-- Posted Friday, 5 September 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
“Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities….Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami…If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.” (emphasis added)
Bill Gross, Pimco, September 4, 2008
Three Unpleasant Realities are becoming increasingly apparent:
1) The news emanating from the U.S. Economy and Financial Markets is extremely negative.
2) Various Harbingers (see below) indicate the news will be worsening considerably. Thus we sit at the beginning of an Impending Perfect Storm in the U.S. Economy and Markets, a storm which will reverberate around the world.
3) There are nonetheless considerable Opportunities for Profit and Protection for those who are informed, who act quickly, and whose visions are not distorted by manufactured “news” in the Mainstream Media, or by Delusion or Denial.
How is it that the Impending Perfect Storm is almost upon us? Consider:
Ř Fannie Mae and Freddie Mac, those Government-Sponsored Entities, ostensibly hold about $5 trillion in “assets” in packaged mortgages and related instruments. In reality, they have “no net worth” (per Warren Buffet and Deepcaster). But it would be political suicide for the U.S. Treasury/Fed to let these entities go down; thus they will be bailed out by U.S. Taxpayers and, de facto, nationalized. As Don Rich pointed out a few days ago, the cost of that bailout will be $1to 3 trillion - - yet another cost laid out on the already-over-indebted U.S. Taxpayer.
Ř The U.S. banks, already under significant pressure, are (except those on Wall Street) expected to provide, in early to mid-September, “guidance” on their earnings plus disclosures on their balance sheet “impairments,” if any, and their supposed profits. We expect these will be dismal - - we expect their third quarter losses to be much greater than their second quarter losses.
Why? Of course, they have ongoing mortgage-related losses but (as the American consumer becomes more and more pinched) to these will be added credit card losses, car loan losses, commercial loan losses, and the like.
Indeed, over 150 banks already have worrisome “Texas Ratios” according to a list prepared by Agora Publishing. These 150 have Texas Ratios in excess of 100. [The Texas Ratio is calculated by dividing the bank’s bad/delinquent loans by cash on hand plus reserves, if any, to cover those bad loans.] A Texas Ratio in excess of 100 spells trouble.
Ř The Financial Systemic and Geopolitical Risk is high and increasing. The Bush Administration and U.S. Federal Reserve policies have been the primary cause of the U.S. National Debt ballooning to over $9 trillion. Since this debt can not, under any reasonable scenario, be repaid, likely the only way out is repudiation of this debt through The Fed’s hyperinflation of the Money Supply and consequent continuing devaluation of the U.S. Dollar. The rest of the world collectively is aware of this trend and is moving to establish other mechanisms and Asset Reservoirs in a move away from the U.S. Dollar as the World’s Reserve Currency, and from entanglements with the U.S. in general.
The first step in this trend was noted by the wise and perceptive analyst, Dan Norcini, when he noted recently the massive move of Foreign Governments out of U.S. agency (e.g. Fannie Mae and Freddie Mac) debt and into U.S. Treasuries. That is the First Shoe which Foreign Governments have recently dropped on the U.S. Economy. The Other Shoe, which would utterly doom the U.S. Economy, has not yet dropped and not will for a while. That is a significant move out of U.S. Treasuries. But that day may be coming.
Moreover, the Bush Administration’s Foreign Policy is foolish and dangerous to such an extent that it threatens the economy and the markets. Specifically, it has recently been threatening the increasingly strong Russian Bear on its borders by its backing the attack which the U.S.-backed Georgians initiated on S. Ossetia.
This fact - - that the Georgians attacked first - - is contrary to the Manufactured “News” in the Mainstream Media which falsely claimed the Russians attacked first. Indeed, the attack appears to have been designed to further isolate Russia. Predictably, the Russians responded effectively with force. The U.S. Proxies, the Georgians, were humiliated and, moreover, managed to lose valuable U.S. intelligence equipment and Humvees and encryption codes to the Russians. Of course, Europe depends for much of its energy supplies Russian energy and will not happily be dragged along, again, into a dangerous and utterly unnecessary involvement in threatening Russia.
