Reflections of a Debt Cycle: The Seven Day Scope (Snipers Only)

Sometimes even the shit will rise to the top.

When your mind is controlled, it is easy to control your body.

This is how all psychological warfare works. When humans are scared they react in illogical ways.

When I was younger, I read about mafia. For a couple reasons, my family and because the history was different than what we were told. From the Gambino family, Capone and to Lucky Luciano.

The mafia was always interesting to me but not for the reasons that most people think of.

In the 1920s, mafia members would approach local businesses and offer "protection" from threats like vandalism or violence. If the business owners refused to pay, the mafia would follow through with these threats, essentially forcing them to pay for protection from the mob itself.

Today we have debt. Debt is the new thing that forces people to do things that they don’t want to do.

As traders, we have to understand debt as the main driver of every cycle the market can throw at us.

Most people have no idea that since our economy has become so dependent on debt. Gold has actually outperformed the market.

Yes you could buy a damn rock and make more money than buying the SPX.

It sounds crazy, but it’s true.

Higher debt levels can lead to concerns about inflation and currency devaluation, which increases demand for gold. (How about those GDX and silver calls we put out earlier this week?

)

As I have shared many times before, this is why bonds and gold move in similar directions these days. It is also why I think gold does not do what people think it should when inflation is raging out of control.

Now we are at a point where debt will be driven back in to the system. Gold smells debt before it comes in to the system. As you can see gold loves this environment, an environment that bonds will enjoy after gold.

Will this debt cycle act exactly the same as it did in the last 20 years?

A long term bond chart shows us a different story.

Bonds move in a 40 year cycle. If you have been with me since 2020 you will remember me calling the top in march 2020. Now we are headed the other direction. This could make it so that stocks are rangebound for years and commodities start leading the way.

Due to the costs of World War II. By the end of the war, the U.S. national debt had skyrocketed to about 120% of GDP.

The current U.S. debt-to-GDP ratio stands at around 122.3% as of the second quarter of 2024. 2% higher than WW2.

In 1982, the U.S. debt-to-GDP ratio was 34.6%.

Debt drives the cycle.

And Gold Rings the dinner bell. You can see this as you look at a chart of gold against commodities.

Right now I see that gold that this rally is just getting started for gold. The commodity rally will be next but we need to be careful here. Only take signals as they come.

For now continue holding your winners.

Gold is a winner. Gold miners have been a winner as well but now we are in the next part of the trade where gold miners and silver start to outperform. I am holding my options and system trades at the moment. This is just getting started. Your positions should be well in to profit and your stops should be well in to profit as well.

Speaking of new trends in a inflationary debt cycle. Grains are just getting started.

I recently recommended that we buy wheat. So far that signal has worked incredibly well.

Corn will be next.

Strong commercial buying and declining open interest usually leads to massive bounces. The next buy signal to take will be in corn.

Stay tuned.

As long as junk bonds are leading the way, I want to be long stocks as well.

When we have a lot of debt in the system and sometimes the shit will rise to the top.

I am happy to own shit if it is making money.

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