Looking beneath the Misinformation and Hype and Spin
at Key Fundamentals and Technical Signals (“Deepcasting”)
is essential for Profit and Protection.
But actually acting as a contrarian in the face of
the weight of highly publicized opinion, is not always easy, but is
nonetheless necessary. Case in point, a few weeks ago we recommended putting
on a long Energy play based on our somewhat contrarian forecast that Crude
and the Energy complex would Rally, short-term. And we forecast they would
Rally notwithstanding the deluge of data which told us that the three
Economic Growth Engines, the USA, Eurozone, and China, are slowing. And Rally
they did and when the Signals said take profit, we recommended liquidation at
about a 30% profit in 54 days.
In recommending putting on the position we reasoned
that slowing Economies do not mean that Demand for Crude necessarily
decreases, just that it increases at a slower rate. Couple that with the Real
Inflation data (e.g. threshold Hyperinflationary at 9.3% in the U.S. per
shadowstats.com, and notwithstanding Economic Growth slowing), and one
realizes that Fiat Currencies around the world are losing Purchase Power vis-à-vis
Real Assets like Commodities. In other words, Prices of Real Assets are
Indeed, perhaps the most important fundamental
number, the Continuous Commodities Price Index, has increased 15%/yr over the past decade, notwithstanding the Economic
slowdown! Consider Adrian Douglas’ point:
“There are frequent claims that the U.S.
economy has entered a period of “deflation.” These claims are
totally unfounded and are false. Deflation can only be a persistent state of
general price decline. In fact, in examining price trends, the U.S. is
experiencing shocking price increases of over 15% per annum. To illustrate this, …the Continuous Commodities Index, CCI over
the past ten years.”
“Deflation – Nowhere to be Seen”
Adrian Douglas, Market Force Analysis, 7/7/12
Consider, for example, Crude Oil Price determinants.
Perhaps the most important is Monetary and Credit Inflation (courtesy of the
Central Banks) which continues to drive Price Inflation of Essential Real
Assets notwithstanding stagnating economies. While this is the most
important factor determining the Crude Price (and the price of other Real
Assets) there are four other factors which signal Crude Price moves.
2. The Fear Gauge (aka Location Spreads): to the extent that
Fear is relatively high (e.g. over the prospects of a wider Mideast War) the
premium for Brent over WTI will widen (Brent mainly supplies Europe, WTI
mainly the US).
3. Processing Spreads: i.e. the spread between Crude Prices and the
prices of oil products. Processing spreads reflect demand for oil
products versus the capacity of refineries to produce. A high processing
spread (such as in recent months) signals increasing product demand,
notwithstanding economic stagnation.
4. Forward Prices: to the extent that futures prices are higher than spot prices that
usually means the “market” “expects” high prices.
5. Open Interest (aka liquidity): the total number of long and short positions in the
markets. Relatively large open interest typically indicates large
speculative interest in the market.
While these five factors reflect the main
determinants of Crude Prices, certain of them can, coupled with
appropriate modifications, and considering other factors, be used to
determine prices in the Energy (and other Real Assets) sector(s) in general
(see Note 2 below).
Of course, in the broader markets other factors need
to be accounted for.
Consider a few examples:
- Equities typically rise
in the 24 hours before a Fed meeting.
- Historically, there is a
much higher probability of problems in the Banking sector in the month of September
than other months.
- Recent Dow Theory confirms we are in a Primary Bear
Market. The Trannies have not confirmed the Dow’s recent surge
up. Moreover, a confirmed and reconfirmed Hindenburg Omen indicates the
probability of a market crash in the next six months is substantial –
at least one in four.
And, realistically, were
it not for Overt (and Covert) QE, and the prospect/hope for more, it is
highly likely the Equities Markets would Crash, sooner rather than later.
We do not have a healthy
Economy or Markets when Equities performance is reliant mainly on QE, or the
prospect of it.
- As another example, consider the $US in light of
Interventions (of which “Jawboning” is one) such as the Draghi comment, “The ECB will do whatever it
takes… to support the Eurozone and Euro,” consequently, the $US,
and long-dated U.S. Notes and Bonds took a tumble.
But short of actually
Implementing a Solution to its woes (highly unlikely) it is unlikely
Jawboning is going to drive the Euro or Eurozone debt much higher (i.e. drive
Thus the $US is still(!) the least dirty shirt in the Fiat Currency
Laundry; thus it remains strong vis-à-vis the Euro, for now.
Ongoing Euro Weakness
(mid-term), due to Money printing (to pile more Debt on already unpayable Debt) will allow the US to avoid somewhat, for
a very few months more, the consequences of its own Fiscal Cliff and
But ongoing Money
Printing and Easy Credit also creates Price
Inflation. Indeed, Prices of Essential Commodities that get used up do not
lie about Inflation, over the mid and long term and they are already
rising as the CCI reflects!
