-- Posted Friday, 18 April 2008 | Digg This Article
| Source: GoldSeek.com
DEEPCASTER LLC
www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation Wealth Enhancement
Financial and Geopolitical Intelligence
Several Massive Bubbles are in the process of bursting in the U.S. Economy and Financial Markets, with serious worldwide ramifications.
The most prominent among them are the (overlapping) Housing Bubble, the Collateralized Debt Obligation Bubble, the Darkly Liquid OTC Derivatives Bubble, the M3 Expansion Bubble, and above all, the Bloated Credit Bubble.
Contrary to what several pundits have recently opined, the ongoing Bursting is not over. Indeed, we will likely be living with the negative effects of these Bursting Bubbles for several years to come.
Although the Bubble Bursting has already begun, it is not too late to understand how to Protect and Profit from these ongoing Bursting Bubbles.
In order to Protect and Profit we must understand a little bit about Bubble Creation, Bubble Benefits and Bubble Bursting.
When considering the Shape of the Financial Future, it is not enough to deal with just the Real Estate Bubble (or with any other single Bubble in isolation, for that matter). Indeed, perhaps the most serious long-term Bubble that is in the process of bursting is the Credit Bubble as financier George Soros suggests in his latest book.
This Bubble has been a quarter of a century in the making - - over the last quarter century the U.S. Fed-facilitated massive Expansion of Credit has led to greatly excessive borrowing and leveraging. Now this long period of credit expansion is coming to a halt, with the concomitant painful de-leveraging and Bubble deflation.
Of course, this “de-leveraging” is a major cause of the ongoing economic slowdown, credit rationing (or freeze-ups), and a growth-dampening economic contraction. The key point: All these processes have only just begun.
A major reason these processes have only just begun is the acceleration of M3 Expansion (M3 is the broadest measure of money in circulation). The M3 Expansion Bubble really took off in early 2005 and has shot up from a 5% annualized expansion rate then, to nearly an 18% annualized expansion rate in April, 2008 (cf. shadowstats.com). This means that the Money Supply is on track to double about every four years. That Bubble was, and is, created mainly by the U.S. Federal Reserve, a private-for-profit Cartel*, and Allies.
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*We encourage those who doubt the scope and power of Intervention by a Fed-led Cartel of Central Bankers and Allies to read Deepcaster’s January, 2008 Letter containing a summary overview of Intervention entitled “Market Intervention, Data Manipulation - - Increasing Risks, The Cartel End Game, and Latest Forecast” at www.deepcaster.com>LatestLetter. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.”
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This Excessive and Irresponsible Liquidity Creation has created a massive and system-threatening Juggernaut of Price Inflation (see Real Data, Real Effects below) that will be very difficult to halt, if indeed it can be halted, without a Depression.
Skyrocketing M3 creation is a major cause of increasing Price Inflation, while Bursting Credit and other Bubbles are a major cause of Economic Stagnation - - both conditions developed thanks to Fed policy. Result: our current Stagflation, with a very real risk of a hyperinflationary Recession or Depression, is on the horizon.
Soros’ point about the Perils of the Bursting Credit Bubble is essentially the same one Deepcaster has been making for many months, and that is that the Unhealthy Liquidity - - which the U.S. Fed has been the Main Actor in enabling or providing - - is unhealthy precisely because it is “borrowed liquidity” rather than “earned liquidity” a distinction for which we have Professor Richebacher (RIP) to thank.
Beneficiaries and Victims of The Biggest Bubble
But, Cui Bono? Who has benefited from this quarter century long Fed-created bubble of excessive credit and monetary expansion? Well, of course, predictably, and above all, the Allies and Handmaidens of the Fed-led Cartel* - - the Major International Financial Institutions.
And who has been hurt? The average wage earner and taxpayer in the U.S. and around the world.
How has this scheme worked to benefit the Cartel-connected wealthy and hurt the Middle Class and working poor around the world? In somewhat over-simple terms, the massive credit and monetary expansion has created very serious price inflation and has resulted in a tremendous loss of purchasing power of the U.S. Dollar (vis-à-vis other currencies, as measured by the USDX) - - nearly 40% in the past 5 years.
