light, the Fed’s action is especially meretricious. If it weren’t
in such a hurry to juice the stock market and thereby keep the illusion of
recovery going, it might have considered extending the regulatory sequester
on bank capital for a few more quarters or even years thereby preserving a
shield for the taxpayers until it has been demonstrated by the passage of
time, not by the passing of phony stress tests, that the American banking
system is truly out of the woods.
In short, a
banking system that by the lights of the Fed was on the verge of extinction
just 28 months ago could not possibly have gotten well in the interim. In
shades of 2006, the nine survivors did report net income of $54 billion in
the year just ended, and it is these retained earnings that have purportedly
brought bank capital ratios to the pink of health. Then again, the cynic
might wonder whether the trading book and yield curve profits of 2010 might
not disappear as fast as did the mortgage origination, securitization and
trading profits of 2006-2007…
If you believe
that these massive financial conglomerates are a clear and present danger to
the American economy, you might opine that they are too big to exist, as
well. But even from a more quotidian angle unless you are in the banking
index for a trade it’s pretty easy to see that so-called banking
profits should have remained under regulatory sequester for a few more
economic seasons, at least.”
Reserve’s path of destruction”
Market Watch, 4/13/11
has two national budgets, one official, one unofficial. The official budget
is public record and hotly debated…
know about that budget. What they don't know is that there is another budget
of roughly equal heft, traditionally maintained in complete secrecy. After
the financial crash of 2008, it grew to monstrous dimensions, as the
government attempted to unfreeze the credit markets by handing out trillions
to banks and hedge funds… it eventually rivaled the
"official" budget in size — a huge roaring river of cash
flowing out of the Federal Reserve to destinations neither chosen by the
president nor reviewed by Congress, but instead handed out by fiat by
unelected Fed officials…
an act of Congress that has forced the Fed to open its books from the bailout
era, this unofficial budget is for the first time becoming at least partially
a matter of public record… The Fed sent billions in bailout aid to
banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of
Japanese car companies, more than $2 trillion in loans each to Citigroup and
Morgan Stanley, and billions more to a string of lesser millionaires and
billionaires with Cayman Islands addresses…
closely at the taxpayer money handed over to a single company that goes by a
seemingly innocuous name: Waterfall TALF Opportunity… just nine loans
totaling some $220 million, made through a Fed bailout program… But
upon closer inspection, Waterfall TALF Opportunity boasts a couple of
interesting names among its chief investors: Christy Mack and Susan Karches.
Christy is the
wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of
Peter Karches, a close friend of the Macks who served as president of Morgan
Stanley's investment-banking division. Neither woman appears to have any
serious history in business… Yet the Federal Reserve handed them both
low-interest loans of nearly a quarter of a billion dollars through a
complicated bailout program that virtually guaranteed them millions in
If you want to
learn how the shadow budget works, follow along. This is what welfare for the
rich looks like.”
Housewives of Wall Street: Why is the Federal Reserve forking over $220
million in bailout money to the wives of two Morgan Stanley bigwigs?”
U.S. dollar is losing its purchasing power at an accelerating pace…
Last night, I
heard comments on a national broadcast news program that blamed higher gasoline
prices on the economic recovery. That is nonsense and is a form of
economic propaganda suggestive of the increasing level of desperation in
political Washington. Again, the primary problem behind higher oil and
gasoline prices is the Fed’s efforts at dollar debasement, but few in
the media are willing to blame the Fed…
Though not yet
commonly recognized, there is both an intensifying double-dip recession and a
rapidly escalating inflation problem. Until such time as
financial-market expectations catch up with underlying reality, reporting
generally will continue to show higher-than-expected inflation and
weaker-than-expected economic results in the month and months ahead.”
NUMBER 362: Trade, Liquidity, Hyperinflation Watch”
print money everything will go up...and now the money printing doesn’t
go into housing because we have an oversupply of housing, but it goes into
equities and for Mr. Bernanke unfortunately into commodities. And this
is lifting the cost of living of the median household, of the typical
household in the US...Mr. Bernanke is a murderer, he’s a murderer of
the middle class and the working class.”
Bernanke is a Murderer of the Middle Class”
interview on King World News, 4/6/11
It is now widely recognized by all but the Purblind
that The Fed’s Q.E. has been The Primary Force responsible for Equities
and Commodities Markets Price Rises in the last two years (see
Deepcaster’s article: “Surmounting the Wealth Destruction
Juggernaut” -09/30/10 in the ‘Articles by Deepcaster’ Cache
Thus the price of Crude Oil is well over $100/bbl.
