-- Posted Friday, 16 March 2012 | | Disqus
“How about capitalism, Ben Bernanke?”
Jim Grant, Interest Rate Observer, Bloomberg Interview, 3/13/12
“A difference which makes no difference is no difference.”
William James, Philosopher
Macro-Trend Policies and Events (“Beta” for Investors) almost always dominate Alpha (the returns, but for Beta) that Investors might otherwise expect on any Individual Investment.
Energy and Precious Metals Investors discovered this much to their dismay in the early 1980’s as Paul Volcker’s high interest rate policies began to seriously erode prices of these Assets.
Essential to understand for Investment success going forward (and the Primary Source of the Profit Potential for the Investments we recommended earlier this week) are two Policies (and consequent trends) which will dominate for months to comes, until they self-destruct.
The first Essential to understand is that “Greece” is not mainly (or arguably at all) about Greece, and thus “Greece” is not solved by a long shot.
“…what’s going on Europe has nothing to do with solving a debt crisis and everything to do with preserving a corrupt system based on limitless debt and growing government power. The sooner you understand that fact, the sooner you’ll be able to prepare for what happens next.
“…doesn’t it strike you as strange that all of Europe can be brought to its knees by tiny little Greece? Greek GDP is just 2.4% of Europe’s GDP. In economic terms, Greece doesn’t matter. …Yet, Greece obviously does matter; otherwise the European financial markets wouldn’t be celebrating the latest €130 billion…
“…plan to reduce Greek’s debt to 120% of GDP…EIGHT YEARS FROM NOW…is not a serious plan about debt. Therefore, the plan cannot be about debt reduction.
“Will the plan make Greece more competitive in the long run? Well, probably not.
“Does saving Greece save the euro? Not at all. The euro would be better off without Greece and Greece would be better off without the euro. …With its own currency, Greece could default, devalue, inflate and start over.
“If saving Greece is not about saving the euro, and if it’s not about reducing Greek debt, and if it’s not about making Greece a more competitive economy…then just what IS it about?
“Saving Greece means preventing a technical default…even though Greece has already defaulted in a real-world sense.
“Greece’s creditors could be forced to accept this not-a-default default losses recourse to the credit default insurance they purchased.”
“What the Greek Rescue is Really About”
Dan Denning, The Daily Reckoning, 3/5/2012
As the most recent Eurozone deal (ostensibly regarding Greece) unfolded, it became clear that the deal was about preventing a Technical Default for most of the Creditors so most of the Credit Default Swaps (Insurance “policies” on the Debt) would not be triggered (in defense of Dan Denning’s excellent piece, the latest Greek deal was done after his article was published).
In fact, most CDS were not triggered, according to the lender-controlled ISDA, even though there was an actual Default on 52.5% of the principal value on most Bonds.
That is because allowing a triggering of the CDS on substantially all of the $266 Billion of Bonds would have led to massive losses for the CDS issuers, and possibly would have destroyed the CDS “Insurance” system.
On the other hand, in order that the ISDA’s refusal to allow the triggering of the CDS on most of the Bonds not lead to a destruction of the CDS Industry (due to a consequent distrust that any CDS would ever serve as Genuine Protection) CDS covering about $3 billion of the debt (of the total $266 billion of restructured debt) were deemed Triggered, according to offered sources. That is called “Trying to have it both ways.”
Thus Denning’s Fundamental Analysis is sound.
“It gets even murkier here. The ISDA essentially represents the global banking system. In Europe, the banking system is full of government bonds. Those bonds are nominally assets. If Greece defaults, it sets a precedent for how other countries might deal with unsustainable debt levels. This imperils the collateral of Europe’s entire banking system.
“When you realize that the ISDA and the ECB and the EU are in league to save their financial skins, you realize that the Greek rescue plans is about preventing other countries from realizing that default is an option. In fact, it’s not even about preventing the realization. It’s about making it impossible for a country to default on its obligations…even if it means erasing the word “default” from the English language.
(The Collective Action Clause – ed.) “This clause allows your securities to be revalued without your consent if a majority of other bondholders agree to it.