Those with the largest profits are those with big enough capital gains to offset taxes and the dramatic Cost of Living Increases. All the rest (i.e. those without large enough investment capital gains to compensate for the Cost of Living Increases and taxes) are the ones who have been footing the bill for skyrocketing energy, food, and related costs. Thus the Massive Monetary and Credit Inflation of recent years has been both a Tax on the Middle Class and working poor, and a massive channel of wealth into The Cartel’s Allies - - Major Financial Institutions.
Real Data, Real Effects
The Real Effects of the foregoing are reflected, for example, in the Real U.S. Consumer Inflation Price Index which is now running at nearly 12% annually according to shadowstats.com (shadowstats calculates inflation (CPI) the old fashioned way - - the way it was calculated before it was gimmicked by the Clinton Administration in the 1990s).
Of course, we all know that Real Inflation is much greater than the Official Government Number (now about 4% annually) because we see how much the purchasing power of the U.S. Dollar has been hurt in the past five years. (Regarding Data Manipulation, see Deepcaster’s January, 2008 Letter “Market Intervention, Data Manipulation, Increasing Risks, The Cartel End Game and Latest Forecast at www.deepcaster.com.)
In sum, inflation is the worst kind of Hidden Tax. And that Tax has increased, we repeat, by about 40% in just 5 years if measured by the U.S. Dollar’s decline in purchasing power vis-à-vis other currencies.
Of course when the party is over (as it is now), the Big Boys walk away with multi-hundred-million-dollar severance packages (consider the CEO of Merrill Lynch Stan O’Neil at $160 million, or Angelo Mozillo the CEO of Countrywide set to receive $110 million) while the average worker is left merely with higher prices. Is it too late for the average investor get on this gravy train?
Profit and Protection – The First Clue
But there is a Silver Lining because these Realities provide The Clue about how one can protect and profit from the de-leveraging resulting from the Credit Bubble.
For example, when it first became apparent that the Financial Sector would be hit because of de-leveraging, Deepcaster recommended a “short” financials fund. That recommendation was profitable as the financial collapse was just beginning in August, 2007. Of course, in retrospect, we might have recommended holding the short fund longer, but the point is the same.
Short funds and/or outright “short” positions can, and should, play an increasing role in the savvy investors portfolio as this Credit and other Bubbles continues to burst. Of course, timing is key, and tracking The Interventionals can be a real help in making timing decisions.
The ability and willingness to “get short” is quite important because the Fundamentals are still abysmally bad - - for example, “inflation-adjusted first-quarter 2008 retail sales fell at an annualized quarterly rate of 4.2%” according to shadowstats.com - - and Deepcaster expects them to be seriously negative for the foreseeable future.
Deepcaster and Shadowstats.com believe it will be difficult for the Data Manipulators to avoid reporting a significant first quarter GDP contraction.
Some Up, Some Down – A Key to Profit
A Second Strategy for protection and profit flows from a fact noted by Dr. Marc Faber regarding Bubbles. “In the current context, most importantly, each time we had a Bubble developing in an asset class somewhere, there was a simultaneous deflation in another sector. In the 1980s and 1990s, Bubbles manifested themselves at various times in equities and bonds, but commodities deflated. In the 1990s western industrialized stock markets soared, but Japanese equities and the emerging markets deflated. Since 2001 commodities and resource and material stocks have been rocketing while most tech stocks have been deflating…I have shown above that inflating and deflating asset prices can coexist perfectly in a system and are more than norm than the exception in financial history.”
So, regarding investing in a typical “Bubble Bursting” environment (and with the exception of the Great Depression in which almost all sectors were hit hard), there is usually an inflating asset class accompanying the deflating asset classes resulting from the Bubble Bursting.
Thus, the second strategy is to find the Asset Classes which are appreciating and to go long in that class while at the same time going Short in the asset classes (e.g. most recently the financial sector) which are deflating. This requires nimbleness and the willingness to invest in short funds or outright short positions. Those investors who eschew “shorting” are going to have an awfully hard time in the next few years avoiding losses, not to mention making profits.
Indeed, Deepcaster now has two current short fund recommendations in its Portfolio. At the same time, on the other hand, Deepcaster recognizes one asset class that is likely to appreciate in the next few months and is poised to recommend a long fund.
Cartel Intervention - - The Thousand Pound Gorilla
A third major consideration is required to successfully protect and profit from the Bursting Bubbles. That is to become fully educated, at least weekly, on the realities of Market Intervention by The Fed-led Cartel* of Central Bankers and their Allies. This Intervention leads to great inequities for most investors and to great market distortions for all.
