-- Posted Friday, 13 March 2009 | | Source: GoldSeek.com
DEEPCASTER LLC
www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation Wealth Enhancement
Financial and Geopolitical Intelligence
“’This is the end of an era. We can’t reinflate the bubble. If we think we can, and call it capital, believe me we don’t have a prayer of solving these problems. We have a total misunderstanding of what credit is versus capital. Recapitalizing markets by turning on the printing presses is a total fallacy.’”
Representative Ron Paul (R – TX) to Fed Chairman Ben Bernanke
House Financial Services Committee Hearing
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“All the original money that paid for all this toxic waste didn’t evaporate, it ended up in illuminist bank accts. Billions. Thus there will never be an accounting of TARP or the rest. …AIG will need 500B. …Credit is not capital Mr. Ben; capital comes from savings not loans.” (emphasis added)
Bob Chapman
International Forecaster
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“Remember that the reason for shoring up AIG was its credit default swaps portfolio, in which it had written lots of unhedged guarantees on the cheery assumption that there was tantamount to no risk...
…Uncle Sam has no regulatory responsibility for AIG, but was hit up nevertheless as the most logical deep pocket that could prevent a financial train wreck.
Gretchen Morgenson reported in September that Goldman was the only financial firm that had a seat at the table during the AIG rescue talks. We noted at that time:
This is special dealing, pure and simple. Even if AIG needed to be salvaged (there was considerable agreement on this point), having Goldman deeply involved in the process is cronyism…
…Another reason for the bailout was that AIG’s guarantees allowed European banks to circumvent minimum capital requirements, which means the AIG salvage operation was a backstop to European financial firms.
The Wall Street Journal story, ‘Top U.S., European Banks Got $50 Billion in AIG Aid’ peels back another layer in this sorry affair:
The beneficiaries of the government’s bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.
Among those institutions are Goldman Sachs Group Inc. and Germany’s Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008…
The names of all of AIG’s derivative counterparties and the money they have received from taxpayers still isn’t known, but The Wall Street Journal has identified some of them and is publishing others here for the first time….
…Some banks that were paid by AIG after it was bailed out by the government
Goldman Sachs
Deutsche Bank
Merrill Lynch
Societe Generale
Calyon
Barclays
Rabobank
Danske
HSBC
Royal Bank of Scotland
Banco Santander
Morgan Stanley
Wachovia
Bank of America
Lloyds Banking Group
Source: WSJ research
…Wake up and smell the coffee. The public purse is being looted and we the great unwashed are being fed pablum. Just because the perps work for the once esteemed institutions and are typically treated with deference does not change the nature of the undertaking.
From Buiter:
The reports on the evidence given by the Vice Chairman of the Federal Reserve Board, Don Kohn, to the Senate Banking Committee about the Fed’s role in the government’s rescue of AIG, have left me speechless and weak with rage. AIG wrote CDS, that is, it sold credit default swaps that provided the buyer of the CDS (including some of the world’s largest banks) with insurance against default on bonds and other credit instruments they held. Of course the insurance was only as good as the creditworthiness of the party writing the CDS. When it was uncovered during the late summer of 2008, that AIG had nurtured a little rogue, unregulated investment banking unit in its bosom, and that the level of the credit risk it had insured was well beyond it’s mean, the AIG counterparties, that it, the buyers of the CDS, were caught with their pants down.
Instead of saying, ‘how sad, too bad’ to these counterparties, the Fed decided (in the words of the Wall Street Journal), to unwind ‘…some AIG contracts that were weighing down the insurance giant by paying off the trading partners at the full value they expected to realize in the long term, even though short-term values had tumbled’…
…I am deeply worried that other people may, as a result of this, be willing to do business with other U.S. Financial institutions on the same ludicrous terms that brought us the current crisis…
Unless the counterparties pay the full price for their hubris and recklessness, they will be back for more. It is therefore tragic that central banks and governments everywhere are going out of their way to protect and shelter the unsecured creditors of the banks (holders of junior and senior debt among them), by raiding the taxpayer or the credit and reputation of the central bank. Significant mandatory debt-to-equity conversions and large write-downs of (haircuts on) the claims of other unsecured creditors should be an integral part of any financial assistance package.