“Now we’re coming to the real nuts and bolts of what’s at stake. The technocrats in Europe are at war with private investors. The members of the ISDA are in league with the technocrats to preserve their system. That part is easy to understand.
“The technocrats are employed by government and get to spend your money. This system is good for them. It’s good for the members of the ISDA too. Loaning money to the government is good business. Collecting rent off the expansion of credit is easy money. They want the system to last as well. Who is the system not good for? Everybody else who’s on the outside looking in. Investors who want their capital to be productive are out of luck. And taxpayers who question the value of austerity measures and debt reduction plans that don’t really reduce debt are also out of luck. No wonder they are angry.
“We’ve come a long way, then. Greece isn’t about saving Greece. …It’s about the subversion of sovereignty and democratic processes by removing decisions from people and giving them to trans-national financial elites. It’s about preserving a global system that’s based on the accumulation of debt and growing government power because there are two groups of people who benefit tremendously from that system, even if most people don’t.” (emphasis added)
“What the Greek Rescue is Really About”
Dan Denning, The Daily Reckoning, 3/5/2012
Though Denning doesn’t explicitly say it, it is clear that what the “trans-National Financial Elites” (i.e. Mega-Bankers) are mortally afraid of is:
Iceland.
Iceland’s economy is already recovering quite nicely thank you, after Iceland’s having said “no” to the Perpetual Debt Slavery demanded by the Mega-Banks.
In distinction, leading Greek Politicians have, thus far, been capitulating to the Mega-Bankers demands that their terms of Debt Slavery be agreed to.
But Greek elections are later this Spring. We shall see.
So, on one hand, the Mega-Bankers demand ever more loan restructuring, even though given any reasonable set of assumptions, these restructured loans cannot ever be paid – this is Debt Slavery with a Vengeance.
So the First Essential Key to Investing going Forward is the Realization that the Mega-Bankers will always try to Implement Policies in these Bankers’ Interest and not in Investor-Citizens Interest. The Mega-Bankers are “at war with Private Investors” to use Denning’s words.
The second Critical Investment Key is a Related Aspect of Mega-Bank policy which has been reconfirmed in spades.
It is a reconfirmation of a Pattern which the Mega-Bankers have already set: Monetization (QE) to Infinity will continue, QE1, QE2, the ongoing de facto QE3/Operation Twist, and the ECB’s two very recent LTRO Injections totaling One Trillion Euros; are just five of several pieces of Evidence.
It is this phenomenon of QE to Infinity which will likely have the greatest impact on investments.
Before offering guidelines for addressing the QE to Infinity Threat and Opportunities it presents, consider the meaning and implications of QE to Infinity per Jim Willie.
“Keep in mind that whatever happens to Greece will serve as vivid preview of what is to come in Italy, Spain, and perhaps France.
“Few analysts seem to report a basic factor. The USGovt cannot afford a higher rate on borrowing costs than 0%, not now and not ever. So it will become permanent. This is the New Normal with ugly warts. There can be no Exit Strategy, since the government finances dictate no change. A normal borrowing cost would mean the debt finance cost would rival the defense budget in cost, and overshadow the Medicare cost. The USGovt deficit thus locks the 0% rate and puts the USFed in a monetary straitjacket. …Notice the extension into 2014 of the accommodative 0% rate. What a farce! What a tragedy! What a pathetic excuse of a central bank! A vicious cycle is underway where the gargantuan federal deficits require continued 0% costs to finance them, but the 0% cost of money has its own heavy effect and damaging toll.
“The 0% cost of money makes for a grotesque distortion in asset prices, all of them. Nothing is properly priced. The free money results in rising cost of everything. All categories rise inexorably within the cost structure. Wages do not, thanks to the forfeit of industry to Asia, in particular to China. So the squeeze on capital continues unabated and with ferocity. Capital is killed. …businesses …will gradually respond to higher costs (equipment, materials, fuel, shipping) by closing the businesses. Workers are cut… The destructive effect on working capital from 0% money remains the singlemost blind spot of American and Western economists. They call it stimulative, when it is the exact opposite. They are badly educated. They are compromised by their paychecks. They are dead wrong...” (emphasis added)
“Handicapping The Collapse”
Jim Willie, GoldenJackass.com, 3/9/2012
Jim Willie has correctly forecast 0% rates (or near zero, in our view) indefinitely, but he does not here explicitly say how this is achieved.
