-- Posted Friday, 12 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
Before The Fannie Mae and Freddie Mac Bailout, Bill Gross, Investment Head of Pimco, stated:
“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 not only to Freddie and Fannie but to Mom and Pop on Main Street U.S.A….via subsidized home loans issued by the FHA and other government institutions,” Gross says in his current note to investors. (emphasis added)
Gross: U.S. Must Save Mortgage Holders or Face Disaster,
Newsmax.com, Thursday, September 4, 2008
And after The Bailout we note:
“The Bill Gross-managed Pimco Total Return Fund reaped a $1.7 billion payday following the US government takeover of home loan giants Fannie Mae and Freddie Mac.
While shareholders in Fannie and Freddie suffered deep losses, the world’s biggest bond fund saw its highest ever one-day rise against its benchmark index on Monday, benefiting from the bet made by Mr. Gross on mortgage bonds issued by the agencies.”
Bailout Hands Pimco $1.7 Billion Payday,
Deborah Brewster, Financial Times, London,
Tuesday, September 9, 008
Thus, we report just one (of many) private institutional beneficiaries of the U.S. Taxpayer Bailout of Fannie Mae and Freddie Mac. We would not want anyone to think the Administration did it just to mollify the Chinese, though that was clearly one motivation.
Recent U.S. Taxpayer Bailouts of private or quasi-private entities, culminating in The Nationalization (read: Bailout) of Fannie Mae and Freddie Mac is only the beginning of the Impending Perfect Storm in the Economy and Financial System, and far from the end. Consider:
First, do not be deluded by Official or quasi-Official assurances that Taxpayer losses may be $200 billion at most. The fact is that the U.S. Government (i.e. U.S. Taxpayers) are on the hook to provide Fannie and Freddie with as much Equity Capital as needed to cover all future losses from mortgage defaults. In fact, those future losses are likely to be a minimum of ONE TRILLION Dollars, as Patrick Heller points out in his cogent article “The Trillion Dollar Lie and the End of the U.S. Dollar as We Know It” (Liberty Coin Service, September 8, 2008).
These Taxpayer Bailouts are outrageous because they both expend and risk U.S. Taxpayer money to cover actual and potential losses of private entities and/or their private obligations which have gone (or are going) bad.
And it was in the Fannie/Freddie “Bailout Week” that we also hear from the FDIC that it might have to “temporarily” borrow money from the Treasury!
But the Bailouts are also outrageous because it was the loose credit, easy money policies of the U.S. Federal Reserve (with the cooperation of the U.S. Treasury) which were the primary force creating the credit-bubble environment which set up the defaults scenario in the first place.
The Official Spin (again) is that the Taxpayer Bailouts of Fannie & Freddie had to be effected to preserve Systemic Stability. In other words, they had to be effected to avoid Systemic Meltdown. Indeed, it may well be that this particular Bailout was necessary to preserve Temporary Systemic Stability.
But the fact is that it achieved no long-term solution for reasons we outline below. Indeed, Long-term Systemic Stability has in fact been put in greater danger as a result of these Bailouts. Increasing U.S. Taxpayer indebtedness and liability to cover private entity losses is no solution to any problem.
But the Key Question remaining from the Bailouts is whether, even in the short and mid-term, they will work to ease mortgage market woes and preserve systemic stability? And the answer, for which we provide considerable support below, is “only for the short-term.” There is much more financial and economic pain to come down the road and fairly soon.
Thus, for Profit and Protection, it is essential to look beneath Treasury, Fed and Mainstream Media distortions and spins in order to reveal the Market and Economic Realities after The Bailouts, and to develop a Strategy to cope with and potentially profit from them.
First, it is essential to note that The Real Solution for the worsening financial and economic crisis would have to involve Salvation for the increasingly stressed middle-class American consumer - - about 70% of the U.S. Economy. But no such feasible Solution is even being proposed, at least none coming from any official sources.
