-- Posted Friday, 2 May 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
“Typical” Returns from Equities over the past ten years have been dismal, contrary to popular mythology.
The S&P 500 Total Return (per annum) for the last 10 years is +3.89%. Using the Official CPI Statistics, the CPI over the last 10 years (March ’98 through March ’08) has been 2.79% annually. Thus in the last 10 years the S&P has only returned about 1.10% annually (assuming Official Figures are correct, which is not a tenable assumption) a dismal rate of return.
If one considers U.S. capital gains taxes and transaction costs, one could argue the Total Return for the S&P was zero, or worse.
But consider those whose Equities Portfolios have outperformed the Market, increasing by 10, or 15, or 20% since the October, 2002 lows, as measured in U.S. Dollars.
If they were to liquidate their portfolios today, consider whether the proceeds of that liquidation would represent an increase in value, or not? (Of course, it probably would represent an increase in value for U.S. capital gains tax purposes.)
In fact, the liquidation proceeds would represent a decrease in value (even when one disregards tax consequences) if one agrees that the proper measure for a gain in value is “purchasing power.”
In the aforementioned scenario, there would be a loss in value because, measured in “purchasing power” terms, the U.S. Dollar has dropped over 35% (when measured by the USDX, a market basket of other major currencies) since its 2002 highs of 120 to below 75 on the USDX today. (Of course, to the extent that one assumes the transaction costs are solely in U.S. Dollars, this generalization would be modified, but that is not a realistic assumption.)
Thus an important question arises: How can one produce good real returns, that is, returns which best preserve purchasing power?
Put another way, how can one profit from shrinking (in purchasing power) assets which appear not to be shrinking because their nominal value has increased? To answer this question we must consider how this phenomenon - - increased nominal value with decreased purchasing power - - can come about.
There are two main causes. Perhaps the main one is the massive monetary inflation which has been engineered in recent years by the (private-for-profit) U.S. Federal Reserve as measured by M3, the broadest measure of money in circulation. It is important to note that the rate of M3 increase dramatically accelerated after the March, 2006 decision by the Federal Reserve not to report M3 anymore. M3 is now increasing by nearly 18% annualized (according to shadowstats.com) - - that is nearly a 4-year doubling time rate.
Therefore it is no wonder that everything costs so much more. The purchasing power of the U.S. Dollar has dropped dramatically in recent years while the printing of U.S. Dollars has never been more profligate.
One would think this Massive Monetary Expansion would be inflationary, and one would be correct. So what are we to make of the Official Figures that show that the U.S. CPI averaged 2.79% over the last 10 years and is currently running at about 4% annualized as of the latest report?
Well, we emphasize that that 2.79% and 4% are Official Figures. Actual CPI is running at nearly 12% annualized according to shadowstats.com (shadowstats.com calculates Consumer Price Inflation today as if it were still calculated the way it was in 1990 - - since 1990 the Official Calculation method has been gimmicked).
So why haven’t the storied “Bond Vigilantes” pushed interest rates (and especially long-term interest rates) up to account for the massively expansionary monetary inflation of recent years?
That is because the Fed-led Cartel* of Central Bankers and Allies has been using “interest rate swaps” and other Derivatives (via their Chosen Primary Dealers) to suppress what would otherwise be dramatically rising interest rates, according to Rob Kirby.
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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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Kirby’s excellent paper, “The Elephant in the Room,” demonstrating how interest rates (which would, if there were no suppression, be dramatically rising) have been suppressed by The Cartel, was presented at the recent Washington, D.C., GATA (Gold Anti-Trust Action Committee, www.gata.org) Conference. Kirby concluded:
“Monetary authorities have long been pursuing expansionary monetary policies while attempting to cloak their actions by suppressing rising interest rates and other natural market reactions.
This has completely perverted our whole banking and monetary system.
This is why false values have been assigned to a host of financial instruments.
This explains why the gold price has been suppressed. It’s another canary in the coal mine that was vigorously and nefariously silenced.
If you’re wondering why J.P. Morgan never seems to get caught up in any sort of hideous market-to-market losses concerning their derivatives or hedge book – consider that back in the spring of 2006, Business Week’s Dawn Kopecki reported, “President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.”
Thus, what would otherwise be the markets’ “normal” reaction to the ongoing and worsening credit, subprime, and other financial crises - - dramatically rising interest rates, especially on the long end - - has been suppressed by The Cartel’s Interventional Regime. For an overview of the entire Cartel Interventional Regime see Deepcaster’s January, 2008 Letter “Market Intervention, Data Manipulation, Increasing Risks, the Cartel End Game, and Latest Forecast” available in the Letters Archive at www.deepcaster.com.
