Dr. McHugh’s Work Says, “This is it!”

Two Elliott Wave experts whom I have been following for a long time, Robert Prechter and Robert McHugh, have been more or less on the same Elliott Wave count over the past 10 years. And both men have talked about the next downturn ushering in an apocalypse. Prechter, who pays a great deal of attention to sociological moods and trends, has talked about the next major stock market crash setting the stage for the next “Dark Age.” Dr. McHugh as talked about “a cataclysmic nation changing event” that will leave those of us who survive living in an impoverished world beyond comprehension for those of us who have been blessed to enjoy the creature comforts of the Western world. Both men believe that we are facing a stock market decline and depression with a magnitude worse than that of the 1930s.

As I observe the sociological changes occurring now with the United States apparently willing to trigger World War III to keep its domination over the BRICS and anyone else who would challenge the NATO powers, it is not hard for me to envision the kind of apocalypse that both Prechter and McHugh envision. For sure, this will be part of the topic of my conversation with Dr. McHugh next Tuesday on my radio show as well as the number one question that should be on everyone’s mind, and that is how can we cope with a future that takes us back to the Middle Ages when 0.1% of the population is extremely rich and the rest of us serve them and live in a level of poverty not even the poorest Americans imagine.

No doubt that will seem a bit extreme and I pray that it is. But the reallocation of wealth, thanks to fiat money, is well underway now over the past 45 years and the wheels on the wagon have not yet even fallen off. They came ever so close to doing so in 2008-09. But by injecting massively more heroine into the veins of our economy, policymakers have managed to keep the patient feeling relatively well while continuing to destroy society’s vital organs. The vital organ that enabled the West to gain its standard of living was capitalism. But that vital organ of our society is being destroyed with massive pain-killing QE. With each dose, we come that much closer to the world that both Dr. McHugh and Robert Prechter have been warning us about. 

Throwing away all notion of private property, the Fed has issued trillions upon trillions of fraudulent money. Yes I know you are supposed to believe that the dollar, which is created out of keystrokes on a computer, is legitimate; but believing the legitimacy of that money, you have to also believe in the legitimacy of money created in Al Capone’s basement.

Aside from the moral issue of reallocating (stealing) by creating money out of nothing, that process is completely poisonous for two reasons:  (1) Fiat money is created by debt that is showered on the masses, thus leading them into abject poverty; and (2) By creating so much money, the Fed is not enabling capital to be priced according to the genius of the markets.

The result of the monetary pathology can be seen from the Velocity of M2 chart directly on your left. The chart above it, which pictures the monetary base of the Federal Reserve banking monopoly, is in fact a picture of the morphine injected into the economy by the ruling elite for two purposes:  (1) To enable the banks to surreptitiously steal wealth from the masses by creating money out of thin air; and (2) To bail the banks out when their dastardly debt-creating deeds rendered the banks bankrupt. The gradual rise in the late 1960s was to fund the Military Industrial Complex during the Vietnam War and to buy votes from the public with growing socialist programs. The Fed and especially the banks that own the Fed loved that freedom when Nixon removed gold from money in 1971, and most people like the short-term high they received as low levels of indebtedness could be repaid and as some stimulus was indeed enjoyed by almost all people. As with many drugs, the first dose makes you feel good but oftentimes you need more and more, faster and faster, to get the same “kick.” 

But with each new dose your vital organs are wearing down. And so we reached a major breaking point when the system nearly went kaput in 2008-09. That was when the monetary base rose exponentially to the level where it is today. At the same time, note the precipitous drop in the velocity of money! I explain this by two factors:  (1) fear on the part of the masses of not being able to pay for vital living needs; and (2) an actual inability of the masses to pay for vital living requirements. Indeed poverty levels and food stamp recipients have been growing dramatically since the 2008-09 episode. Why so? Because capitalism is being destroyed by the Federal Reserve Bank through the endless printing of money that is not permitting capital to be allocated according to market demands. It is impossible for capitalism to survive if you do not allow price discovery of capital!  

So of course the Keynesians say it doesn’t matter if you are broke and can’t pay your mortgagee and put food on your table. The government and its bankers can always print more money and let you borrow it to pay off your debts. All the while, the masses become all the more poverty stricken while the bankers who are creating the money out of thin air live in their luxury townhouses in New York or spend weekends in their mansions on the Atlantic Ocean on the south side of Long Island.

The pathology of existing policy has been obvious to all of us Austrians for many years. We Austrians predicted the housing implosion of 2008-09. And we are predicting the end is very close again, only this time the carnage and suffering will likely make the last one seem like a Sunday afternoon walk in the park on a beautiful, clear, sunny day.

Now the works not only of McHugh, but also of Michael Oliver, my good friend and frequent guest on the radio, are suggesting that we’re in for a major decline in the equity markets and conversely a rise in the precious metals markets. I’m not sure that Michael yet sees the longer-term severity that Dr. McHugh is talking about. I will perhaps ask him about that next week on my radio show, assuming he is available. But both men as well as Robert Prechter think we are on the cusp of a major equity market decline.

On Tuesday of last week, Dr. McHugh pulled the trigger! Following is what he had to say about stocks, gold, and gold mining stocks. Please refer back to the chart at the top of this article, which shows an Elliott Wave chart passed along by Dr. McHugh to his readers. 

“The Industrials have completed a Rising Bearish Wedge from October 2014, with a truncated top, meaning its final wave {e} up failed to exceed its May 19th, 2015 wave {c} high. July 27th, 2015’s decline below the wave {d} bottom, below 17,465, confirms the top is in and the next great Bear market has started. The Industrials closed at 17,440 Monday, after hitting an intraday low of 17,399. Tues-day, July 28th saw a corrective bounce.

