-- Published: Friday, 1 May 2015 | Print | Disqus
“I told them the real 2014 deficit was $5 trillion, not the $500 billion or $300 billion or whatever it was announced to be this year. Almost all the liabilities of the government are being kept off the books by bogus accounting. … all the spending on defense, repairing the roads, paying for the Supreme Court Justice salaries, Social Security, Medicare, Medicaid, welfare, everything, and take all those expenditures into the future, and compare that to all the taxes that are projected to come in, then the difference is $210 trillion. That is the fiscal gap. That is our true debt.”
Lawrence Kotlikoff (economist, in testimony before the US Senate, a Professor of Economics at Boston University)
Unpayable Debts in the U.S.A., Eurozone, China & Japan virtually guarantee Mega-Moves in Key Sectors are coming.
“Financial assets now represent over 82% of the net worth of both households and US non-financial corporations (data: Federal Reserve Z.1 Flow of Funds). Except for periods where total net worth had itself retreated (for example, 2008-2010), the concentration of private net worth on financial assets, rather than real assets or productive capital, has reached the highest extreme in history in recent years. In our view, this is just temporarily overvalued paper masquerading as something durable. The previous extreme (again, outside of periods where net worth itself had retreated) was, not surprisingly, in Q1, immediately prior to The Tech Wreck.
— John Hussmann, 04/21/2015
Yes, indeed “Temporarily Overvalued Paper” accurately describes many “Markets.” And that which is Overvalued does not stay overvalued! Thus Mega-Moves are Impending and those who are prepared will Profit, and those unprepared will Suffer.
Recent below-expectation (except by Deepcaster and a few others) U.S. Retail Sales, Housing Starts, Business Equipment Sales, Jobs Reports and now GDP, among other indicators, show that the U.S. Economy is not recovering (as Deepcaster and a few others have been documenting for Months), despite the Happy Talk in the Main Stream Media (see Note 1, Shadowstats for the Real Numbers). Indeed, QE has mainly helped only The Private-for-Profit Fed’s Clients/Shareholders, the Mega-Banks, as well as creating a variety of Massive Asset Bubbles, including in Equities.
And Economies and Markets elsewhere reflect the same Economic Malaise and Bogus Official Numbers. The Equities Market in Indonesia is down over 7% in the last 3 days, as we write.
One Major Consequence of this Congeries of Bearish Real Data is that The Fed will be likely constrained to Keep Rates Lower Longer. Lower Rates Longer is only one of several Factors which signal a Weaker $US in the Months ahead.
No surprise to us as we wrote on April 29 when the $US was down a Massive 125 BPS to 94.80ish. (But, very short-term, we expect a Bounce.)
Indeed, we and others have documented the Reasons the $US is on the way to losing its Status as World’s Reserve Currency — a Mega Event to be sure.
We reiterate China’s Action in establishing an Investment Bank and New Development Bank and an Alternative Clearing System to the Western Bankers’ SWIFT System (Chinese International Payments System–CIPS), and its importing Massive Amounts of Physical Gold which we all can expect will serve to underpin a Gold-Backed Yuan as the next World’s Reserve Currency, and indeed for a Chinese/BRICS-led Financial System.
Of Course, the IMF has other ideas, namely to create a new Global Currency based on IMF Special Drawing Rights and controlled by the Globalist IMF and Bank for International Settlements.
Indeed, these Globalists (i.e., those opposed to National Sovereignty) have admitted as much in publications like the Rothschild’s controlled “The Economist” and articles like “Get Ready for The Phoenix”.
So much for National Sovereignty if IMF SDRs are allowed to become the World’s Reserve Currency.
Candidly, while the evidence is mounting that the $US will lose its World Reserve Currency Status — The Great Impending Mega-Move — we note that IMF SDRs would be yet another Fiat Currency.
And if, as we expect, the Gold-Backed Yuan emerges as The Competitor for World Reserve Currency we have little Doubt which will prevail.
Thus the Question is not whether the Chinese will de-peg Yuan from its Trading Range Tie to the $US, but when — yet another Impending Mega-Move, one which will not only mortally wound the U.S. Dollar, but als0 greatly injure U.S. and Western-Focused Equities Markets — a True Mega-Shift in Political as well as Economic Power— Mega-Events with Concurrent Mega-Moves, for sure.
And there is recent Precedent. Consider that when it was to their Advantage, The Swiss de-pegged from the Euro, without Warning, and, indeed, the De-Peg occurred only a few hours after the Swiss National Bank issued contrary Signals.
Moreover, considering the aforementioned Real Numbers, the U.S. is already in recession.
