“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:
*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 January 19, 2012
2.96% / 10.57% (annualized December, 2011 Rate)
U.S. Unemployment reported February 3, 2012
8.3% / 22.5%
U.S. GDP Annual Growth/Decline reported January 27, 2012
1.56% / -2.70%
U.S. M3 reported February 13, 2012 (Month of December, Y.O.Y.)
No Official Report / 3.87%
And Official Source Disinformation
continues, consider Shadowstats comments on the
January 6, 2012 release of U.S. Employment data:
“The
reported seasonally-adjusted 200,000 jobs surge in December 2011 payrolls
included a false, seasonally-adjusted gain of roughly 42,000 in the “Couriers
and Messengers” category. That gain was an artifact of the
seasonal-adjustment process and will remove itself in the January 2012
numbers.
“The
problem is that this 42,000 gain is part of a seasonal pattern that fully
reverses itself each January…”
“December
Payroll Seasonal-Adjustment Problem”
www.shadowstats.com,
John Williams, 1/6/12
Note 2: 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” 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*:
45% Profit on
Platinum ETF on February 8, 2012 after just 42 days (i.e., about 390% annualized!)
40% Profit on March 2012 $55 Dollar 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.
Note3: “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.
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