The answer is The Fed’s and other CB’s QE-to- Infinity (albeit in a variety of forms and disguises mainly involving monetizing (buying) sovereign and other debt) which is The Tool used to maintain zero rates.
It is thus this QE to Infinity (Monetary Inflation) which is responsible for the “rising costs of everything… (except) Wages.” (i.e., Price Inflation) One must only consider recent Food and Energy Price Increases.
And this Price Inflation we are already seeing. John Williams put it succinctly: “Rising prices largely accounted for February Retail Sales Gain.” (shadowstats.com, 3/13/12) And, of course, this is why Real Inflation is much higher (10.48% in the U.S., e.g.) than Bogus Official Numbers reflect (per shadowstats.com) But it is this QE-to- Infinity which also provides the Opportunity to Profit and Protect, and is the basis for our two Buy Recommendations made earlier this week in our April letter.
Recommendations and Observations
- Buy Physical Gold and Silver to be held in Personal ( not Bank Vaults) Possession, and Mining Shares with a Caveat.
- The Caveat re Mining Shares is that they are “Paper”/Digital Securities. Thus because an eventual Dollar Crash and the “squalls” leading up to it will affect all Paper/Digital Money flows, invest in solid Miners Now, but be prepared to continue to re- evaluate the “Money Flows Risk” before The Great Dollar Crash, likely coming in 2013 or 2014.
- That Impending Great Crash will lead to numerous Counter Party Failures. It is thus essential to be out of Assets with Great Counter-Party Failure Risk prior to The Great Crash.
- But Prior to that Crash, it is reasonable to Incur Counter Party Risk, provided one plans to be “out” in time (a challenging task!).
In making this Critical Timing Determination to evaluate the Financial and Economic Squalls as they come ashore. One of Deepcaster’s Ongoing Primary Goals is to help our readers make such Timing Judgments. Thus we include Forecasts for most Major Sectors in each week’s letter or Alert. Attention to The Interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably. - Given the aforementioned Real Inflation Reality, it is essential that one Aim for Total Return (Gains plus Yield) in excess of that (10.57% Real Inflation in the U.S., e.g.). Deepcaster has designed its High Yield Portfolio with that Aim. Those selections had recent Yields of 18.5%, 8.6%, 10.6%, 26%, 6.7%, 8%, 10.6%, 10% and 15.6% when added to the Portfolio. (See Notes)
- Become familiar with the ongoing Cartel ‘End Game’ which we have described in several articles including “ Gold-Freedom versus The Cartel ‘End- Game’ & A Strategy for Surmounting It (09/23/10)” and “Surmounting The Armageddon Scenario & Cartel ‘End Game’(2/26/10)” in “Articles by Deepcaster” Cache at deepcaster.com.
- As well as investing in Precious Metals, Invest in Tangible Assets in relatively Inelastic Demand. We specifically, for example, have recommended Specific Agricultural investments in recent Alerts. (See Notes)
- Consider seriously getting out of variable-rate debt and into fixed rate debt.
- Get regular Input from Independent News Sources. Several Financial and other Mainstream Media periodically Manufacture or Censor or Spin Real News.
- For the worst case, prepare to Barter. Silver coins and Canned Food are useful barter items.
In sum, Q.E. to Infinity will eventually bring Price Hyperinflation to many, but certainly not all, Sectors.
Best regards,
Deepcaster
March 16, 2012
Note 1: Deepcaster addresses the questions of Profit and Protection in light of Fiat Currency Purchasing Power Destruction and provides Guidelines in his article – “Essentials for Wealth Acquisition Acceleration” in Key Sectors found in ‘Articles by Deepcaster’ Cache.