Couple that with a Revival of the Eurozone Sovereign Debt Crisis, increasing
Stagflation (core PPI up in March over Feb.), increasing jobless Claims,
Unresolved Massive Deficits (all of which we forecast) and you have Worsening
Financial and Economic Realities.
To cap it off, QE 2 is scheduled to end June 30
– “The Day” of Reckoning, we name it; and the Action in
several Markets has begun to anticipate this.
And there are many organizations and forces aligned
against a further QE 3.
One Major anti-QE 3 Force is the increasingly widely
held Realization that while QE 2 has brought the Mega-Banks and Wall Street
back to an artificially enabled Strong Profitability, the Middle Class and
Poor around the world have suffered greatly from rising Food and Energy
To make matters Worse, we now learn The Perfidious
private for-profit Fed is implementing Massive and Private Budgetary Outrages
at Taxpayer and Saver and Investor expense – Matt Taibbi’s on
“The Housewives of Wall Street” being a case in point.
Thus, while we do believe there will be a QE 3, we
expect it will not be named as such, and will not necessarily begin just
after QE 2 expires, unless The Honorable Ron and Rand Paul’s Forces of
Light Prevail, to take another course.
Indeed, Peter Turnville-Ince of Compass Global
Markets recently wisely observed that it is difficult to know what Real
Market-determined Market levels are, because QE Stimulus has artificially
generated them. Kudos for the Candor Turnville-Ince!
And Official Statistics are no help either, as many
For the U.S.A., consider the latest Official Bogus
Numbers versus the Real Numbers as reported by Shadowstats.com. (We continue
to provide Updated numbers in response to Readers’ Requests).
Shadowstats.com calculates Key U.S. 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
Annual U.S. Consumer Price Inflation reported
March 17, 2011
9.62% (annualized February, 2011 Rate)
U.S. Unemployment reported April
U.S. GDP Annual Growth/Decline
reported March 25, 2011
U.S. M3 reported April 10, 2011 (Month of
Williams also Provides an excellent Summary of What
to expect Near and Middle Term as quoted above. In particular, we note his
forecasts, with which we continue to concur, of dramatically
increasing Inflation and decreasing economic Activity.
Indeed, if one considers the aforementioned Real
Numbers, and not the Bogus Official Statistics or Main Stream Financial Media
Talking Heads’ Spin, one realizes that we are at The Very Threshold of
In the U.S. for example, Real Consumer Price
Inflation is over 9% (see above).
Furthermore, given ongoing Monetary Inflation (e.g.
QE 2, and, notwithstanding official Denials, a prospective QE 3 and possibly
4 and 5) Hyper-Price Inflation is probably baked into the Financial and
Markets’ Cake. This is the Unfortunate Reality.
The recent nearly Vertical Rise of the Continuous
Commodity Index (CCI) provides Objective Confirmation of our recent
Subjective Experience – Prices of Essential Commodities, Food and
Energy, have skyrocketed recently.
Indeed, the Weimar Experience provides further
confirmation of our being on the Hyperinflationary Threshold.
The Monetary Explosion in Weimar preceded the Actual
Price Explosion by a couple of years. And, we must recall, that Weimar
Hyperinflation was then followed by The Great Depression.
Another Hyperinflationary Harbinger is the
continuing swoon in the Purchasing Power of the Worlds Reserve Currency
– the U.S. Dollar, a Fiat Currency nonetheless.
And when we compare the past decades’ Stellar
performance of Gold and Silver in all Major Fiat Currencies, we begin
to realize that Voltaire’s Observation that “Paper Money returns
to its Intrinsic Value – Zero” may well reflect Ultimate
Fiat Currency Reality. And perhaps even provide… Intimations of
Zimbabwe in our Future?
And just one more consideration is relevant before
providing Guidelines for portfolio Preparation for the Coming Great
Historically, and logically, the Run-ups to
Hyperinflation are preceded by a period of Price Run-ups for Risk Assets such
as Commodities and Stock Markets.
This provides The Illusion of (a Return to)
Financial and Economic Health, just as we are seeing now. (The Quotation at
the end of this article indicates much of this Illusion is created by way of
Deception created by The Fed.)
But, inevitably, when, as a result of the preceding
Monetary Inflation, Price Inflation begins to skyrocket, that Dramatic Price
Inflation Chokes Economic Activity, leading to Economic Stagnation and then
Contraction. Voila, a Hyperinflationary Depression – “Mega-Stagflation”
to Coin a Term.
