losses in the Japanese Yen, the Dollar collapse would have been even more severe.

Taken together, these two charts pretty much tell us all that we need to know about today's price action in the precious metals. With the Dollar dropping sharply, the risk trades were on in full bore and that means big money flows into both equities and into commodities. That in turn pushed up silver and gold.

I do find it noteworthy that the long bond, while it was weaker today, was down less than a full point. A move of the magnitude that we witnessed in the Dollar and the surge in the S&P 500 should have been good for more than 20 ticks or so. That is a flag that stands out to me. With all the hoopla regarding the onset of the risk trades, the bonds should have been knocked on their can with money flowing out of that sector in chase of higher yields elsewhere. I was looking for at least a full point or lower move in that market; we didn't get it. Hmmm.... let's see what we get in that market tomorrow. If it fails to move lower, I have to wonder if we are going to see a continuation of today's commodity and stock buying binge.

In the aftermarket in the S&P, it looks as if the bull train is leaving the equity station and there is a panic to get on board but the bonds are still not imploding lower - yet....

The HUI did put in a good day bouncing further from that 420 support floor. It still is not out of the woods as the bears remain in control of the larger trend until we get a close through the 450 level. One thing is certain however, value based buying has continued to manifest itself every single time this index moves to that 420 level. Apparently investors see value in the mining shares that comprise this index on moves toward recent lows. That is a good sign for the beleagured bulls. The longer this index remains above 420, the better the chance that it will spark a wave of short covering which is what is needed to kick off any sort of uptrending move.

Take a look at the gold chart and note that it accomplished STEP ONE - it made it through the 200 day moving average and did not fall back through it. That is a good first step. The big key however is last week's high just shy of the $1700 level. If the bulls can muster enough conviction to take it through that level it will have enough upside momentum to take it through $1700. What it does next then will show us whether we have the beginning of a good uptrend move or just another bounce higher against which bears will be able to successful sell.

If you look at the graph of the RSI, Relative Strength Index ( an old but solid technical indicator) you can see that it has not been able to get back above the 60 level since early October of this past year. That is a classic case of a market in a bearish posture. What we want to see is this indicator take out the 60 level and get to at least 70 before we can call this latest move the real thing. It should closely coincide with an upside breach of $1696 - $1699. Let's see.

I have to make one more comment before closing - while one cannot fight the trend as a trader if they wish to be successful, for the life of me, I cannot fathom how the S&P 500 can continue heading in a vertical upward direction putting it within 120 points or so of its all time high. One would think that they is hardly a care in the world about the economy or the horrific condition of the US Federal government. Proof positive that what the Fed wants they are generally going to get!