Opportunities should knock in the Equities, Gold, Silver & Crude Oil Markets over the next couple of months.

Key indicators point to more Major Moves in these Sectors in June and July, 2008.  Thus we address the question:  Do the shorts or the longs stand to profit?

Remarkably, after all the Bad News and Chaos in the economy and markets extending from the August/September, 2007 Credit Market Freeze-Ups to the demise of Bear Stearns in March, 2008, the major Equities Markets are down only about 13% from their all time highs.

Fundamentals and Technicals

Frankly, the Fundamentals for Equities remain atrocious; Real annual GDP is running at a negative 2%, Real Consumer Price Inflation at more than 11%, Real unemployment at over 13%, and Real M3 is increasing at over 16% (all annualized figures) according to the highly credible calculations of shadowstats.com.

As well, the credit markets are still not entirely unfrozen, the housing and derivatives crises are by no means over, and Crude Oil is surpassing record highs, just to mention the tip of the fundamentally disastrous iceberg.  And, as Deepcaster and others forecast, the crises in the Financial Sectors are not nearly over - - The Mainstream Media have begun questioning whether Lehman Brothers will survive, and the Central Banks of Sweden and Norway have raised questions about their own financial stability.

Technically the Equities Markets are in bad shape as well with the S&P recently having bounced up against, but not conclusively through, both its 200-day and 20-month moving average resistance.  And a massive Bearish Head and Shoulders has nearly completed in the Dow.  Moreover, recently the VIX and VXN have hit their lowest levels since October, 2007 - - the time of the most recent high of the SPX.

Interventionals

In our view, the primary factor which has been supporting the Equities Markets through the extraordinarily negative economic and financial circumstances of the last year has been Intervention by The Cartel* of Central Bankers and their Allies.  Specifically, the U.S. Equities Markets have been the beneficiaries of record levels of Cartel* Intervention provided via record highs of The U.S. Fed’s Repo Pool injections (regarding “Repo Pool” see Deepcaster’s January, 2008 Letter at www.deepcaster.com) and the profligate printing of U.S. Dollars, with M3 annualized increasing by over 16%.  It is as if The Fed thinks that the more U.S. Dollars it prints, the more real value is embodied by resulting higher priced securities.

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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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But it is certainly not in the private, for-profit Fed’s interest to keep the Equities Markets pumped up forever in their Never-Never Land in the face of such negative fundamentals, especially when the politics of the situation (e.g. pending Washington, DC Regime Change) allow for a somewhat politically acceptable (albeit transitory) Equities Market deflation opportunity going into the Fall Election.

Finally, it will be hard for The Cartel to justify keeping the Equities Markets pumped up when the Quarterly Earnings Reports released in July are likely going to be terrible.   

Cartel Catalyzes Volatility “Fog” to Mask Interventions and Worsening Fundamentals

But it is also certainly not in The Cartel’s interest to have its Interventional Market Rigging “Game” revealed.  That explains why it is increasingly apparent that The Cartel catalyzes Volatility “Fog” to mask its Interventions.

Consider the news and the market action on Thursday, June 5 and Friday, June 6, 2008:  The news on Thursday, June 5^th could not have been worse.  The U.S. Dollar fell 40 ticks on the USDX to about 73.  Crude Oil shot up nearly $6 to $1.27 a barrel.  Moreover, it was announced that mortgage foreclosures rose to unprecedented levels, and the FDIC announced that bank failures may increase, and higher fuel prices sparked more chaos among the airlines including Continental Air Lines layoffs.  To top if off, it was announced that Household Net Worth declined by 1.7 trillion dollars - - and of course all of these households are composed of the same consumers that are supposed to keep the economy going.

Perhaps worst of all, two of the largest bond insurers (MBIA and Ambac) were stripped of their AAA insurer ratings by Standard and Poors.  The ratings were cut by two levels to AA.  The Mainstream Financial Media underplayed this (intentionally, we believe).  But this development has potentially catastrophic consequences for cities and states that rely on AAA bond ratings to sell bonds with relatively low interest rates for a variety of infrastructure and other needs.

Consider the implications of these bond insurers being downgraded.  It means that the ratings of trillions of dollars in bonds issued by municipal and state entities will drop.  And that means that the value of the bonds themselves will drop, causing major financial institutions which hold these bonds in their portfolios to have to write them down to lower market values, which, therefore, will cause their regulator-imposed capital levels to drop, thus requiring them to raise more capital and further constrict their lending.  It also means that the bonds in their portfolios are much less liquid then they were heretofore.  In sum, states and cities will find it much harder to raise capital, thus creating an even larger economy-slowing effect.

And in spite of all this, the Dow exploded to over a 200-point gain and the other Equities Markets followed!  Even more absurd, on the same day that all of the aforementioned negativity was publicized (Thursday, June 5th) Gold (which in a non-interventional market would have gone skyrocketing) was taken down over $8!

Yet consider the next day, Friday, June 6^th:  the Official Unemployment Data Release showed a dramatic increase in unemployment to 5.5% - - a 22 year high and truly recessionary.  On this news the Dow and other Equities Markets were “allowed” to do what they should - - tank by over 300 points (as we write), thus more than wiping out the previous day’s gains.  Meanwhile, Gold did what it always would do in an un-manipulated market - - shot up by over $20 (as we write), with Silver following up over 30 cents.