Using such Guidelines facilitated Deepcaster’s making buy and sell recommendations resulting in remarkable profits recently if acquired and liquidated when we recommended, approximately*:
57% Profit on Agricultural Blue Chip on February 24, 2012 after just 149 days (i.e., about 140% annualized)
45% Profit on Platinum ETF on February 8, 2012 after just 42 days (i.e., about 390% annualized!)
40% Profit on March 2012 $55 GDX Calls on January 27, 2012 after just 23 days (i.e., about 635% annualized!)
34% Profit on Gold Royalty Streaming Company on December 5, 2011 after just 166 days (i.e., about 74% annualized!)
42% Profit on Volatility Index Futures ETN on October 3, 2011 after just 292 days (i.e. about 52% annualized!)
36% Profit on Double Short Euro ETF on September 7, 2011 after just 43 days (i.e. about 300% annualized!)
35% Profit on Double Long Gold ETN on August 23, 2011 after just 41 days (i.e. about 280% annualized!)
26% Profit on Double Long Gold ETN on August 17, 2011 after just 35 days (i.e. about 260% annualized!)
25% Profit on Gold Stock on August 8, 2011 after just 201 days (i.e. about 45% annualized!)
150% Profit on Gold Stock Calls on July 13, 2011 after just 56 days (i.e. about 975% annualized!)
*Past Profitable Performance is no assurance of future Profitable Performance.
Note 2: “A Great Opportunity and A Dangerous Trap; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar, U.S. T-Notes, T- Bonds, & Interest Rates” – February Letter
“The Fed doesn’t have a clue about markets or economics. They are dangerous people.
Printing money is not good for the world and will lead to more problems for the world….
“What the Federal Reserve is doing now is ruining an entire class of investors.”
Jim Rogers, Bloomberg Interview, 6/29/11
We are not so Negative about the Near-Term Prospects for Nominal Asset Price Growth in Certain Sectors as we were six months or a year ago.
That is mainly because the E.U., Mega-Banks, and the Fed, have already de facto launched a Massive Quantitative Easing 3, with more likely to come.
This QE will serve as a Major Force impelling (but not necessarily successfully) Nominal Asset Prices UP in certain Sectors, for example, for Equities.
But before one becomes too enthusiastic about the Prospects one should consider the implications of our Forecast for Nominal Assets Prices Strength in certain Sectors.
The practice of issuing Bogus (U.S. and other Key official) Inflation figures obscures the Fact that Monetary Inflation (generated mainly by reckless Q.E.) is very rapidly depreciating the purchasing Power of most Fiat Currencies – by about 11% per year in the U.S. e.g. (per shadowstats.com).
Our High Yield Portfolio is aimed at achieving Total Return in excess of Real Inflation. Stocks in that Portfolio with Recent Yields of 18.5%, 8.6%, 10.6%, 26%, 6.7%, 8%, 10.6%, 10% and 15.6% when they were added to the Portfolio.
Also important to note is that, while massive Q.E. is a Major Inflationary Force tending to pump up Prices in certain sectors, there are Powerful Deflationary forces operating as well – the depreciating Housing Markets in the U.S. and China come to mind. Real Estate in some areas in China is down over 25%, but Food prices are up 9% year over year.
The key to identifying The Great Opportunities (and Great Potential Losses) is knowing which Sectors will likely have Inflating Asset Prices and which will have Deflating ones.
Investors failing to Evaluate Inflation/Deflation Prospects on a Sector by Sector Basis will have missed Great Opportunities and fallen into a Dangerous Trap.
Deepcaster’s Letter --“A Great Opportunity and A Dangerous Trap; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar, U.S. T-Notes, T- Bonds, & Interest Rates; February Letter” -- posted in the ‘Latest Letter & Archives’ Cache at www.deepcaster.com, identifies which Sectors will likely be helped (albeit temporarily) by this Massive QE3 and which will likely be hurt, and provides Forecasts for all. And in his March Letter, “The Pause Before The Great Bull; 3 Buy Recos! Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates, March Letter”, Deepcaster makes 3 Buy Recommendations designed for Protection and Profit.
-- Posted Friday, 16 March 2012 | Digg This Article
| Source: GoldSeek.com