At this point, it is essential to add one further
consideration for Hyperinflation-Resistant Portfolio Construction –
Consider Energy for example. Early on in a
Hyperinflationary Run-up Energy Prices Soar because the Fed-Created (or
Eurozone created, etc.) Monetary Hyperinflation (which started the whole
process) causes the Purchasing Power of Fiat Currencies to decline (as we are
now seeing). Early on, this results in soaring Energy (and other
But as the Price Increases in Energy start to Bite,
Demand is Reduced, thus slowing Economic Activity, Energy prices are then
likely to drop suddenly and dramatically as Demand swoons.
So what Assets are not only resistant to such a
Mega-Stagflation, but also provide Profit Potential or Reckoning Day
Fortunately, there are three Assets which provide
Insulation against Hyperinflation and Substantial Profit Potential for
First and Foremost is Gold. Throughout the Process
from Monetary Inflation (QE 1, 2…3? 4?) to Price Inflation (e.g.
beginning now) to Price Hyperinflation and Depression, Gold tends to appreciate
(Caveat: But beware of “Paper Gold” and Cartel* Price
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 profitably.
Initially, in the Fiat Currency Monetary Hyperinflation
phase, Gold, as The Ultimate Money, appreciates because all Fiat
Currencies (albeit in varying Degrees) decline in Purchasing Power vis a vis
And then, as price Inflation becomes Price
Hyperinflation, Gold Soars as Fiat Currencies’ Purchasing Power Plunges.
Then, as Economic Depression Sets in (and thus when
Fiat Currencies have lost much of their value) Gold tends to Retain its value
vis a vis the damaged or Destroyed Fiat Currencies.
One other consideration relates to Gold (and other
Precious Metal) Mining Shares. Their Value tends to track Bullion more or
less, except that they are after all, and above all, Stocks.
Thus, overall Stock Market performance is likely to be a greater determinant
of their Value at certain times, than their value as actual or potential
Precious Metal producers.
Maximizing Value in Precious Metal shares (as
opposed to Bullion) is thus in large part a matter of Timing… Generally
speaking, they are better purchased near the Bottom of Equities Markets
Silver, The Poor Man’s Monetary Metal, can, in
the Hyperinflationary Process, be expected to perform similarly to Gold,
except for the fact that it is also an Industrial Metal, used, and used up,
While Gold has recently powered up to trade around
its recent all-time Nominal High around $1470ish as we write, Silver is
stronger even yet, recently trading around its 21st Century high
of over $41/oz.
But it is important to note Silver has recently been
acting more like the Monetary Metal that it is, rather than the Industrial
Metal that it also is.
The prospect of sustained Higher Oil Prices
justifiably exacerbates fears that such high prices will dampen Economic
Activity, thus dampening demand for Industrial Metals. But Silver as Safe
Haven Money has spiked UP along with Gold and Crude. Indeed, Silver prices
are spurred by a Critical and Worsening Supply Shortage of Physical.
And as we have explained elsewhere the Shortage of
Physical is so severe that there are increasing reports that those who opt to
take delivery of Physical Silver are told they will be paid cash premium of
up to 80% if only they agree not to take delivery.
Thus we have, and will continue to have, this Very
Volatile situation in the Precious Metals Arena with the Contenders being:
The Cartel vs. Economic and Financial Reality.
Any perceived diminishment of The Chaos and/or a
Major Equities Takedown will surely bring intensified Cartel Suppression
Attacks on the Precious Metals Prices.
As we earlier Forecast, we expect an even more
Vigorous Cartel Attack on Precious Metal prices to launch in the next few
We expect the next few weeks will provide a test of
The Cartel’s Price Suppression Power. See Deepcaster’s latest
Alerts in the ‘Alerts Cache’ at www.deepcaster.com for
our latest Forecasts.
In the Middle and Long Run, Gold and Silver are
likely going higher, much higher.
Caveat: but Consider that Precious Metal
Miner and Explorer shares are stocks, and thus tend to mimic overall Equities
Market Movements to a degree. In other words, an Equities Takedown would tend
to take down Precious Metals shares prices also, but Bullion would
tend to be less affected.
And, this is The Key Point, since Silver is an
Industrial Metal, we expect Silver Shares would be taken down harder
in any equities Takedown. But the Severe Silver Bullion Crunch would
tend to keep Bullion Prices elevated.
In sum, we consider Silver Bullion a
“Buy” and Silver Shares are a Buy too at the right time.
