The "Ultimate Deflation" we are experiencing guarantees that central banks ALL OVER THE WORLD will be forced to print and debase furiously!

Dear GLP,

Dear CIGAs,

As a follow up from yesterday’s A Weekend’s Heads Up , my thoughts were truly an understatement for today’s action! The open was far weaker than I had anticipated, down 1,089 points. This was the biggest point drop in Dow history. The volatility was out of control with the VIX trading to 53, the highest since Feb. 2009! An illustration of how much and how fast the volatility was, total point movement in the first 90 minutes was 3,000 Dow points, 4,900 total for the day! Truly incredible!

So where do we go from here? Unless we get some sort of central bank news out of China, we open down again tomorrow and see if they can get a reversal going. We are well over sold and due a bounce …but ALL crashes have occurred from oversold readings. While talking to Jim after the close, he initially said “the PPT got their ass kicked today, it would not have happened if I was running their desk”. Let me explain this because it is SO IMPORTANT.

Today was all about credibility and confidence. “They” could not allow what actually happened because it showed weakness. Or better yet, it exposed their inability to hold it all together. Today was not about margin calls, Mom and Pop selling or even mutual fund/pension plans. No, you saw “algorithms” go wild today and it turned out the algos were bigger than the PPT. Huge mistake by the PPT because just as in a street fight, “weakness” provokes aggression and now the algos know how powerful their punch is! They could not let “it happen” …they did, HUGE MISTAKE!

After the close, the muppets at CNBC are already pleading for help from the Fed. Jim summed it up when he penned this:

“A market break like today (called recalibration by financial TV money bunnies) in which the PPT was defeated screams “ultimate deflation.”

The immediate implication of “Ultimate Deflation” among the unwashed and not knowing is bearish on gold.

The basis for our thesis on gold and major new highs in metals is “Ultimate Deflation” and how global central banks will react.”

For those who do not understand, the Fed (as I mentioned yesterday and previously) has a zero percent chance of raising rates and will in fact be forced into further QE. The “Ultimate Deflation” we are experiencing guarantees that central banks ALL OVER THE WORLD will be forced to print and debase furiously! It is not the current action that will kill you…it is the REACTION from the central banks!

Today was a “warning shot” to start, maybe even a shot INTO the bow as the close stunk up the joint. I still expect some sort of stabilization where investors (lead on by the CNBC muppets) will breathe a very short term sigh of relief. Whether this lasts only a day or two or several weeks, I have no idea. I would suggest that any stability should be used as an exit!

Speaking of “exits”, if I were the Chinese or other large holders of Treasuries, I would be using the current strength as my exit plan. Capital poured into Treasuries in a safe haven bid, I would use these bids and hit them with everything I had. In fact, I believe we may very soon see the day when the U.S. Treasury market gets hit hard along with stocks and the dollar. This will be your clue the “end” is quite imminent. WATCH TREASURY YIELDS, when they inexplicably begin to rise, understand what they are telling you!

Lastly, this is not about China, it is not a “correction”, it is not because of a “slowdown”. This is the beginning of the Great Credit Unwinding and will take EVERYTHING “credit” with it. Do you understand what “everything credit” actually is?

In today’s world, anything and everything financial (including real estate) is credit. EVERYTHING is now credit! By now I probably should not have to explain what is “not credit”. Simply put, “real physical gold and silver unencumbered”.

You will soon see this as the credibility of central banks will be called into question. The viability of derivatives will be called into question. The solvency of sovereigns (including the U.S. Treasury) will be called into question. The entire global fiat system will be called into question! The conversation may go something like this;

You have been weighed. You have been measured.

And you have absolutely…

Been found wanting!

Welcome to the New World. God save you, if it is right that he should do so.

It has been and is all about “confidence”. Confidence has been the ONLY thing holding the Ponzi scheme together. The PPT allowed confidence a very black and swollen eye today. Nothing “credit” on the planet will stand upon the knockout of confidence!

Standing watch,

Bill Holter
Holter-Sinclair collaboration
Comments welcome: bholter(at)hotmail(dot)com