“The top is in for the rally from 2009, and for the rally from 1987, and for the rally from the 1700’s. A Grand Supercycle degree Bear Market is starting, with the first leg, wave (1) down of {iii} down of {3} down finishing Monday, July 27th , and a short-term corrective bounce, wave (2) up started Tuesday, July 28 th as the Industrials closed up 189.68 points. This rise could take the Industrials up toward 17,800 to 18,000ish. Then wave (3) down of {iii} down of {3} down will follow and that will feel very much like a crash, but it will be just a minor decline compared to what is coming this autumn.

“We now have two official H.O.’s on the clock at the same time! Both will be in place during the high probability crash period from mid September into mid October. Over the past 30 years, all but one crash (a decline over 15 percent) have had an official H.O. on the clock. While an official H.O. is not a guarantee a crash is coming, it is essentially a necessary precondition for a crash to occur. It tells us this stock market is in a very fragile and dangerous condition and will remain so for months. About one out of every four times this signal appears, a crash follows.

“On Tuesday, July 28th, our key Blue Chip trend-finder indicators remain on a Sell signal, as our Purchasing Power Indicator and our 14 and 30 day stochastic indicators are all in agreement, and remain on Sell signals. Our intermediate term Secondary Trend Indicator remains on a Sell signal Tuesday, rising 9 points (out of a possible maximum 9 points), to negative -16, needing to rise above positive + 5 for a new Buy. Demand Power rose 10 to 377 Tuesday while Supply Pressure fell 7 to 404, telling us Tuesday’s rise was strong, and fueled in part from shorts covering their positions.

We believe that a bottom in Mining stocks and precious metals is imminent, ending their long corrective Bear Market since September 2011. If you look at the chart on page 27, you will see that the recent sharp decline in Mining stocks is completing a large Declining Bullish Wedge that started back in late 2013. The fifth wave finally reached and dropped below the bottom boundary. It is normal for the fifth wave to decline below the bottom boundary in these patterns. We need to see new Buy signals in our key indicators for confirmation. Then it should rise substantially for a long time. The coming rally should coincide with the coming stock market crash.

“Today’s Market Comments (continued) A bottom is also imminent for Gold. Gold is very close to finishing a large Declining Bullish Wedge pattern from early 2013, and that pattern may be complete, as its final fifth sub wave dropped below the bottom boundary, a textbook finish to this pattern, finishing wave e-down of (2) down (see chart on left).  For Precious Metals, typically, the fifth wave is the most dramatic wave, whereas in stocks the most dramatic is the third wave. Thus the recent plunge in Gold during sub wave e-down is typical, and means the completion of the pattern is nigh, and a bottom is imminent.

“Further, Gold closed back above its Bottom 2 standard deviation Bollinger Band Friday, July 24th, after closing below its bottom Bollinger Band 2 standard deviation boundary earlier last week, which is a Buy Signal.

“Big picture, Declining Wedge patterns are termination bottom patterns, and it means Gold is headed much higher during the last 5 months of 2015, headed toward a minimum of 1,425ish by year end. It means that Gold could see a 30 percent rise from current levels this year. This means large degree wave (3) up is just about to start. While inflation is not a likely causal factor initially for Gold’s coming rally, we believe that short-covering from Hedge Fund Speculators who are betting on more downside in the yellow metal will be the initial spark, and a secondary fuel for this rally will be a black swan event that drives buyers to Gold as a safe haven, perhaps the same black swan event that will ignite a precipitous stock market decline. Gold has risen sharply during past stock market crashes, so a crash this year could fuel a huge move up in Gold. Then once the stock market plunges, we see central bankers printing money, hyper inflating the economy again, which will fuel Gold as a monetary inflation (devaluation) hedge. So three coming driving forces will push Gold and Mining stocks higher, starting real soon: 1) Short-covering, then 2) a Black Swan event, then 3) fiat monetary devaluation.”

I strongly encourage you to check out Dr. McHugh’s work at www.technicalindicatorindex.com.

One of the charts Robert shows in his letter is a rounding formation for the Dow and S&P 500. Likewise, my IDW, which has a wide range of gold stocks in it as well as the most important commodities for a growing economy, is not only displaying a rounded top, but is very close to breaking below the five-year moving average. Indeed on Tuesday, it did break below the five-year moving average and at the close of this week came ever so close to closing the week there. See my Inflation/Deflation Watch pictured below.

                              Jay Taylor’s Inflation/Deflation Watch
In my view, this chart illustrates the pathology of Keynesian economics. It is consistent with a massive decline in monetary velocity as the masses are becoming impoverished and thus not willing or able to continue spending. So they hold on to the declining money they have. And that lack of demand from the masses is showing up in a major decline in raw materials for industrial and consumer goods. Of course there are all manner of excuses from the mainstream Wall Street happy talkers for the decline in oil, copper, and iron ore prices and they are partly valid. For example, the blame is often on a cooling Chinese economy. They are right but for the wrong reasons. Chinese economists have taken a chapter out of the same irresponsible economics textbook that both Marx and Keynes helped to write. Chinese and U.S. policymakers both are anti-free market, no matter how some may like to think otherwise. Both think the state is essential to making things better in the economy despite all the evidence to the contrary. Plain and simple, policy makers everywhere now are destroying capitalism by destroying price discovery for capital. How can you have capitalism when you do not allow the price of capital to be priced according to market demand but rather on the political whims of the ruling class?

Which leads me to the premise that what is going on here in the willingness to believe the big lie, is a spiritual pathology. But that is a topic for another day. Of immediate concern is how do we prepare for the cataclysm that is to come, despite all hopes and prayers that it won’t.

Jay Taylor
www.jaytaylormedia.com
www.miningstocks.com