Quelle Surprise! Who Gained From AIG Rescues? Goldman (and Deutsche) Tops the List (and Willer Buiter is REALLY Angry!)
www.nakedcapitalism.com, March 6, 2009
Profit Opportunities (and Dangers) abound in the Nascent Wall Street Rally. But it behooves the wise investor to first identify certain of our current dangerous Realities in order to protect, and take advantage of, the opportunities.
Representative Ron Paul and Bob Chapman have identified (above) The Most Important Flaw (of several Flaws) in the various Bailout Schemes and Stimulus/Spending Bills.
The Bailout Schemes and Stimulus/Spending Bills are all “funded” through borrowing; but it was excessive borrowing and the accompanying Toxic OTC Derivatives Creation which (and especially the employment of inadequately secured Credit Default Swaps, all encouraged by the private for-profit Fed whose policies) were the prime cause of our current crisis in the first place.
Crises caused by the excessive borrowing and spending can not be cured by more borrowing and spending!
Yet, the U.S. Taxpayer is repeatedly asked to borrow, at interest, even more Trillions (which the Fed prints for free out of thin air) from the private for-profit Fed to fund bailouts of (it is not told which) private financial institutions.
Perhaps the most important dangerous consequence of these trillions in borrowing is the fact that this debt can never be repaid without destroying the U.S. Dollar.
Consider the following Realities:
1) The Debt Burden of the U.S. Government (and therefore the U.S. Taxpayer) burgeoned in 2008, and is still burgeoning if one counts the borrowing required to fund the government (Taxpayer) Bailouts, Guarantees, Loans and Authorizations. That Debt Burden was caused primarily by deleterious U.S. Fed policies, as we explain below and elsewhere;
In fact, the U.S. Government’s Debt Burden has grown far beyond its capacity ever to repay without a dramatic degradation in the purchasing power of the World’s Reserve Currency, the U.S. Dollar. That is because trillions more U.S. Dollars must be printed and borrowed by the U.S. Taxpayer from the private-for-profit U.S. Fed to meet ongoing obligations.
Of course, U.S. Taxpayers must pay “interest” to the private-for-profit U.S. Federal Reserve on those borrowings, thus further increasing the impossibly high debt burden.
Indeed, given that the present value of all the downstream-unfunded U.S. Government liabilities was (at the end of 2008) well in excess of $60 trillion, a further dramatic destruction of the purchasing power of the U.S. Dollar is “baked into the cake over the next very few years.” One of the several negative consequences of the ensuing crises will be the further impoverishment of those reliant on U.S. Dollar income - - mainly the U.S. Taxpayer/Consumer, and many investors around the world.
Thus one consequence of these Fed-facilitated credit and monetary excesses is that the economic and investment landscape has now been seriously damaged for many years to come.
2) The Generator of 70% of U.S. GDP, the U.S. Taxpayer/Consumer/Debtor, is increasingly Financially Imperiled, as are small businesses and have NOT been helped much by the Bailouts and Stimulus/Spending Bills.
In fact, no Lasting Remedy for the Financial and Economic Crises can be achieved unless small businesses and the typical U.S. Consumer/Taxpayer/Debtor is restored to at least some degree of economic health and is thus able to continue paying mortgage and other credit obligations. But no significant help has yet been provided to the typical Consumer/Taxpayer/Debtor or small business by the Obama Administration or the Fed and their situation is worsening daily.
Of course, as the ongoing Crises indicate, believing the claim that “The System has been saved” by the 2008 bailouts of Favored Financial Institutions is Delusional. In fact, the Bailouts have done no such thing, but have mainly served to “Save the Bacon” and/or line the pockets of the Reckless and Greedy Wealthy in certain Fed-Favored Financial Institutions, as the quotations above indicate.