But The Interventional Regime is showing increasing signs of stress which are reflected in accelerating Derivatives Creation, and thus in Increasing Systemic Risk. The over 500 trillion dollar OTC Derivatives Colossus (see www.bis.org, path: statistics-derivatives-Table19 and following) on which the Interventional Regime is built is increasingly subject to counterparty defaults and to Darkly Liquid OTC Derivatives turning illiquid (resulting, inter alia, in the ongoing credit freeze-up) among many symptoms.
Clearly, The Cartel has created a Financial System subject to ever-greater Systemic Risk. Why?
Harry Schultz, one of the Eminence Grises of the Financial Newsletter writing fraternity, puts the question in this way - - what is the reason for this “seemingly random monetary mess that multiplies its momentum every day? The answer, in one word, control. The elite/insiders already have control of the financial system, but they wanted more, much more…and it was is not random, it is planned.”
And what is the effect of all of this on the average investor? In the inimitable words of Harry Schultz, “How will all the above manifest itself in your life? The answer: “All you own will shrink...your income, assets, net worth, will shrink year after year in real terms inflation adjusted and possibly also nominally.”
Harry concludes by advocating that we all try to shrink less “relative to the herd” so that we hold our position. Part of the strategy for shrinking less, according to Harry, is “it will, over 10 years, involve moving in and out of investments as price action will be very dramatic. Buy and hold will not work in any area, including gold.” HS Letter, April 27, 2008.
Indeed, Deepcaster has been sounding the theme that the “Buy and Hold Strategy Increasingly Fails” since the inception of Deepcaster’s newsletter.
But Deepcaster is not satisfied with a strategy which merely accepts “shrinking less” as a goal.
Thus, Deepcaster has developed a strategy for coping with and profiting from the “Shrinking Assets” problem. That strategy can best be employed in the Precious Metals Sector, with Gold and Silver bullion and shares. It is best described as “Defeating The Cartel…With Profit” and we briefly summarize it here.
Consider first that Gold and Silver are traditionally the ultimate ‘Safe Haven’ Assets; assets which are supposed to appreciate as financial and other risks increase. And so they would appreciate but for Cartel* Intervention. Thus Deepcaster has developed a Strategy to cope with Cartel Intervention which makes it possible both to profit from Intervention and to acquire a Core Position in these Safe Haven Assets.
The Starting Point for protection and profit is to determine how much of one’s investment capital one wishes to have in a Core Position of Gold, Silver and other Tangible Assets and then to determine appropriate investment vehicles in which to hold one’s Core Position. This Core Position is truly a long-term position and should represent a significant portion of one’s investment capital (Deepcaster recommends a target of up to about 50% of whatever total is devoted to these Monetary Metals.) But how and when one acquires their Core Position Assets is the key to wealth protection and profit.
Since the cornerstone of The Cartel’s Power lies in maintaining the legitimacy of their Fiat Currencies and Treasury Securities, the last thing they want is to have Gold, Silver and Tangible Assets held by investors to gain legitimacy as Alternative Measures and Stores of Value. Thus The Cartel conducts periodic Takedowns.
Thus one should obtain, and add to, one’s own Core Position only near the bottom of Cartel-induced Takedowns. Thereby, one not only can help bolster one’s Core Assets for the future, but also can help defeat the Cartel’s nefarious ‘End Game’ initiative. See Deepcaster’s June, 2007 Letter “Profiting From the Push to Denationalize Currencies and Deconstruct Nations” in the Latest Letter/Archives Cache at www.deepcaster.com.
Regarding the deployment of that portion of one’s speculative capital devoted to Precious Metals, one should go long major producers near the interim bottoms of Cartel-generated takedowns, and liquidate those positions near interim tops and then use the proceeds to “go short.” Then at interim bottoms, liquidate the short positions and go long again.
Essential to this Strategy, of course, is paying close attention to the Interventionals - - such attention has facilitated Deepcaster’s profitable recommendations displayed at www.deepcaster.com. A dramatic side benefit of this strategy is that it helps insulate one against vicious Cartel Precious Metals Takedowns such as the one of March 18-20, 2008, and subsequent ones, up to and including the Takedown of April 30 – May 1, 2008. Another dramatic benefit is that it allows one to profit from the Takedowns, as well as from the run-ups.
For those wishing a more detailed version of “Defeating the Cartel…With Profit” one is available in the “Articles” Cache at www.deepcaster.com.
Thus, the primary causes of the “Shrinking Assets” problem are Fed-generated massive monetary price inflation (and related market imbalances and dysfunctions) and Massive Market Intervention by the Fed-led Cartel.
If this aforementioned Strategy is employed effectively, it can result both in an increasing Core Position in Gold and Silver, and in considerable profit along the way - - a profit sufficient to more than compensate for the “Shrinking Assets” problem.
May 2, 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, 2 May 2008 | Digg This Article | Source: GoldSeek.com
