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Key Market-Drivers Going Forward



-- Posted Friday, 1 March 2013 | | Disqus

 “Currently, I see a Storm coming, maybe Bigger than 2008-2010.”

Stanley Druckenmiller, Legendary Hedge Fund Manager, Bloomberg, 03/01/2013

Likely one Major Cause of the coming “Bigger” Storm is revealed in the following exchange.

“Jamie Dimon, the chief executive officer of JPMorgan Chase & Co, said banks are accumulating more capital than they need as regulators push lenders to build equity.

"’I don't think it's just JPMorgan,’ Dimon said yesterday at a conference discussing the New York-based company, which disclosed plans to eliminate as many as 19,000 jobs. ’I think all banks will have too much capital in two and a half years. And they're not going to know what to do with it.’

“Dimon, 56, has said excessive regulation could impede growth as international authorities and the Federal Reserve push banks to guard capital to better withstand another financial crisis. JPMorgan halted buybacks under pressure from regulators last year after uncovering a trading loss at its chief investment office that swelled to more than $6.2 billion.

“The CEO, responding to analysts' questions, dismissed the argument that clients may switch to banks that have the highest capital ratios. Zurich-based UBS AG is targeting a Basel III common-equity ratio equal to 13 percent of risk-weighted assets.

"’What I hear UBS saying in their presentations is, “If I'm an affluent customer, I'll feel a lot better about going to UBS knowing that they have a 13 percent capital ratio than another big bank with a 10 percent ratio,"’ said Mike Mayo, an analyst at CLSA Ltd. ‘Do you agree with that or disagree?’

“Dimon countered, ‘So you would go to UBS rather than JPMorgan?’

"’I didn't say that,’ Mayo responded. ‘I said that was their argument.’

"’That's why I'm richer than you,’ Dimon said, drawing laughter from the audience.”

          Bloomberg, 02/27/2013

A Key Market Driver going forward is Increasing Systemic Risk resulting from over-levered Mega-Banks. The arrogant Mega Bank/s receive massive Bailouts via Money Printing and Bond Buying and Super-low Interest Rates for Funding. Yet they complain about over-regulation. And JPMorgan is laying off 19,000 employees to boot and other Banks are implementing layoffs as well.

 

Yet according to Dimon, they will have too much capital. How so?

 

U.S. Accounting rules allow them to net off derivatives assets and liabilities and just report a Net figure.

 

The clear implication is that the Mega-Banks are much more highly leveraged than they admit and therefore a threat to Financial System Stability just as they were in 2008.

 

This Risk is but one Key Factor to consider going forward.

 

There is a Great Advantage to knowing the Key Factors influencing the Macro-Environment Going Forward. (For example, neither of the 2 Most Important Deadlines the U.S. faces this year is Sequestration.) That Knowledge Reveals High Probability Opportunities and Pitfalls that might otherwise be missed. Therefore consider shadowstats’ conclusions which reveal other Key Factors:

 

“The general outlook for ongoing and deepening economic and systemic-solvency crises is unchanged.  Also unchanged is the outlook for a looming, heavy sell-off in the U.S. dollar and for an ensuing inflation crisis.

 

“Major economic reporting for January 2013 has been suggestive of month-to-month stagnation or contraction, and of year-to-year slowing or contraction, in ongoing business activity.

 

“Consumer activity continues to be restricted by structural impairments to consumer liquidity.

 

“Growth in January housing starts turned negative for the month, with annual growth slowing sharply.

 

With Ongoing Systemic-Solvency and Economic Crises, QE3 Likely Will Be Expanded.  Based on comments in the February 20th release of minutes of the last Federal Open Market Committee (FOMC) meeting, the markets were disrupted by suggestions that the Federal Reserve might reduce its asset purchases in QE3.  While some concerns expressed as to QE3’s negative impacts were legitimate, the published comments deliberately ran contrary to the underlying reality of deteriorating economic and systemic problems, and of the negative impact of low interest rates on the economy.  Artificially-low interest rates destroy interest income and impair bank lending.  The odds of the Fed pulling back on QE3 in the year ahead are close to nil, given the deepening and ongoing economic and systemic-solvency crises.

