-- Posted Friday, 21 November 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
The Outrageous Bailouts of recent months are, notwithstanding their long-term Systemic Harm, creating short-term Opportunities in key sectors. To understand how this is so, consider the current situation.
Today, investors seeking to protect wealth and generate profit face an unprecedentedly daunting task, but not an impossible one.
Yet considering all the Negatives makes that task less daunting and, indeed, points the way to potential Profit Opportunities.
In deciding what constitutes a legitimate Opportunity one must first consider the six tests which Deepcaster set forth a couple of weeks ago in his Article entitled “Opportunities to Escape Paper ‘Wealth’” (available in the Articles Cache at www.deepcaster.com).
First, thinking one's wealth resides SECURELY in Paper Assets-in-general (or, even more intangibly, in electronic data stored on some remote server) is often unjustified, and, quite risky, as recent market savagings have shown.
Consider first that 'Paper/Electronic Assets' typically have NO INTRINSIC VALUE.
Indeed, Paper/Electronic Assets typically have no value at all unless they REPRESENT (or can, if liquidated, reliably generate) 'Purchasing Power' to obtain goods and services, or ownership rights in tangible assets.
Here we do NOT focus on Paper representing Ownership rights in tangible assets. We focus instead on publicly traded securities which, for example, typically represent 'Equity' Ownership in various business enterprises.
And we focus more narrowly on those Equities which, prior to the recent Takedowns, were thought to be secure repositories of wealth but which, as those Takedowns have demonstrated, were not. We characterize these “Assets” as “de-legitimized Paper.”
As the recent market Takedowns have demonstrated, the value of equity ownership of de-legitimized paper measured in market terms is often not SECURELY determined -- it fluctuates according to the vagaries of the marketplace. Recently that market fluctuation has, for most such securities, been “down” by over 40% (the S&P drop this year) from highs just a few months ago.
Consider also that to have relatively secure REPRESENTATIONAL value a publicly traded security must:
- Be able to be LIQUIDATED for SIGNIFICANT value (i.e. Profit, or, at least, not a significant loss) in the market, and/ or
- Pay dividends, and/or
- Have genuine appreciation potential.
But as the recent Market Crashes show, many Paper securities do NOT RELIABLY have ANY of the above. They have thus been shown to be “de-legitimized paper.”
In addition, many publicly traded securities (i.e. paper) which can be liquidated for a NOMINAL profit (i.e. considering appreciation and dividends together) nonetheless do NOT have a REAL Profit but rather only an illusory one, because of three additional factors:
4. Inflation - - Investments, which are subsequently liquidated, must, to show a genuine profit, show a profit in excess of Real Consumer Price Inflation. But Real Consumer Price Inflation is now running at over 11% annualized, according to the very credible statistics of shadowstats.com
5. Fiat Currency Purchasing Power Degradation: The U.S. Dollar has over the past six years lost over 30% of its purchasing power, notwithstanding its recent (and temporary) bounce, which Deepcaster earlier forecast.
Indeed, considering the Interventionals facilitated Deepcaster’s entering into September, 2008 with a total of five various short Equities Recommendations, four of which have already been liquidated profitably.
Thus, to realize a Genuine Profit, an investment must “overcome” all six of the aforementioned, not to mention overcoming typical adverse market action as well.
Given the above hurdles and the magnitude of recent Takedowns, one inference is clear: Any 'Buy and Hold' Strategy is probably doomed to failure.
Thus The Solution to the aforementioned Challenges must be A Strategy. Successful Investors must be long-term TRADERS with a long-term perspective. For more specific detail see Deepcaster’s 3/28/08 Article "Defeating the Cartel...with Profit" in the 'Articles' Cache at www.deepcaster.com. Moreover, that Strategy must not only take account of Fundamentals and Technicals, but also Interventionals and the Authentic Statistics such as those reported by shadowstats.com. In addition, there is a strong preference in that strategy that one’s Paper Assets be linked to Tangible Assets as we describe below.
Generally speaking, but with the three Major Caveats listed below, the more closely one's assets are linked to Tangible Assets, and especially to those Tangible Assets which are in great and relatively inelastic demand, the more secure and potentially profitable one's investments will be, in the long term.
This means, for example that Investors should focus on Precious Metals, agricultural products, consumer staples, energy and similar tangible assets Sectors, BUT considering the three Caveats below.
Beware of Cartel Intervention in the Precious Metals Markets
Beware of Cartel Intervention in Other Markets.
“Buy and Hold” increasingly means to “Hold and Lose.”
Clearly, in light of these three Caveats, appropriate timing of one’s investments and trades is crucial. Once one has satisfied oneself that one’s prospective investment “passes” the aforementioned tests, one still has to consider whether that investment is likely to be profitable. But in making that evaluation, and in addition to all the usual considerations (e.g. earnings, debt levels, management competence, etc.) one must also take into account that:
1) Fundamentals are terrible for practically every sector.
2) More important, Fundamentals in nearly every sector are not likely to improve any time soon.
3) As well, (as we write) Technicals are not robustly positive for the equities or commodities markets in general. Indeed, they are generally negative.