So the net Bailout effect is that the U.S. Taxpayer is saddled with at least an additional U.S. $1 to $3 TRILLION in potential indebtedness in one fell swoop (as Don Nash pointed out recently). Indeed, it is entirely possible that U.S. Taxpayers could be on the hook for the entire $5 TRILLION plus (combined) portfolios of Fannie and Freddie. And the net effect for all this is that a Mere Band-Aid was put on the Systemic Meltdown threat.
Second, it is important to note what specifically was done in the name of achieving Systemic Stability and what the consequences were and are likely to be. First consider that the formal Bailout announcement was made on Sunday, September 7, 2008, when no major markets were open. That is because the Bailouts were a clear sign of an increasingly weak financial system.
Given that fact, one would have thought that Gold and Silver would skyrocket when the Far East Markets opened and that the U.S. Dollar and Treasuries would tank. But in fact what happened is that, although Gold and Silver did spike initially, they ended down modestly for that day. [And, even more revealing of Cartel* Intervention, they were brutally taken down for most of the rest of the week.]
And, even more ludicrous, the U.S. Dollar was rammed up much higher, at one point being a full USDX point higher (i.e. 100 basis points)! These are ludicrous results, particularly with respect to the U.S. Dollar, because it is clear that, to the extent that the Treasury has to expend additional capital to backstop Fannie and Freddie, it will either have to raise taxes, print the money or borrow the money. Of course, taxing and borrowing are less feasible. So The Fed will doubtless continue to inflate the money supply which should further weaken and likely destroy the U.S. Dollar in the long-term. Yet the U.S. Dollar skyrocketed.
The motivation for The Cartel’s* capping and then taking down Gold and Silver and ramming the U.S. Dollar (and Treasuries) higher is clear. The Fed-led Cartel* simply cannot allow the legitimacy of their Treasury Securities and Fiat Currencies as Stores and Measures of Value to be at all impaired in the eyes of investors around the world, especially when event demonstrate that economic and financial conditions are worsening around the world.
*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.”
But isn’t the U.S. Dollar, and the Forex Market in general, too big to manipulate? Isn’t that market much bigger than the Gold and Silver markets?
Bigger it is, but not too big to manipulate. In fact, the Fed-led Cartel has over U.S. $56 trillion in Over The Counter (i.e. darkly liquid, non-public) Foreign Exchange Derivatives Contracts (as of 12/07) which are available to it to manipulate various foreign exchange values (see www.bis.org - path: statistics>derivatives>Table19). In sum, the Dollar can be pretty much placed where the Fed-led Cartel wants it at any given time subject, of course, to political and Cartel “End Game” considerations (see Deepcaster’s July 2008 Letter at www.deepcaster.com).
Thus, we see the Fannie/Freddie debacle has elicited once again the now predictable Cartel Interventional Regime’s reaction. In the wake of the Fannie and Freddie Bailout, The Cartel went to work with a vengeance, first capping Gold and Silver, and then taking them down, while boosting the U.S. Dollar and U.S. Treasuries.
The motivation? We reiterate - - since the Ultimate Tangible Assets, Gold, Silver (and Crude Oil) are competitors for Stores and Measures of Value with the Fed-led Cartel’s Fiat Currencies and Treasury Securities, The Cartel is impelled to suppress their prices.
But equally important, these Market Interventions further divorce the Appearances created in the Mainstream Media and Financial Media about the supposed Free Markets, with the Actual Market and Economic Realities on the ground.
For example, the (paper) Market Price of Silver has been nearly cut in half in recent weeks, but supplies of physical Silver are increasingly difficult or impossible to obtain. Such a result is typical of the consequences of Cartel Intervention, as Deepcaster has most recently demonstrated in detail in his July, 2008 Letter available at www.deepcaster.com.
Why will The Bailout system-stabilizing effects only be temporary and how can investors protect and profit from these massive forces set in motion by The Cartel? In order to answer these questions we must consider several realities beneath the Appearances.