The Third Hyperinflationary Insulating Category with
Profit Potential is Agricultural Products (and certain Producers) in
Inelastic Demand. Whether in a Hyperinflation, or in a Depression, people
will buy Food first above all else.
In this Sector, there is one Extraordinary
Investment Opportunity, still a “Sleeper” Sector to some degree,
which, some would argue, is, at this time, even better than Gold and Silver.
Indeed, we are among those who agree that Gold and,
with the right timing, Silver, are Two of the Three Best Investment
Opportunities for the Next Decade.
But we must also agree that this
“Sleeper” Opportunity may at this time be the Best of All,
because there are still certain key companies in this Sector which are quite
Indeed, Deepcaster recently recommended three -- one
trading at just over $5/share and the Others at just under $2/share in his
In particular, for example, we recommended a
‘Sleeper’ Sector Industry leader, which has a huge and expanding
Asian Market and a recent P/E Ratio of under 4, and which trades under 70
cents/share (in $U.S.) and has Tremendous Appreciation Potential.
To Consider these three “Best of the
Best” Sleeper Sector Investments, read our recent Letter –
“Main Gold, Silver & ‘Sleeper’ Sector Price Movers;
‘Sleeper’ Buy Reco.; Forecasts: Gold, Silver, Equities, Crude
Oil, U.S. Dollar, and U.S. T-Notes & T-Bonds; March 2011 Letter”,
and Alert -- “Golden Green Opportunity Buy Reco.; Forecasts:
Commodities, Gold, Silver, Equities, Crude Oil, U.S. Dollar, and U.S. T-Notes
& T-Bonds” in the ‘Alerts Cache’ at www.deepcaster.com.
In sum, in the Medium and Long Run, we see the
aforementioned Equities Bearish Factors overwhelming the Bullish Ones, which
will have Severe Negative Consequences for Equities-in-General and for
certain Commodities which are in Elastic Demand.
Given this Negative Scenario Safe Havens with Great
Profit Potential are Gold, Silver (with Timing Caveats for Shares) and
Agricultural Commodities in relatively inelastic demand, and
businesses focusing on them.
Another important Guideline is that Financial and
Economic Conditions are such that we do not recommend shorting Gold
and Silver, even in advance of a likely Cartel* Takedown attempt.
Deepcaster’s recommended General Guidelines
for Preparation for The Coming Day of Reckoning and Cartel Market
Manipulation (i.e. especially in the Precious Metals Market) is:
- Buying Precious Metals on
Dips, coupled with a Willingness to Tolerate Great Price Volatility
- The Core Holdings of
Ones’ Precious Metals Position are best held in one particular
form (see our Precious Metal Recommendations) of the Physical Metals
- that Well Managed reasonably
priced Miners with Substantial Reserves be bought on Dips, and, if one
is a Trader, a portion sold near interim highs
- that a portion of One’s
Holdings be in a Dividend Paying Precious Metals Fund such as one which
we have Recommended, and
- Regarding Silver, since it is
also an Industrial Metal, it is especially vulnerable to Slowdown in
Economic Activity and (especially for the Shares) Takedowns in the
- Be alert for Opportunities to
acquire Food Producers at reasonable prices
In sum, we expect another Markets Crisis will launch
soon in 2011 and Gold, Silver and Food (and water) are the places to be.
Indeed, Gold and Silver and Essential Food Products
and Producers are the most important Means to Profit and Protect regardless
of Economic, Financial, or other Market Conditions, when preparing
one’s Portfolio for Hyperinflation.
We reiterate, finally, that, given the
aforementioned Negatives, a Crisis is likely already “baked into
the cake.” The Fed’s (and Eurozone Bankers) Price boosting via
Q.E. can not go on forever, and, in any event, Q.E. worsens the Inevitable
Crash because it serves only to pile more Debt upon already Unpayable Debt.
Moreover, the Bond Markets have already been
Signaling that Q.E. will result in increasing Inflation and Interest Rates
which will Seriously Injure the Equities Markets, and Burst Equities and
other Key Asset Bubbles.
The fact that The Bond King, Bill Gross (PIMCO) has
not only exited the long-dated U.S. Treasury Market, but is also shorting it,
should be a warning to all.