Thus, given the continuing deteriorating health of the economy and the consumer, coupled with 19% (and increasing) Real U.S. Unemployment (see below), more defaults and a continuation of the ongoing economic and financial crises are sure to come.
Specifically, the aforementioned will continue to cause defaults in the vast ($683 Trillion see (www.bis.org) dark OTC Derivatives Markets and increasing weakness in the Economy and Equities Markets.
In sum, the deterioration of the Economy and Markets has only just begun and will likely take several years to bottom.
The aggregate effect is that we will be tortured by the threat of Systemic Collapse for years. Thus, the Assumption that the Strategy of investing-as-usual to “Buy and Hold” for the long-term, will generate profit will, in many cases, be an utterly false and profitless Fantasy.
3) The True State of the Economy is much worse than the Official Figures suggest.
Indeed, as the Real Numbers mentioned below demonstrate, our ongoing economic and financial crisis is not merely a “normal” business cycle Recession, but a System-Threatening Crisis. Indeed, we have entered into a Depression
It is thus another Naïve and False Assumption that the Official Figures accurately reflect the state of the Economy and Markets - - for example, that the current Recession is merely a normal “business cycle” phenomenon.
Making matters worse, Investors and citizens-at-large are misled by Official Statistics which have been gimmicked, as shadowstats.com demonstrates. All of the following Genuine Numbers are calculated by shadowstats.com, which calculates them according to traditional methods used in the 1980s, and early 1990s, before The Political Adjustments currently being utilized began.
Consider the following Real Numbers from shadowstats:
Consumer Price Inflation (CPI) actually averaged about 11% annualized for much of 2008, rather than the 5% to 6% figures, which have been reported as Official Statistics. Thus, the consumer must cope with diminished purchasing power and the threat or reality of job loss.
Though Official Figures show CPI dropping to 0% in early 2009, the Real early 2009 numbers reveal that CPI was still about 8% annualized.
U.S. Unemployment has (according to Official Numbers) been ranging 4% to 6% from 1995 to 2007, spiking “only” to about just under 7% in late 2008 and 8% in early 2009. In fact, Real U.S. Unemployment in 2008 now exceeds 19% and is still increasing. Thus the consumer (70% of U.S. GDP, we reiterate) is increasingly unemployed, under-employed, and indebted.
As well, the Delusion of Economic Growth claimed by Official Statistics is just that - - a Delusion. Real GDP growth has been negative since 2004. Indeed, in early 2009 GDP growth is a negative 4%. Thus the consumer is faced with a deteriorating economy, as well as diminishing job prospects and purchasing power.
As well, the 2008 U.S, Federal Deficit, rather than being about $1 trillion as reported officially, is over $5 trillion if one includes Social Security and Medicare. And, if downstream-unfunded U.S. obligations are included, the U.S. National Debt is about $66 trillion and rising!
Knowing these Real Numbers facilitated Deepcaster’s recommending “Opportunities in the Impending Perfect Storm” - - the title of his early September, 2008 (pre-Crash) Article warning of the impending Crash (available in the Articles Cache at www.deepcaster.com) and his making five short (and subsequently profitable) recommendations at about that time.
4) Overt and Covert Market Intervention and Data Manipulation by a Fed-led Cartel* of Central Bankers and their Allies and Factota serve to hide key negative market, financial and economic realities from investors around the world much to their detriment.
*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 December, 2008 Letter containing a summary overview of Overt and Covert Intervention entitled “A Strategy for Profiting from the Cartel’s Dark Interventions & Evolving Techniques” and Deepcaster’s July, 2008 Letter 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.”