 

“More likely, the publication of the market-disruptive comments in the Fed’s minutes was aimed at firming-up the market for the U.S. dollar, and at softening-up the gold market.  This is in advance of likely market turmoil in the month(s) ahead from the still-explosive U.S. budget-deficit and long-range sovereign-solvency crises, and from related issues tied to raising the debt-ceiling on U.S. Treasury borrowings.

“The Fed is extremely sensitive to publishing comments that could impact the markets, so any such comments that have major market impact almost have to be viewed as deliberate.

“Nonetheless, in response to the systemic-solvency crisis and panic of September 2008, the Federal Reserve and the federal government committed themselves to saving the domestic financial system at any cost.  All the actions taken then and since have pushed the crises into the future somewhat, nothing more.  As the crises move now towards renewed climax, Fed reaction most likely will be even greater easing and monetization of Treasury debt, not a withdrawal from QE3.  Given the choice between inflation and dollar-debasement, or imminent systemic collapse, the Fed already has selected inflation and dollar-debasement.  As to hyperinflation risks, they are too far into the future (next year?) to worry about.”

“January CPI, Real Retail Sales and Earnings, Existing Home Sales, Fed Easing, Gold and U.S. Dollar, no. 505”
John Williams, shadowstats.com, 2/22/2013

 

Whether one “likes” Shadowstats and Druckenmiller’s Forecasts or not (and the conclusions are disturbing to us), we are compelled to conclude that the Shadowstats and Druckenmiller’s Forecasts are Highly Probable.

 

And one factor in Shadowstats’ Forecast will be especially significant – Shadowstats (correct thus far) Forecast for Increasing Inflation leading to Hyperinflation (thus the U.S. is already Threshold Hyperinflationary at 9.24% per year – see Note 1 below).

 

Deepcaster has explained how Inflation in some Sectors and Deflation in others, coupled with Bogus Official Statistics, obscures the Reality of an Increasing net Inflationary Environment (See Deepcasters’ Article, "Gain from Power Elite’s Key Sector Price Inflation," 1/11/2013 in the Articles Cache at deepcaster.com) leading to Hyperinflation and Economic Stagnation.

 

So the Key is to Invest and Trade in light of the Causes and Consequences of Impending Hyperstagflation in Key Sectors.

 

So what are they? And when?

 

For one, continuing Central Bank QE means ever-increasing liquidity. Over the short to medium term this liquidity pumps up Asset Prices, including Equities prices, but also especially Food and Fuel Price Increases, as we are already seeing.

 

But at some point, consumers are spending an even greater proportion of their limited income on Food and Fuel which stifles consumer demand and thus stifles economic growth.  We already approach that Tipping Point.

 

One other Factor is Political and Economic Developments. In the U.S. for example, the ongoing dispute about U.S. Sequestration and the Debt Ceiling serves as an increasingly Bearish influence on the Markets.

 

But perhaps the Deadline with the most potential for disruption is March 27th when the continuing Resolution that funds U.S. Government Discretionary Operations runs out. Either that gets resolved or it’s lights out.

 

When Sequestration, and Continuing Resolution, and Debt Ceiling problems, are resolved (however temporarily or inadequately – note we did not say “solved”) and if there are no more major negative exogenous events, then The Fed-provided liquidity should boost Equities Markets to all-time highs. But, we reiterate, this liquidity also generates intolerably high and increasing food and energy price Inflation, and indeed already has, with Real U.S. CPI already at Threshold Hyperinflationary 9.24% per shadowstats.com.

 

With consumers 70% of the U.S. Economy, this constraint, coupled with unpayable Sovereign Debt will further dampen down Economic Growth. GDP in the U.S. is already a negative 2.20% (shadowstats.com). Consequently, the constrained Earnings coupled with Stagflation will Cause a Black Swan Development in the Equities Markets.