First, the U. S. Government (i.e. the U.S. Taxpayers) took over Fannie and Freddie because Fannie and Freddie were insolvent with “no net worth,” as Deepcaster and Warren Buffet noted a few days ago. That is to say they were bankrupt.
Secondly, the bankruptcy was a huge one. Of the over $5 trillion in mortgages that Fannie and Freddie own or guarantee, over $1 trillion have failed or are at risk today. And that is only the beginning.
Fannie and Freddie’s liabilities, which are apparent today, pale in comparison to the probable liabilities downstream. This is not only because U.S. home foreclosures and mortgage delinquencies have shot up to over 4 million. That fact is only the tip of the lethal iceberg. The fact is that unemployment is soaring. While the “Official” figure is now over 6%, actual U.S. Unemployment is over 14% annualized according to the quite credible calculations of shadowstats.com. All the while the Hyperinflationary Recession is deepening with a negative 2% annualized GDP and with Real CPI at over 13% according to shadowstats.com.
Thus, it is highly probable that increasing unemployment and economic hard times will cause yet an even greater ballooning of foreclosures and mortgage delinquencies.
Moreover, Fannie Mae and Freddie Mac have not yet formally recognized and written down the value of many sub-prime and Alt A loans to reflect current market prices. That is, thousands upon thousands of loans have not accurately been marked down in value yet.
And, perhaps worst of all, the magnitude of this dilemma is so great that it is a serious threat to the legitimacy, soundness and stability of U.S. Treasury Securities themselves.
Remarkably, U.S. Treasury Securities outstanding as of 3/31/08 are also just over $5 trillion (Fed Flow of Funds Report, p 87). That is to say, the mortgages owned or guaranteed by Fannie and Freddie are over $5 trillion and thus are of an equivalent order of magnitude to the U.S. Treasury Securities outstanding. In other words, Fannie and Freddie’s obligations are equivalent to approximately 100% of the Treasury’s outstanding debt. What foreign investor in his right mind (and China alone owns over $1 trillion of U.S. Treasury Securities) would continue to view Treasury Securities (not to mention the U.S. Dollar-as-the-World’s-Reserve-Currency) as Secure Assets when the U.S. Treasury has taken on an additional liability of $5 trillion - - an amount equal to all the Treasury Securities already outstanding?
The foregoing should make it clear (if it is not already abundantly clear) that the U.S. government can pay its obligations only by further borrowing or further printing of money, either which means that a long-term disaster for the U.S. Dollar is ensured.
Thus the Bailouts will fail for several reasons, among which are:
1) There is nothing to help the overall Systemic Need for bolstering the mortgage obligors, namely all those middle-class families who hold mortgages that they either cannot pay now, or will be unable to pay in the near future. They are, we repeat, 70% of the U.S. Economy.
2) Moreover, The Bailout will not work long-term because even though the assets of Freddie and Fannie (i.e.. the bonds, but not the common or preferred shares) have been secured, so to speak, in the eyes of foreign and other investors, nothing can oblige U.S. domestic and foreign financial institutions (increasing number of which are having capital shortage problems of their own) to lend, or continue to lend, at viable rates, even though The Bailout was designed to increase liquidity in the mortgage market.
3) The Bailout cannot work long-term because it requires more printing and/or borrowing of a depreciating asset, namely the U.S. Dollar. The artificial boosting of the Dollar during this past “Bailout Week” is frankly a mere short-term Cartel tactic - - a “Pyrrhic victory” if you will, with The Cartel boosting the U.S. Dollar over the forces that would bury it, but this victory is truly Pyrrhic and truly temporary.
The bottom line for Fannie and Freddie is that their “conservatorship” is the functional equivalent of bankruptcy court.
General Strategic Considerations for Profit and Protection
Thus Deepcaster recommends the following strategies for profit and protection in our Interventional Universe.