The Fed, as a private-for-profit entity, is, to date, beyond the control of government and investors, much to the benefit to the international financial institutions and their allies and to the detriment of most investors around the world.
The most salient example of a devastatingly detrimental effect of such Intervention is the regular Takedown of what would normally be the ultimate Safe Haven Assets. But for Intervention, Gold and Silver and Gold and Silver shares, the Authentic Safe Haven protection against inflation and deflation, would be orders of magnitude higher. Retirees or prospective retirees looking for safety in these “Safe Haven” assets have been cruelly disappointed and in some cases financially devastated. Let us explain.
Deepcaster has extensively described (in its January, 2008 Letter “Market Intervention, Data Manipulation, Increasing Risks, The Cartel End Game, and Latest Forecast”) several intense Interventional episodes over the recent years. The most recent salient ones were just in March, 2008.
Everyone surely recalls the Financial Crises of March and early April, 2008. These Crises were headlined by the Bear Stearns collapse and the Fed-engineered buyout. Given the pervasive uncertainty in the financial markets around the world Gold and Silver should have soared at that time.
Not to be. The Cartel implemented two substantial Takedowns of Gold and Silver in March. Gold, for example, was taken down from around $1000 to around $900 in two major takedowns in the month of March. But monitoring the Interventionals allowed investors who anticipated what was coming, to profit from these Takedowns (as Deepcaster did with a short play which allowed investors to take over 100% profit in 13 days).
Deepcaster (it should be said for the purposes of full disclosure) is most definitely a Hard Assets Partisan and especially a Partisan of the Precious Monetary Metals, Gold and Silver. Only by re-linking the U.S. Dollar to Gold and Silver can the crises like the ongoing Credit, Derivatives and other crises be avoided in the future.
But given The Cartel’s Interventional Regime, one must develop a Strategy for insulating one’s Precious Metals Assets from regular Takedowns by The Cartel, as Deepcaster has done - - see below.
Cartel* Intervention is not limited to the Gold and Silver Markets. The Cartel still potently acts to affect Equities levels. For example, once mid-weekly, in the months of March and April, 2008 thus far, they have pumped the Equities Markets vigorously. We refer to the 3-figure rallies on Tuesday, March 11th, March 18th, March 25th, April 1st and Wednesday, April 16th.
Who does this benefit? Well, the Big Put Options Writers - - typically very large Deep Pockets Financial Institutions (and often Allies of The Fed, fancy that!) who would lose money if the Markets declined.
Of course, this makes a mockery of ostensibly free markets. For example, on April 16, 2008, when Crude Oil hit a record high of $115/barrel, the Trannies rose 190 points! Guess those record high oil prices just have no effect whatsoever on Transportation stocks (not in our Interventional Universe anyway) - - Sarcasm intended.
Profit and Protection - - The Strategy
Thus, while The Cartel is still active one must adopt a Strategy for understanding not only the Fundamentals and Technicals but also the Interventionals. Such a Strategy can allow one to profit on the way down, in Takedowns of Gold and Silver, as well as on the way up. Deepcaster has outlined this strategy in its Article of 3/28/08 entitled “Defeating the Cartel…With Profit” available at www.deepcaster.com.
So to summarize the strategy for protection and profit in bubble bursting:
1) Understand the various Bubbles and the implications of their bursting. This allows one to…
2) Pick which Sectors are inflating and those which are deflating, which allows one to…
3) Ride the inflating ones up and use short positions of various kinds to ride the deflating sectors down and,,,
4) Recognize that one must look at Interventionals as well as Fundamentals and Technicals in order to adequately forecast Market Moves and…
5) Recognize that Gold and Silver are authentic Safe Havens against both inflation and deflation but that their price at any given time is subject to massive distortion by the Fed-led Cartel of Central Bankers through its Interventions and, therefore…
6) It is important to implement a Strategy (as laid out in Deepcaster’s “Defeating the Cartel…With Profit” Article) which allows one to build one’s Core Position in Gold and Silver at the bottom of Fed-led takedowns, but also to profit as Gold and Silver rise and when they are Taken Down as well.
April 18, 2008
DEEPCASTER LLC
www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation Wealth Enhancement
Financial and Geopolitical Intelligence
Gravitas, Pietas, Virtus
-- Posted Friday, 18 April 2008 | Digg This Article | Source: GoldSeek.com