The Fed-led Cartel’s Covert Interventions work to periodically take down Precious Metals prices, control the levels of Equities Markets and manipulate the price of Crude Oil and other Assets. The Cartel apparently employs at least three vehicles to conduct their Covert Market Interventions.
a) About $683 trillion in Dark OTC Derivatives positions (as of June, 2008 as reported by the BIS (www.bis.org Path: Statistics>Derivatives>Table 19)
b) The Repurchase Agreement (Repo and Pomo) Pool
c) The TLSF Pool
For details on each of these three Vehicles and on this Interventional Regime in general, see Deepcaster’s December, 2008 Letter and July, 2008 Letter referred above at www.deepcaster.com.
Three (of several) key negative consequences of this Overt and Covert Interventional Regime are that:
a) It prevents genuine market forces from operating
b) It makes the financial and economic systems reliant on, and, simultaneously, vulnerable to the Cartel’s Market Intervention Regime and on gimmicked, and quite inaccurate, Official Statistics.
c) It presents a false picture of Economic and Financial Realities and prevents the Market from purging unsuccessful businesses, lightening debt burdens, and generally making wise business, financial, and political decisions, thus postponing any possible recovery for years.
However if one regularly tracks The Interventionals, as Deepcaster does, it provides one an edge in investment selection. See Deepcaster’s Front Page (www.deepcaster.com) for details.
5) No resurgence in the housing market in 2009. Home prices will drop another 15% in 2009 according to a recent Case-Schiller Report. Thus there will be no resurgence in the housing market to help bring us out of the current Depression.
6) Defaults on credit obligations will continue to increase. There will be an additional $1.6 trillion in loan losses suffered by Financial Institutions in 2009, according to a Goldman-Sachs Report.
7) The crisis in Financial Institutions will last for years. The average banking crisis lasts 4 years according to a report by Professor Ken Rogoff of Harvard. Deepcaster reiterates that this ongoing crisis is much worse than average.
8) U.S. Manufacturing is Collapsing. The January 2, 2009 Institute of Supply Management Report recently showed a 29-year low. Such a result was predictable of course, given the U.S. Job Destroying Policies in NAFTA and related so-called “Free Trade” Agreements. See Deepcaster’s “The Financial Crisis Solution” in the “Articles” Cache at www.deepcaster.com.
9) Declining government, personal, and corporate income are thus “baked into the cake” for 2009, given the foregoing.
10) Multi-trillion U.S. Dollar “printing” to fund bailouts, loans, and guarantees will ensure increasing monetary (and eventually accompanying price) hyperinflation.
One reflection of Monetary Hyperinflation is The Fed’s Balance Sheet, which exploded to over $2 trillion in 2008 and is expected to exceed $5 trillion in 2009, according to a Goldman-Sachs Report.
M3 creation has jumped back up to 10% as of February, 2009, according to a March 8, 2009 shadowstats.com report.
Of all the factors listed above, one factor will perhaps above all others serve to move the Equities Markets at the beginning of 2009. That factor is the addition of trillions of “printed” and borrowed Dollars into the economic system via the U.S. government (i.e. Taxpayers) bailouts, guarantees, loans, etc. and the prospective Obama Stimulus Program.
We reiterate that most of this will be funded from monies created out of thin air by the private-for-profit U.S. Fed and lent to the U.S. Taxpayer at “interest.”
Nonetheless, all this “borrowed” money will provide additional liquidity to the markets, which we expect will touch off a rally in certain Sectors quite soon. See Deepcaster’s latest Letter and Alert at www.deepcaster.com for further details.
Identifying Opportunities
1) Get the Real Data. As many Investors suspect, Crucial, Official Government and Agency Economic and Financial Data are of questionable validity. The Data set forth above from shadowstats.com is a good starting point.
Educate yourself about the realities of the marketplace using Alternative Data Sources such as Deepcaster, Gold Anti-Trust Committee (www.gata.org), and shadowstats.com. Gathering and staying attuned to authentic information regarding the marketplace can save one much financial grief as well as positioning one for profit.
2) Take Account of both Covert and Overt Cartel Intervention. Many of these same investors who suspect Official Figures also rightly suspect that the private-for-profit U.S. Federal Reserve and/or Central Banks overtly and covertly manipulates Major Markets. But they might not be aware that covert Market Intervention and Data Manipulation are likely far more pervasive than generally believed, as detailed in Deepcaster’s articles mentioned above.