The Wise are Well-Advised to prepare for the
minutes of each Federal Open Market Committee (FOMC) meeting are released
within weeks of the meeting having occurred. The full transcript is available
only five years later. I recently started reading in depth the transcripts of
the FOMC meetings and discovered some shocking information.
the December 21, 1999, meeting. The minutes can be found here –
In the minutes
the Board unanimously accepted the accounts of the System Open Market Account:
Report of Examination of the System Open Market Account, conducted by the
Board's Division of Reserve Bank Operations and Payment Systems as of the
close of business on September 10, 1999, was accepted.”…
One would think
that there was nothing of interest to see here; just mundane approval of
accounting. But if we look at the transcript we get an entirely different
picture that shows that the Fed contemplated that there could have been fraudulent
diversion of funds or errors in accounting in the famous Exchange
Stabilization Fund (ESF) that has received so much attention from GATA as one
mechanism for manipulation of the gold market…
fundamentally and more importantly, what troubles us is how we could have
gone for so many years without scrubbing this account more vigorously. That
is something we are looking into and we are going to be revising our control
procedures -- both the audit procedures and those in our own Markets Group.
The Board's staff and our accounting function at the New York Fed have worked
out an accounting treatment to correct for both the $5 million and the $26.6
million errors. That involves reducing the accrued interest asset account by
the entire $31.6 million, with an offsetting reduction in interest income on
foreign currency investments. We will make that adjustment before the end of
the year and spread it among all the Reserve Banks…
GREENSPAN. Were it an embezzlement, prior to what period would it have
MR. FISHER. We
only know that the difference existed prior to December 1994.
GREENSPAN. It could have been any time prior to that? Is there a beginning
point, other than 1914?
MR. FISHER. The
details certainly don't exist for pre-December 1994 records, so I don't know
how we could determine the beginning point -- in 1973 or 1963 or where. Prior
to 1994, the only interest income we were receiving in that account was
coming from the BIS, the Bundesbank, and the Bank of Japan. So the source of
the income was official institutions. It was really a very simple accounting
process to bring that income in at that point; the complexities have been
introduced since that time. So, as I say, Pricewaterhouse-Coopers and our
audit function are confident in looking over the control procedures we have
had in place that it's implausible that a diversion could have occurred. But
we cannot rule it out.
* * *
What is the
solution to this accounting problem? Just fudge the accounts! They reduced
reported income to make the 31.6 million dollar problem go away. Here is a
repeat of the relevant section:
staff and our accounting function at the New York Fed have worked out an
accounting treatment to correct for both the $5 million and the $26.6 million
It is shocking
that PriceWaterhouse-Coopers should be "comfortable" that this is
not a "material event" for the purposes of disclosure. Clearly the
system is set up to deliberately deceive the public and avoid any
transparency. Full transcripts of the FOMC meetings are available only after
five years -- and what is the time limit before they destroy detailed
records? You guessed it: five years.
But there is
more deception revealed in the transcript on an entirely different topic:
Greenspan claimed that the Fed cannot recognize a bubble until after it has
burst. That is a lie as shown by another section of the transcript.
* * *
MR. PRELL: All
of this may well be stretching the point statistically, but I think it's
worth sounding a note of caution that strong productivity gains and intense
competition -- even accelerating productivity and intensifying competition --
do not by themselves ensure that there can be no step-up in inflation. Unless
supply is completely elastic, which seems unlikely in the short run, demand
can become excessive.
That, we fear,
is the current situation, with the rising stock market overriding the effects
of monetary tightening…
The Fed clearly
recognized the tech bubble and even made reference to the infamous and most
speculative South Sea Bubble. But they did not want to do anything because it
was making the whole economy expand due to the wealth effect:
speculation were occurring on a scale that wasn't lifting the overall market,
it might be of concern only for the distortions in resource allocation it
might be causing. But it has in fact been giving rise to significant gains in
household wealth and thereby contributing to the rapid growth of consumer
that the Fed could not recognize a bubble in advance. They did recognize it
and even compared it to the South Sea Bubble and they purposefully let it
shows that the Fed cannot even manage the multi-billion dollar ESF fund, so
how can they be trusted to run a multi-trillion-dollar bailout operation as
was instigated in 2008?...
Reserve acts as the supervisor and regulator of the banking system. Clearly
such breaches in fiduciary duties and accounting standards explains why the
banks they supervise can thumb their noses at any banking regulations and run
fast and loose with off-balance-sheet transactions, report falsely inflated
and often record profits coming out of the biggest recession and banking
crisis in 80 years, and pay their executives obscene bonuses.”
Douglas: Deception and cover-up at the Fed”
Preservation - Wealth Enhancement
and Geopolitical Intelligence