When this fact of a U.S. Recession (i.e., More Negative Economic and Market Data) becomes widely acknowledged, the present slow flight away from the U.S. Dollar will soon become a Rout. And that will create a Panic far beyond the Currency Sector. The run on the $US is probably weeks or a very few months off, but it could begin at any time.
And after that, U.S. Treasuries will take a Big Hit also.
Short-term, (next few weeks) however, U.S. Treasuries have been on a Strengthening Trajectory (See our recent Buy Recommendation) notwithstanding the recent weakness resulting from the Chinese Stimulus (lessening the Reserve Requirement Ratio [RRR] for the Banks), Weak GDP Numbers, and an ample supply of relatively high yielding corporate bonds and on April 30 – May 1 Rout in the German and other Eurozone Bond Markets resulting in Higher Yields, thus making them less uncompetitive with Higher U.S. Bond Yields.
Moreover, the Bubbles created by the Central Banks Money Wars are Huge — consider that Total Credit Risk in the U.S. is at Record Highs, i.e., higher than in Pre-Crash 2007.
Worldwide, there is $57 Trillion more Debt than 2007! A Massive Unpayable Debt Bubble Waiting to Pop, yet another Impending Mega-Move.
Yes, indeed, Another “Crisis will Hit” — the only questions are “When?” and “In which Sector First?”
No one can know the Exact Date The Crash Starts — it could be Triggered at any time by a “Black Swan” Event.
But one can evaluate Probabilities and make forecasts based on them as Deepcaster does and successfully did before the 2008 Crash (Note 2). And consider how Deepcaster’s Focus on Interventionals as well as Fundamentals and Technicals has facilitated forecasting the 2008 Crash as well as recent Profitable Positions (Note 3).
In the next few months, we expect the International Economic Contraction will worsen through 2015 and into 2016. For example, Japan’s QE is not helping — Japanese Retail Sales are down 9.7% Year-On-Year.
All the foregoing means that U.S. Treasuries should strengthen even more but only short- to medium term (in the next very few months) with the 10 Year Yield possibly eventually spiking down to 1.5%.
But after the $US Crash, U.S. Treasuries are the Next to Fall (and their yields skyrocket), ending in “a very bad way” according to Investment Legend, Julian Robertson, with whom Deepcaster agrees. Excess Debt and Fed and other Central Banks’ Monetary inflation will have taken their toll. At some point after that (2016?) the Chinese will likely de-peg the Yuan from its $US trading range, and the Yuan (Gold- and BRICS-backed!) will then be the World’s Reserve Currency. We are Depressed by this prospect of that Authoritarian Government controlling The Reserve Currency, but is it better to know the Reality so one can cope, than to remain in Denial.
We reiterate that, because the Real U.S. Economic Data are Worsening, The Fed will likely not raise rates until much later this year or early next, unless Market conditions force them to, which is possible, but just not likely.
Indeed, we reiterate our earlier Forecast that, later this year or early next, The Fed will initiate another Round of QE to Bolster its Shareholder/Client Banks and Equities Values.
But while more QE will likely cause Equities to temporarily rebound, it also will weaken the $US even more as the Currency Wars intensify.
A Key Fundamental Problem is too much Debt worldwide (and especially in the U.S., Eurozone and Japan) — We reiterate, Global Debt is up $57 Trillion! since 2007, just before the Financial Crisis. And China’s Debt has quadrupled since 2007! with much of that money having gone into now obsolete infrastructure.
Eventually, Great Profits will be made if one shorts the $US and U.S. Treasuries at the right time. (Not yet!) We aim to forecast that Timing of the $US and Treasuries Bubble Bursting and to make Buy Recommendations. Stay tuned.
Going forward, consider as well, the ongoing increasing use of currencies other than the $US in International Transactions (see above) could spell a Sooner Doom for the $US (as World Reserve Currency, especially if increased significant Volumes of Crude Oil begin to be traded for Non $US Currencies.
Very long-term and when the $US Dramatically Tanks, the Precious Metals will Soar to Record Highs and Western Equities Markets Crash. This scenario could possibly launch at any time (but is probably still at least a few months away), on Black Swan Geopolitical Events. This $US Crash will shake Economies and Markets to the core, as the Economy transitions to a Yuan/BRICS based Gold-Backed World Reserve Currency. Looking long-term, the Swiss have recently already established a Chinese Yuan/Swiss Franc swap facility in Switzerland. Ominous for the $US long-term.