4) Moreover, obtaining reliable information about any particular company has become increasingly difficult. There are several reasons for this. Two of the most significant are that companies often have, or are vulnerable to, substantial amounts of darkly liquid OTC (as opposed to Exchange-Traded) Derivatives. Even if a company appears to be solid, to the extent that it is exposed to Dark OTC Derivatives and thus to potential Counterparty Failure, investing in any particular company is to one degree or another a shot in the dark, as recent events have shown.
We reiterate our past reference to the case of Bristol Myers Squib generally considered being a safe haven Big Pharma company. Yet it took over a quarter-billion-dollar write-off due to derivatives exposure just a few months ago. Who would have thought? So much for Big Pharma as a “Safe Haven.”
Moreover, mainly Dark OTC Derivatives are at an all-time high level of $683 trillion as of June, 2008 (www.bis.org, see path: statistics>derivatives>Table 19 and ff.). Systemic and Derivatives Risks are thus increasing, not decreasing.
Yet in spite of all the foregoing, Deepcaster asserts that certain short-term speculations can turn a profit in spite of, and indeed in some cases because of, unhealthy excesses like the Bailouts, and the excessive credit facilitated by the private-for-profit Fed in recent years.
Opportunities
The key to short-term opportunities comes from considering The Bailouts, Excessive Credit Creation in recent years and Monetary Hyperinflation. As of the latest figures, annual Money Supply Increase (M3) is still over 10% (M3 through 10/08 as reported by shadowstats.com). Earlier in 2008 M3 was at a record high of over 17% annualized. Of course, this Rampant Monetary Inflation has shown up in Real Consumer Price Inflation.
Contrary to the Official Figures “asserting” that CPI is nearly 6%, Real Consumer Price Inflation through 10/08 is well over 11% annually, as calculated by shadowstats.com. This M3 growth is massively inflationary! [Note: even though October’s CPI Inflation slowed substantially, annual growth still remains over 11%. That is, on a net basis we are still experiencing hyperinflation, mainly as a result of the private-for-profit Fed-instigated Bailouts and Excessive Money Printing.]
So, whence come the opportunities?
The fact is that the private-for-profit Federal Reserve and U.S. Treasury have rolled over the generally clueless Congress (Ron Paul and a very few others excepted) and their actions are guaranteeing massive monetary, and therefore eventual price, inflation. The Fed’s balance sheet has grown by 133% in the past year according to Grants Interest Rate Observer. It used to be that a Fed Balance Sheet annual growth rate of 10% seemed high, if not excessive. Thus 133% is a staggeringly large increase.
Moreover, according to Grants, the Federal Reserve Bank’s credit is up 1,560% in the last three months. For the first time this past September, the Fed’s balance sheet exceeded $1 trillion. Just a short two months later, by November 2008, it had exceeded $2 trillion. The President of the Federal Reserve Bank of Dallas said it could be $3 trillion by year-end 2008. This exploding Fed balance sheet is massively inflationary. The Fed increases its balance sheet by buying “assets” (albeit some “assets” of dubious value). How do they do this? They print money out of thin air! Deepcaster and others have shown what an unsustainable Ponzi scheme this printing out of thin air is (see “Private Ownership of U.S. Fed Unsustainable” of 1/4/08 in the Articles Cache at www.deepcaster.com).
Nonetheless, by massive loans, equity purchases and injections and expansion of the actual Money Supply by over 11%, The Fed has guaranteed massive inflation. Similarly, key Central Banks around the world that have conducted similar actions and have thus bolstered massive inflation. What this means is that, in the long run, the U.S. Dollar and many other major currencies will buy less, much less, in the future.
However, given that the financial system and key heavyweight investors are awash with printed and borrowed money, certain Key Sectors should explode upward very soon until the long-term negative Economic Fundamentals drag them down again. Of course, this will not happen in one fell swoop, it will happen in Spurts. And, indeed, we think the first Spurt from this Monetary Inflationary Juice is not far off. Indeed, we have already forecast that this should be reflected in higher prices in certain Key Sectors identified in Deepcaster’s latest Alert posted at www.deepcaster.com.
Thus, these considerations provide speculative investment opportunities which have high profit potential as well as high risk. The Rampant Monetary Inflation reflected in M3 and in the various bailouts and loans are as much as $3.5 trillion one source recently reported. And this tremendously increased monetary base is available to inflate the paper value of the Equities and other Markets, when money managers first think the markets have a chance for a sustained (for a few months, or even weeks) rally, and, when The Cartel Interventional Regime “agrees” with them.
A Final Positive Note
Fortunately, in recent years, we have seen the advent of the increasing use of Exchange Traded Funds and Exchange Traded Notes. One great advantage of these is that they are designed so that investors will not likely lose due to the time and risk premium erosion which one has in Options. Moreover, some of the funds called “Double” Funds provide an opportunity to obtain twice the leverage of the anticipated move whether short or long. [Indeed, now there are “Triple” Funds which Deepcaster is monitoring prior to possibly recommending.] So Deepcaster and others are increasingly recommending these Funds as an alternative for those who do not like the risks of Options. These funds allow investors to go short or long with ease. Savvy investors should consider them.
November 21, 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, 21 November 2008 | Digg This Article | Source: GoldSeek.com