As if that weren’t enough, the Bush Administration persists in threatening Iran which poses no imminent danger to the U.S. Consider after all, that the international community has for six decades avoided allowing the Nuclear Genie out of its bottle via negotiations and other non-violent tactics with the already nuclear-armed powers including Russia, China, Israel, Pakistan, France and Great Britain. So why risk nuclear war over a country that likely does not now have nuclear weapons, and may never get them?
Indeed, even if it does not result in a nuclear confrontation, Bush Administration Policy continues to threaten the health of the U.S. Economy and Markets through massive multi-hundred-billion-dollar war expenditures and the concomitant geopolitical uncertainty which is always a threat to the financial markets.
Such a bellicose policy is counterproductive for a number of reasons, including that it might (or perhaps already has) prompt Russia to supply Iran with the highly sophisticated Russian S-300 Missile System which can track 100 targets at a time and shoot down planes 75 miles away. The Bush-leaguers are playing a dangerous game with a weak hand and a seriously flawed strategy. But, apparently, that policy will continue until the demise of the Bush Administration, assuming saner heads can prevail to prevent the unleashing of Nuclear Catastrophe.
Ř Monetary and Price Inflation are dramatically increasing, not decreasing. Yes, Deepcaster knows that the deteriorating Stock Market, Derivatives Market, Real Estate Market, and Oil Prices are draining inflation from the system.
But, all this deflation is more than offset by the actions of the Fed-led Cartel of Central Bankers, including especially the European Central Bank which is deluging the major economies of the world with money and credit at an ever-increasing pace. Indeed, U.S. M3 is growing at over 14%, annually according to the most recent update of shadowstats.com (9/5/08).
Ř Doctored “statistics,” manufactured “news,” and outright lies pollute the airwaves and generate an even greater Divorce of Reality from the Appearances which the powers-that-be create. If one sees value in democracies and free markets, one could argue that there is no greater danger to these than systematic lying about geopolitical, economic, and financial realities.
Unfortunately, that is exactly the situation in which citizens around the world find themselves. We will not focus here on the many of the Geopolitical Lies and Distortions which have been disseminated in recent years - - that Iraq had weapons of mass destruction, that Iraq had Delivery Capability, that Iraq was hand in glove with Osama Bin Laden, that Iran poses an imminent threat to the U.S., that Russia attacked Georgia - - all these falsehoods (as dangerous as they may be to an informed electorate and democracy) are not our focus today.
Our focus is on the distortions which emanate out of Washington, DC (though there are major accomplices around the world) in the realm of statistics and market performance.
Consider Real Key Statistics. If calculated the way they were in 1990 or earlier:
ü Consumer Price Inflation is now running in excess of 13% (rather than nearly 6% according to Official “managed” numbers)
ü M3 growth is over 14%
ü U.S. Unemployment is in excess of 14% (contrary to the approx. 6% reported by Official Figures)
ü U.S. GDP is actually a negative number - - over –2% a year, contrasting the Official Figure of 2% growth
But perhaps the biggest “lie” of all is the Illusion of Free Markets in Precious Metals, Strategic Commodities, Equities, and most Major Sectors. In fact the U.S. Fed-led Cartel* of Key Central Bankers and Allies regularly manipulates them.
*We encourage those who doubt the scope and power of Intervention by a Fed-led Cartel of Key Central Bankers and favored financial institutions to read Deepcaster’s July, 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. 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.”
So, today, the Impending Perfect Storm pits the “Real” forces of the Market and Economy against the Manipulative Power of The Cartel. And given the forces of the Perfect Storm which we have just described, the next 60 to 90 days will be crucial in determining the outcome. Indeed, Deepcaster has recently issued his Forecast for several Major Sectors in his most recent Alert which can be found in the “Alerts Cache” at www.deepcaster.com.
Note that in Truly Free Markets, merely the prospect of such a Perfect Storm would cause Gold and Silver to soar but, as we and increasing numbers of others have pointed out in recent years, Gold and Silver prices are periodically capped and Taken Down by The Cartel.
The situation has truly become ludicrous especially considering that supplies of actual physical Gold and Silver are increasingly hard to find. And while the “paper” Silver price was recently nominally taken down from just above $20/oz. to around $13/oz. as we write, it is increasingly hard to find physical Silver at any price. And if one can find it, one has to pay as much as $4 or so over spot, i.e. around $17/oz. on average. Such is the ludicrous result of living in an Interventional Universe.