Couple all the aforementioned with the fact that Nominal Economic Growth Worldwide is Negative due to Economic Deflation — which creates a Disaster for Debt Repayment — and the Mess the Central Bankers have created looks increasingly likely to create a Nightmare including a Massive Equities Market Crash.
“Stocks rose Thursday, April 23rd. The S&P 500 hit a new all-time high intraday Thursday, and the NASDAQ Composite finally hit a new all-time high, exceeding its previous high of 5,048.62 back in March 2000. It only took a quadrupling of the money supply and hyperinflation that has lifted the cost of almost everything 5 to 10 times what it was 15 years ago for that index to get back to breakeven. If the same inflation affected the NASDAQ, it should be around 50,000 now, not 5,000. In real dollars, this index is lagging severely despite the nominal price achievement.” [Emphasis added.]
— Robert McHugh, 04/23/2015
In other words, the Central Bankers Monetary Hyperinflation (has and) is reducing the Purchasing Power of Fiat Currencies.
Ultimately, one Major Question is whether International Monetary Fund Special Depository Receipts are going to be the basis of the World’s Next Reserve Currency or the Gold- and Silver-backed Chinese Yuan. Since no Fiat Currency in World History has ever survived, the Answer is clear.
In sum, consider our Overview: we have increasing Economic Deflation which has been created primarily by years of Fed-led and other Central Bank Monetary Inflation. Even China recently opted for easier credit and Singapore and Sweden joined The Currency Wars via Devaluation, and Switzerland has recently indicated it will do the same!
These years of excesses of Monetary Inflation (primarily intended to protect the profits of The Fed’s and other Mega-Bank Shareholders/Clients) i.e. QE and Excess Credit, have been Capital Destructive (the more printed the less each Unit is Worth in Purchasing Power terms) thus we see the consequence – Economic Deflation around the World with the Middle Class and Working Poor and Savers and Retirees horribly squeezed.
And worse, the repeated rounds of Monetary Inflation will eventually lead to Hyper-Price Inflation and already have for Middle Class U. S. Citizens and Citizens elsewhere who have to pay increasing prices for Housing, Food and Medical Care. Result: Impending Stagflation, the worst of both worlds.
As far as Opportunities provided by the ongoing competitive Central Banks Monetary Inflation, i.e., Debasement, continuing and a possible Grexit and/or other nation/s exiting, plus more Eurozone QE, the Prospects for continuation of the Precious Metals thus-far-halting Launch up are excellent.
But the Cartel Precious Metals Price Suppression Efforts continue also and thus, The Launch will be accompanied by Takedowns.
But we reiterate, the prospect for lower rates for longer (and as a consequence of Weaker U.S. Economic Data) were and are a perfect recipe for Gold and Silver to move dramatically higher in $US and other Fiat Currencies terms. Just do not expect a Smooth Launch Up.
Best regards,
Deepcaster
May 1, 2015
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 April 17, 2015
-0.07% / 7.51%
U.S. Unemployment reported April 3, 2015
5.57% / 23.1%
U.S. GDP Annual Growth/Decline reported April 29, 2015
2.99% / -1.31%
U.S. M3 reported April 3, 2015 (Month of March, Y.O.Y.)
No Official Report / 5.59% (i.e., total M3 Now at $16.605 Trillion!)
Note 2: We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s July, 2014 Letter entitled "Profit, Protection, Despite Cartel Intervention" in the ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, for information on precious metals price manipulation, and manipulation in other Markets. 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.” 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.
Note 3: Our attention to Key Timing Signals and Interventionals and accurate statistics has facilitated Recommendations which have performed well lately. Consider our profits taken in recent months in our Speculative and Fortress Assets Portfolios*
• 60% Profit on a Telecommunications Company on March 11, 2015 after just over 3 years (i.e., about 20% Annualized)
• 45% Profit on a Currency Double Short ETF on January 22, 2015 after just 9 months (i.e., about 59% Annualized)
• 23% Profit on a leveraged ETN on the Volatility Index on January 6, 2015 after just 119 days (i.e., about 70% Annualized)
• 85% Profit on a REIT on December 31, 2014 after just three years (i.e., about 25% Annualized)
• 105% Profit on a leveraged ETN on the Volatility Index on October 15, 2014 after just 36 days (i.e., about 1090% Annualized)
• 70% Profit on Russell 2000 Small Cap Sector Put on October 10, 2014 after just 2 days (i.e., about 12,275% Annualized)
• 70% Profit on Russell 2000 Small Cap Sector Put on October 1, 2014 after just 8 days (i.e., about 3215% Annualized)
*Past Profitable Performance is no assurance of future Profitable Performance.
DEEPCASTER LLC
www.deepcaster.com
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