1) Locate one’s non-speculative capital primarily in Tangible Assets which are in great and relatively inelastic demand and in
2) The Consumer Staples and basic Agricultural Sectors, and in the
3) Precious Monetary Metals (e.g. Gold and Silver) but only near the interim bottoms of Cartel-generated takedowns. But the timing and form of metals investment selected here are key. For additional details on this approach to investing in Precious Metals and Strategic Commodities, see Deepcaster’s 12/23/07 Alert entitled “A Strategy for Profiting From Cartel Intervention in Gold, Silver, Crude & Other Tangible Assets Markets” in the ‘Alerts Cache’ at www.deepcaster.com.
In the long run, Deepcaster believes one can find no better “Safe Haven” than in the Precious Monetary Metals, Gold and Silver, as well as in Strategic Commodities.
BUT we must reiterate one important caveat regarding finding a “Safe Haven” in Precious Monetary Metals: in the short run, they are clearly subject to the considerable price manipulation by The Cartel of Central Bankers, as we have seen.
The harsh results of these repeated Brutal Interventions is to damage even more those Hard Assets investors who have sought a Safe Haven in the traditional Safe Haven Assets, Gold and Silver. And the message from the Fed-led Cartel is once again is that you will find your best “Safe Haven” in Treasury Securities and Fiat Currencies.
Moreover, Cartel Interventions, as we explained recently, create, in effect, an actual and potential massive transfer of wealth from holders of Tangible Assets such as Gold, Silver, Crude Oil, and Real Estate by a simple mechanism which we call the 1920s and 1930s “Syndrome.” In the 1920s the Fed allowed easy money and easy credit to balloon paper and tangible assets prices. In the 1930s they allowed deflation to take place which resulted, as it is today, in increasing foreclosures on Real Assets. Thus the Fed-led Cartel and its favored friends can pick up real assets as fire sale prices as we detail in our recent Alert of 8/31/08 entitled “A Nasty Twist to The Cartel End Game.”
Worst of all, this Interventional Pattern continues to impel the international financial system toward the nefarious “End Game” designed by the Cartel of Central Bankers. See “A Massive Financial & Geopolitical Scheme Not Reported by Big Media” (8/31/06 in the Alerts Cache) and “Profiting From the Push to Denationalize Currencies and Deconstruct Nations” (Deepcaster’s June, 2007 Letter) at www.deepcaster.com. It is not too late to stop this Scheme, but investors around the world will need to become first aware, and, secondly, act to stop it.
But there is a way to both profit and protect from Brutal Cartel Intervention in Precious Metals and Strategic Commodities.
Strategic Considerations for
Investing in Precious Metals & Strategic Commodities
Note that a major premise of the following Strategy is that one can certainly remain a Hard Assets Partisan while at the same time insulating oneself from and, indeed, profiting from future Cartel Takedowns. The following points provide an outline of The Strategy (particularly as applied to the Gold and Silver Markets) and are designed to help avoid such unpleasantness, or even possible financial ruin, in the future, as well as to profit along the way:
1) Recognize that The Cartel is still potent, as difficult as that may be psychologically for Deepcaster and other Hard Asset Partisans to acknowledge. The Cartel is still the Biggest Player in many markets and, if the timing and market context are propitious, the Biggest Player makes Market Price. In addition, The Cartel has the advantage of de facto controlling the structure and regulation of various marketplaces and that is a tremendous advantage; just as the Hunt Brothers years ago discovered much to their dismay and misfortune, when they tried to corner the Silver Market.
2) Accumulate Hard Assets near the Interim Bottoms of Cartel- induced Takedowns.
3) In order to know when one is near the bottom of a Cartel-generated takedown, it is essential to take account of the Interventionals as well as the Technicals and Fundamentals. For example, regarding Gold & Silver, near such Interim Bottoms, accumulate a combination of the Physical Commodity (Deepcaster prefers “low premium to melt” bullion coins) and, in certain circumstances, well-managed Juniors with large reserves. (Deepcaster provides a list of such Junior Candidates in our December 20, 2007 Alert “A Strategy for Profiting from Cartel Intervention” available in the Alerts Cache at www.deepcaster.com.) The “Physical” and selected “Juniors” are for holding for the very long-term as a Core Position. Caveat: the Juniors are also subject to considerable price manipulation.