So what is the motivation behind The Cartel capping Gold and Silver and manipulating other markets?
Gold and Silver are the Mortal Enemies Number One of The Cartel’s Fiat Currencies and Treasury Securities because they are competitors for being Ultimate Stores and Measures of Value. As such, they are at great risk of repeated Takedowns, such as those which Deepcaster correctly Forecast and chronicled regarding the March, 2008 Crisis and the June, 2008 Takedowns. See Deepcaster’s July 2008 Letter “Market Intervention, Data Manipulation Still Accelerating: Increasing Systemic Risks, Cartel “End Game” Threatening” in the Letters Cache at www.deepcaster.com for an overview of The Interventional Regime.
Does The Cartel still have the firepower to effect another Major Takedown? Consider that The Cartel has over $1 trillion in Gold Derivatives Contracts available to move the Gold Market alone (see Deepcaster’s July 2008 Letter and the Bank for International Settlements Triennial Survey at www.bis.org, Path: statistics>derivatives>Table 19 and ff.). If the Equities Markets and Crude are to be further taken down, from The Cartel’s perspective, it must attempt to prevent investors from “escaping” to Precious Metals.
Thus the Financial Markets’ Question of the Decade is: Will The Cartel be able to successfully continue its Market Interventions in the face of ever more potent negative fundamentals? The answer to that question is not entirely clear (though Deepcaster has recently issued Forecasts in this regard in his latest Alert posted at www.deepcaster.com) but whatever the answer but one can take steps to protect oneself and to seize opportunities for profit.
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.
Three Strategies for Profit and Protection
Thus the First Strategic approach should be to selectively utilize “short funds.” Short funds and/or outright “short” positions can, and should, play an increasing role in the savvy investors portfolio (subject to Timing and Sector Strength considerations of course) as Credit and other Bubbles continues to burst. Of course, timing is key, and tracking The Interventionals is essential to making profitable decisions.
The ability and willingness to “get short” is quite important because the Fundamentals and Technicals for many Market Sectors are still worsening.
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.”
Thus, 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 one or more inflating asset classes accompanying the deflating asset classes resulting from the Bubble Bursting.
Therefore, the Second Strategy is to find the Asset Classes which are appreciating and to go “Long” in those classes 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 several current short recommendations showing a profit in its Portfolio.]
A Third Strategic Approach is required to successfully protect and profit from the Bursting Bubbles. That is to stay fully educated, preferably daily, 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. Thus it is useful just to summarize a few characteristics of this Interventional Regime led by The U.S. Federal Reserve.
The U.S. Fed, as a private-for-profit entity, acts mainly beyond the control of governments, investors and citizens, and 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 by such Interventions. Let us explain.
Deepcaster has extensively described (in its July, 2008 Letter “Market Intervention, Data Manipulation Still Accelerating, Increasing Risks, The Cartel End Game, and Latest Forecast”) several intense Interventional Gold & Silver Takedown episodes which have occurred in recent years. The most recent salient ones were just in March, June, and early September 2008.
For example, one 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 March. But monitoring the Interventionals allowed investors who thus 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 just 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, and other, 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, Crude Oil & other Strategic Commodities Markets. For example, about once mid-weekly, in the months of March and April 2008, The Cartel pumped up the Equities Markets up vigorously, notwithstanding the dismal Fundamentals during that period. We refer to the 3-figure rallies on Tuesday, March 11th, March 18th, March 25th, April 1st and Wednesday, April 16th.
Cui Bono? Who does this benefit? Well, among others, the Big Put Options Writers - - typically very large Deep Pockets Wall Street 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. As another example, on April 16, 2008, when Crude Oil hit a then 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 The Interventional Universe anyway) - - Sarcasm intended.
To summarize Deepcaster’s Key Strategies for Protection and Profit when facing an impending Perfect Storm:
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, for example, laid out in Deepcaster’s “Defeating the Cartel…With Profit” Article in the “Alerts Cache” at www.deepcaster.com) which allows one to build one’s Core Position in Gold and Silver near the bottom of Fed-led Takedowns, but also to profit as Gold and Silver rise, and when they are Taken Down as well.
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, 5 September 2008 | Digg This Article | Source: GoldSeek.com