As well, such investors may not have thought systematically about how one copes with and profits from such Intervention and Data Manipulation.
Considering one example, the Traditional and Legitimate Safe Haven from inflation, deflation, and risk, is Gold. Yet, Gold has, during the recent periods of extreme financial market turmoil, been taken down in price from its highs of over $1000/oz down to around the mid-$700 level (e.g. 2008) when it should have skyrocketed.
In early March, 2008 Gold was over $1000/oz. when the Bear Stearns Crisis revealed the fragility of the Financial System. Gold should surely have skyrocketed then. Instead, it was brutally taken down. Were its price not manipulated, Deepcaster’s view is that its price would be over $3,000.00 per ounce today.
Deepcaster and others, including the Gold AntiTrust Action Committee, have offered considerable evidence that the Cartel* of Central Bankers and Favored Financial Institutions are the culprits behind these dramatic and devastating Takedowns. See Deepcaster’s Alert of 12/25/07 “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.
But there is a Profitable Refuge from Market Intervention and Data Manipulation. That Profitable Refuge lies in the Strategy described in the aforementioned Alert, certain characteristics of which we outline here:
3) Recognize that the “Buy and Hold” strategy rarely succeeds anymore. The Eminence Grise of Newsletter writers, Harry Schultz perhaps put it the best when he stated that “buy and hold no longer works anymore, even with Gold.” Recent Market Developments should suffice to demonstrate this principle!
4) Track the Covert Interventionals as well as the Technicals and Fundamentals. Tracking the Footprints, as it were, of the Covert Interventionals (e.g. the Repo and TSLF Pools) daily can often, but not always, give one excellent clues about The Cartel’s next likely Interventional Move - - such clues are essential to preserving wealth and making profits. Deepcaster’s recent tracking of The Interventionals, for example, allowed him to recommend five short positions going into September, 2008, (i.e. before the Market Crash) all of which he has subsequently recommended be profitably liquidated.
5) Perhaps most important, be prepared to go both long and short Major Market Sectors - - long near the bottoms of Interim Takedowns and short near Sector Tops. The Interventionals are essential to helping identify these tops and bottoms. In Deepcaster’s view, it will be increasingly difficult to achieve a net profit for one’s portfolio if one is unwilling and/or unable to “go short” as well as “long”.
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 denominated “Double” Funds provide an opportunity to obtain twice the leverage of an anticipated move, whether short or long. [Indeed, now there are even “Triple” Funds]. 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.
6) Be aware of the overall Geopolitical Landscape in order to gain an adequate understanding of how that Landscape might affect the present and future direction of the Markets. It is essential that one understand the motivations of the major players in the market and the resources at their disposal.
For example, a Major Motivation of the U.S. Federal Reserve and other Central Banks is the protection and enhancement of the legitimacy of their country’s Treasury Securities and Fiat Currencies as Measures and Stores of Value. Therefore, one can understand that one of their Major Goals will be to attempt de-legitimize Gold, Silver and the Strategic Commodities, including especially Crude Oil, as Stores and Measures of Value. With this in mind, the periodic takedowns of Gold and Silver become understandable. Moreover, such an insight applied daily to the market can result in a tremendous edge in understanding market performance, present and future.
Moreover, regarding the assets at The Cartel’s disposal, if one tracks the Repurchase Agreement and TSLF Pools regularly, as Deepcaster does, and is aware of the other Interventional tools that The Cartel has at its disposal, then one gains a considerable edge.
Opportunities from Overt and Covert Interventions.
One key to short-term opportunities comes from considering The Bailouts, Excessive Credit Creation in recent years, and Monetary Hyperinflation. As of the latest (March 8, 2009) report figures, annual Money Supply Increase (M3) is over 10% (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 and will continue to be massively inflationary.
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 had already grown by 133% by November, 2008 according to a report by 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.