Just as a Reality Check, we know that Real Unemployment is much higher than 5.5%.   “Adjusted for the discouraged workers” defined away during the Clinton Administration, actual unemployment is estimated by the SGS-Alternate Unemployment Measure, rose to 13.7% in May from 13.1% in April.”  Flash Update, June 6, 2008, shadowstats.com.

What shadowstats.com noted, but could well have highlighted, was the statistical chicanery that led to the Official Number - - that non-farm payrolls fell 49,000, resulting in the unemployment spike up to 5.5%.

In fact, the Real Numbers were much worse.  The job losses were closer to at least 265,000!  The Labor Department’s highly subjective (to say the least) Birth/Death Job Adjustment was a positive 217,000!  That is, the Labor Department claimed (with no credible justification) that businesses in this recessionary economy created a net increase of 217,000 jobs thus somewhat dampening the Payroll Job Loss figures!  Preposterous!!

It is apparent to us what is happening here.  The Cartel is creating volatility “fog” (helped along by data manipulation) to mask its Interventions.  That is, sometimes they allow markets to take their normal course and sometimes massively distort market results (particularly when it comes to capping the price of Gold and Silver when they should be launching up) to obscure their Interventions.

Thus, notwithstanding the volatility and the dramatic launch of Crude back over its recent high to about $137, we peer through the Volatility “Fog” and note we are not much over the previous $135/barrel high. 

Thus one could still argue that the Crude Oil market appears to have topped at around the mid $130s, which could give life to the Equities Markets, and soon.

Consider that above ground supplies of Crude are quite ample for a few months.  [Iran has ordered additional VL Crude Carriers to store the Crude it has had trouble selling.]  Indeed, there is evidence that tankers are slowing down or waiting offshore of the U.S. for higher prices, higher prices which may not come for some time.

On the other hand, given that the demand for Crude around the world has not much abated, geopolitical developments could also send it soaring even higher almost instantaneously.  Moreover, certain Major Financial Institutions are predicting $150 - $200 Crude by next year.  However, such predictions could be taken as as much of a contrarian indicator as anything.

If the Equities Markets are due for a major fall in the next couple of months then that indicator of a slowing economy should help bring Crude prices down also.

Regarding Gold and Silver, unsolved and worsening major problems in both the economy and financial markets should drive Gold and Silver much higher, and soon.  Couple that with the U.S. Dollar weakness (which, though it seems to have found a bottom just above 70 on the USDX, has not seen much sustained bounce) and we should see higher Precious Metals prices. 

Thus the foregoing economic and financial market woes should spell another major leg up for Gold and Silver fundamentally and technically.  Indeed, the only Market negative for Gold and Silver is that Summer is traditionally a weak time for the Precious Metals.  However, if the Equities Markets and Crude are to be taken down well into the Summer, The Cartel surely does not want investors to be allowed a Safe Haven in Precious Metals.  They prefer that investors see their Treasury Securities and Fiat Currencies as The Most Legitimate Safe Havens and Stores and Measures of Value, not Gold and Silver.

Therefore, it is important to note that The Specter of sometimes apparent, sometimes hidden, Cartel* Intervention looms over the Precious Metals Market.  In the event of an Equities Market Takedown and a Crude Oil Swoon, The Cartel doubtless does not want to allow Gold and Silver to actually be go-to, Safe Haven assets in the face of swooning Equities Markets and Crude Oil prices.

 With over $1 trillion in derivatives devoted to Gold alone [according to the most recent BIS (Bank for International Settlements – The Central Bankers Bank) Triennial Survey] and available for Intervention, The Cartel is still potentially the biggest player in the Precious Metals Market.  But in light of the ragingly bullish Fundamentals and Technicals, can that biggest player in the markets still make the market price?  Whatever the answer, there is a strategy which can afford investors both protection and profit in this Interventional Universe.  See Deepcaster’s 12/23/07 Alert “A Strategy for Profiting From Cartel Intervention in Gold, Silver, Crude Oil and other Tangible Assets Markets” in the “Alerts Cache” at www.deepcaster.com.

The fundamental pressures driving the price of Gold and Silver higher are unprecedentedly strong.  Will they blow through Cartel capping efforts?  Deepcaster’s Forecast in this regard can be found in his latest Alert posted at www.deepcaster.com.

In light of all the foregoing, it is clear we are at a major inflection point in the aforementioned markets, a true Climacteric.

In several respects the contending bullish and bearish pressures have never been higher as the Volatility “Fog” of Thursday and Friday, June 5th and 6th, attests.

Thus the likelihood of more Major Moves in all these markets in the next few weeks is quite high.  Those whose portfolios are heavily weighted in these Sectors will either stand to greatly profit, or suffer substantial losses.

Those who “sold in May and went away” will likely miss out on some more Serious Market Action.

Deepcaster

June 6, 2008

DEEPCASTER LLC

www.deepcaster.com

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-- Posted Friday, 6 June 2008 | Digg This Article