 

A similar situation also exists in the Eurozone and Japan. Thus it is not surprising to see all three – the U.S., Eurozone, and Japan, in an intensifying race to devalue their currencies in order to artificially inflate their Economies via Monetary Inflation.

 

But as the former Deutsche Bank Chief Kurt Richebacher (RIP) pointed out, Asset Price inflation caused by Monetary Inflation rather than Savings and Investment is Unhealthy, creates Asset Bubbles, and is doomed to Fail. The Greenspan Fed’s Real Estate Bubble is a case in point.

 

This ongoing Competitive Devaluation is partly a response to the over indebtedness of these three Sovereigns. And it is partly a response to the fact that all three have contracting economies, even though the Mainstream Media has been loath to report this fact.

 

But, taken together all three of these Developed Economies are 53% of Global GDP.

 

Further, much of the Emerging Market Economies’ Economic Health depends on exporting to the Developed Economies. The Ensuing contractions and Inflation will affect the entire Globe. Hyperinflation and Economic Stagnation – Hyper-Stagflation – will have arrived.

 

Deepcaster’s March Letter describes how this scenario is likely to play out and the Opportunities for Profit and Wealth Protection these developments provide.

 

Worth considering is Simon Black’s Historical Reminder of how the French government’s past commitment to Monetary Inflation played out.

 

“By 1789, a lot of French people were starving. Their economy had long since deteriorated into a weak, pitiful shell. Decades of unsustainable spending had left the French treasury depleted. The currency was being rapidly debased. Food was scarce, and expensive.

 

“Along the way, the government tried an experiment: issuing a form of paper money.

 

“Within a few years, hyperinflation had taken hold in France.

 

“…the French government decided to fix this problem by printing even more money…

 

“When these measures also failed, the French government imposed every control in the book-- price controls, capital controls, information controls, people controls. They confiscated lands, they filled the prisons, they waged genocide against their own people.

“Ben Bernanke, a man who has expanded the Federal Reserve balance sheet by nearly 300% during his tenure as central banker, just wrapped up Congressional testimony downplaying the risks of his own money printing:

‘We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery...’

“It's also quite interesting that the Federal Reserve Chairman is discussing the 'stronger' economy, especially when by the government's own numbers, US GDP contracted in the 4th quarter of 2012. Meanwhile the price of everything from food to fuel keeps getting higher.

“Simultaneously, politicians in the US are racing to avoid imminent 'sequestration' budget cuts. They've created a problem caused by excess spending, and their solution is to ensure they can keep spending.

“The French were in the same boat in the 18th century. During the time of Louis XV, no one could imagine how French society could possibly function if they cut the welfare system or defense budget. So they kept spending... kept going into debt... and kept debasing the currency.

“We know what happened next.

“The US already must borrow money just to pay interest on the money they've already borrowed. The political elite is dangerously out of touch. This time is not different. Assuming otherwise is really dangerous.”

 

“Trust me, this time is different…”

Simon Black, SovereignMan.com, 2/26/2013

 

The French Revolution Analogy is perhaps more appropriate than we would wish to believe.

 

Best regards,

 

Deepcaster

March 1, 2013

 

Note 1: Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider

 

Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)

 

Annual U.S. Consumer Price Inflation reported February 21, 2013
1.59%     /     9.24% 

U.S. Unemployment reported February 1, 2012
7.9%     /     23.0%

U.S. GDP Annual Growth/Decline reported February 28, 2013
1.61%        /     -2.20% (i.e., a Negative 2.2%)

U.S. M3 reported February 17, 2013 (Month of January, Y.O.Y.)
No Official Report     /    4.59%

 

DEEPCASTER LLC

www.deepcaster.com

DEEPCASTER FORTRESS ASSETS LETTER

DEEPCASTER HIGH POTENTIAL SPECULATOR

Wealth Preservation Wealth Enhancement


-- Posted Friday, 1 March 2013 | Digg This Article | Source: GoldSeek.com

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