4) Then, to the extent one wishes to speculate on the next “long” move, one should buy the major producers or long-term Call Options on them. These latter positions are for ultimate liquidation at the next Interim Top and are not for holding for the long-term.
5) Indeed, there will be a time when The Cartel price capping is ineffective and Gold & Silver make record moves upward. The benefit of this Strategy is that one will likely be long in one’s speculative positions when this happens.
6) Near the next Interim Top, liquidate the long options and majors. Again, in order to know when we are close to the next Interim Top, it is essential to monitor the Interventionals, as well as Fundamentals and Technicals.
7) At that Top, sell short or buy puts on Majors. We re-emphasize the Majors as preferred vehicles for trading positions because such positions are more liquid and tend to be quite responsive to Cartel moves.
8) At the next Interim Bottom, cover your shorts and liquidate your puts and go long again to begin the process all over again. We emphasize that it is essential to consider the Interventionals as well as the Fundamentals and Technicals in order to determine the approximate Interim Tops and Bottoms.
9) Finally, Hard Assets Partisans have the opportunity to become involved in Political Action to diminish the power of the Central Banker Cartel. It is truly outrageous that the average unsuspecting citizen, and prospective retiree, can and does put his hard won assets in Tangible Assets only to have those assets effectively de-valued or even appropriated, via Cartel Takedowns. This is extremely injurious to many average citizens in many countries who are saving for the rainy day or retirement and have their retirement and/or reserves effectively taken from them. In order to help prevent this and similar outrages, we recommend taking three steps:
a) Become involved in the movement to abolish the U.S.
Federal Reserve (a private for-profit Cartel of International Banks) as Deepcaster, Presidential candidate Rep. Ron Paul, and legendary investor Jim Rogers, all have advocated.
b) Join the Gold AntiTrust Action Committee which works to eliminate the manipulation of the Gold and Silver markets (www.gata.org). GATA is a non-profit organization which makes a great contribution by gathering evidence regarding the suppression of prices of Gold, Silver and other commodities.
c) Work to defeat The Cartel ‘End Game.’ Deepcaster has laid out the evidence regarding the Ominous Cartel “End Game.” Clearly The Cartel is sacrificing the U.S. Dollar to prop up favored international financial institutions and to maintain its power. But this sacrifice cannot continue forever.
One key component of the Cartel’s Ominous “End Game” is the planned replacement of the U.S. Dollar with the Amero. This would give even greater de facto power to the international Cartel of Central Bankers. We encourage readers to review the evidence for the entire multifaceted “End Game” Program in the following: Deepcaster’s Alert of 8/13/06 “Massive Financial Geopolitical Scheme Not Reported by Big Media” and Deepcaster’s June, 2007 Letter “Profiting From the Push to Denationalize Currencies and Deconstruct Nations” and 8/31/08 Alert “A Nasty Twist to The Cartel End Game- - all available at www.deepcaster.com. Fortunately there is even a resolution in the U.S. Congress that would stop this “End Game” attempt (H.Res.40, Goode, R-VA).
Conclusion
The Starting Point for Protection and Profit is to determine how much of one’s investable assets one wishes to have in a Core Position of Gold, Silver and other Tangible Assets and then to determine the specific investment form in which to hold them. This Core Position is truly a long-term position and should represent a significant portion of one’s investable assets (Deepcaster recommends about 50%).
Regarding deployment of the balance of assets devoted to one’s Tangible Assets Portfolio, we recommend The Strategy outlined above.
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 as Measures and Stores of Value. In obtaining, and adding to, one’s own Core Position near the bottom of Cartel-induced Takedowns, 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.
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 Takedowns such as the ones of March 18-20, 2008, early June, and early September, 2008.
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.
Deepcaster
September 12, 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, 12 September 2008 | Digg This Article | Source: GoldSeek.com