Longer term, the
prospects for the $US look bleak because China is preparing for the Yuan to
displace the $US as the World’s Reserve Currency by entering into
bilateral Currency Deals with a variety of (soon to be former) U.S. Financial
Allies, such as Japan and Australia. Longer term this will have catastrophic
consequences for the U.S. Dollar, U.S. Economy, and Western Alliance by
causing the $US to lose its Reserve Currency status. Understandably, the
Chinese do not like the ongoing degradation of the Purchasing Power of the
$US (i.e. Inflation) occasioned by the Fed’s excessive Money Printing
and Easy Credit Policies. Thank you Mr. Private, for-Profit Fed (sarcasm
intended!). (see Note 3 below)
In sum, the foregoing can be useful for signaling probabilities but
Finally consider recent Signals regarding Gold and Silver. The Signals
below are Bullish. But this does not preclude Gold and Silver being taken
down a bit by a Cartel* (see Note 1 below) attack with Gold dropping perhaps
to $1525 and Silver to $25-26ish; however, there is an increasingly
robust floor under these Precious Metal Prices because:
1. Cartel Takedowns of The Gold and Silver Price are
regularly getting bought by Heavyweight Buyers (mainly from Asia) in the
$1570s and above level for Gold and at the $26 to $27ish level for Silver.
China and other Asian Buyers apparently have put a floor under this market
(but N.B. this would not prevent The Cartel from temporarily
running the Precious Metals down to say $1530s for Gold and $25 for Silver).
2. Another Dose of QE is likely sometime this year
– a Dose that would surely launch Gold and Silver Prices upward.
3. For the first time in a long time, Swaps Dealers
(Big Banks and Large Traders) are net long the Gold Markets. They have Strong
4. The Cartel has increasingly been unable to sustain
its Takedowns for very long.
5. The month of August has historically been a good one
for Miners’ share appreciation.
Appropriate weighting of these and related Fundamentals and Technical
Signals allows one to generate a high probability forecast for Gold and
Focusing on the foregoing, and tuning out the Misinformation, Hype,
and Spin leads to far better Investing and Trading Outcomes.
August 2, 2012
Note 1: *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
December, 2009, Special Alert containing a summary overview of Intervention
entitled “Forecasts and December, 2009 Special Alert: Profiting From
The Cartel’s Dark Interventions - III” and Deepcaster’s
July, 2010 Letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S.
Dollar & U.S. T-Notes & T-Bonds" in the ‘Alerts
Cache’ and ‘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. 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
Note 2: We
have described Crude Oil as the “Truth Teller” because it is an
Essential Commodity that gets used up. Thus its Price is very difficult to
manipulate over the mid to long term, and it therefore serves as a
fairly reliable Real Inflation indicator.
So, it is very
significant, that in spite of recent US$ strength, Crude Prices have begun to
move up off of $80/bbl resistance and have been
trading around $90. Indeed, anticipating this move UP we recommended a Long
Energy Play in early June, and we recently recommended taking a 30% profit
after just 54 days.
Looking at the Real
Inflation Numbers (e.g. 9.3% U.S. Inflation per shadowstats.com) and the
signals mentioned above helped us make this call.
Considering the Real
Inflation Numbers led us to recommend, recently, another stock with a Recent
Yield of 10.7%. And it is selling at under $10.50/share. Our High Yield
Portfolio is aimed at achieving a Total Return well in excess of Real
and other Real Numbers, plus Fundamentals, Technicals,
and Interventionals leads us to conclude that
certain other Key Sectors are about to begin Major Price Moves.
recommendations Position our Portfolios well for these Moves.
To consider them, read
our Alert, “10.7% Yield Buy Reco; Mega-Moves
Impending; Forecasts: Key Commodities incl Gold,
Silver, Crude Oil; Equities, U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, &
Interest Rates,” recently posted in the ‘Alerts Cache’ at
Note 3: Amid all the
uncertainty in the Markets and Economy there are three “Fortress
Asset” Sectors which will likely return profits regardless of Boom or
Bust, Inflation or Deflation.
One other category can serve to Protect Against Inflation – To
consider our High-Yield Stocks Portfolio with Recent Yields of 10.6%,
18.5%, 26%, 15.6%, 8%, 6.7%, 8.6%, 10%, 14.9%, 10.4%, and 15.4% when they
were added to the Portfolio; go to www.deepcaster.com and click on
‘High Yield Portfolio’.
For this and more, read Deepcaster’s
August Letter, “3 Fortress Profit Sectors & 1 Not; Forecasts: Key
Commodities: Gold, Silver, Equities, Crude Oil, U.S. Dollar/Euro, U.S.
T-Notes, T- Bonds, & Interest Rates; August Letter”, posted in
‘Latest Letter’, at deepcaster.com.
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR