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The signs of impending major moves in Gold and the equities markets are increasingly apparent. “Last month’s key data generally showed a worsening inflationary recession,” according to the June, 2007 Letter of the generally reliable shadowstats.com. Shadowstats also notes “on the inflation front, annualized CPI Inflation year-to-date April is running 4.8% to 7.4% and annual growth and SGS Ongoing M3 (a broad measure of The Fed’s money creation) has broken above 14%, rivaling levels seen before the severe 1973-1975 inflationary recession.” Deepcaster has noted beginning earlier this year that the markets were ripe for major change and that the fundamentals, technicals and interventionals reflect this. Specifically, Deepcaster noted: There now exist about $1.4 trillion in risky sub-prime mortgages that never should have been made. This of course is likely to lead to…more foreclosures and a drop in housing prices, cash-out refinancing, and housing market activity. All of which will likely lead to greatly curtailed consumer spending which, by some accounts, is 60% of the U.S. economy, which leads to…increased unemployment and underemployment and reduced U.S. worker earnings and therefore slower economic activity, leading to a greater economic slowdown than the U.S. is already experiencing. Couple these with the fact that U.S. consumer savings is a negative number (i.e. most consumers have more debt than savings) ... and U.S. government debt levels are at all time highs and increasing. U.S. budget deficits and downstream-unfunded liabilities continue to increase in the order of magnitude of some hundreds of billions & trillions of dollars, respectively. Consider that foreign governments, including especially China and Japan, own over $1 trillion of U.S. Treasury Securities and some of these have indicated an inclination to diversify their portfolios. This (but for intervention), as well as the weakening dollar, increases the risk of higher interest rates. Couple the aforementioned with low-skilled labor wage rates driving down wages for most American workers, causing further impairment of consumer spending and consequent further market weakness. This wage depression (as well as the tax burden) of course would be exacerbated if the Bush Administration’s Comprehensive Immigration Reform Bill, more accurately known as an Illegal Alien Amnesty, were to pass. It would further flood the labor market with these low-skilled laborers and their relatives and saddle all U.S. taxpayers with paying their far greater (than the savings to business resulting from paying their lower wages) medical, educational and various infrastructure costs. Even though this Bill received a setback on June 28, 2007, Open Borders advocates have promised to continue the push for some form of Illegal Alien Amnesty this Session of Congress. Robert Rector of The Heritage Foundation has recently found that each low-skilled household costs the rest of U.S. taxpayers $22,449 a year in net costs (i.e. after subtracting taxes paid by low-skilled immigrants) for education, health care, social services, and infrastructure, inter alia. Rector has also determined that the downstream costs of the proposed alien amnesty to American taxpayers would be $2.6 trillion. Most of the 25 million plus illegal aliens in the United States are low skilled (i.e. do not have a high school degree or equivalent). Couple all the foregoing with fact that real inflation is running at 9-10% annually, but Real U.S. GDP is falling, as indicated by shadowstats.com. Another name for this economic condition is “stagflation.” A Confirmed Hindenburg OmenIn addition to the foregoing indicators, as of Friday, June 22, 2007, there was a confirmed Hindenburg Omen. A Hindenburg Omen is the appearance of a specific cluster of certain technical factors that measure the condition of the equities markets. When such a Confirmed Omen occurs there is a probability of a stock market crash and the probability of a severe decline is quite high. The unique characteristic of confirmed Hindenburg Omens is that one has appeared before all of the stock market crashes of the past 22 years. Perhaps even more interesting, no major sell-offs have occurred over the past 22 years without the presence of a confirmed Hindenburg Omen. And we just got one. But what of “The Trump Card” as Deepcaster calls it, of Market Intervention? Deepcaster’s contention is that Cartel Market Intervention* has been propping up the equities markets for many months now (as long time subscribers know). It is important to note that the apparent vehicle for artificially boosting the equities markets is the Repurchase Agreement Pool. [Repurchase Agreements - - “Repos” - - are issued daily by The Fed in amounts ranging typically from $1 to $15 billion.] Until about the beginning of June, 2007, the 30-day moving average of this Repo Pool had been trending up. [*We encourage those who doubt the existence of Intervention by a Cartel of Central Bankers to read Deepcaster’s October, 2006 summary overview of the Manipulation entitled “Juiced Numbers IV: How the Government Gets the Statistics It ‘Wants,’ Markets Get Manipulated, Citizens Get Deluded, and Worse” at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious metals price manipulations. Virtually all of the evidence for manipulation has been gleaned from publicly available records.] But since the beginning of June the Repo Pool Numbers moving average has shown a flattening and, indeed, a slight downturn. Therefore, this indicator of Market Intervention may reflect that the Intervenors are willing to allow (or, indeed, to “encourage”) the equities markets to decline soon. Another indicator of a possible major equities markets decline is that The Cartel of Intervenors has now been provided with (or has helped create) a number of plausible technical pretexts (e.g. The Hindenburg Omen) that would allow a market sell-off to proceed. It is quite apparent The Cartel likes this kind of technical “cover” to most effectively implement its interventional policies. Even so, although The Cartel of Central Bankers has tremendous power (via its panoply of Derivatives and Repurchase Agreements) to move the key markets, it is not all-powerful. Deepcaster has already written about vulnerability of the Intervenors - - particularly in the natural gas market in the near term and in the silver market in the long term, for example. When the fundamentals strongly impel a particular market in a particular direction and more and more derivatives are required (as they have been in recent months) to move the market in the desired (in the opinion of The Cartel) direction, The Cartel is pushed to make concessions to Market Realities. Today, Market Realities are increasingly powerful. Equities markets are particularly vulnerable because of (temporarily) rising long-term interest rates and the ongoing (and for some time to come) sub-prime housing crisis, which is starting to affect other markets. For example, the recent Bear-Stearns hedge fund debacle is but one item of evidence that problems in these areas, when coupled with high petroleum prices, are causing very serious systemic pressures. Given all of the foregoing, the fundamental and technical pressures on The Cartel to “allow” a significant Equities Markets sell-off are greater than they have been in a number of years. And given the leveling off and slight reduction in the Repo Pool moving average recently, Deepcaster forecasts that The Cartel is going to allow, or even “encourage,” the equities markets to drop soon. GoldSo what of Gold? Deepcaster has made the case recently (and thus far this case is in the process of being positively confirmed) that The Cartel links the Gold Sector and Equities Sectors. That is to say, when the U.S. equities markets fall Gold is pressured by The Cartel to move also. Thus Deepcaster forecasts major moves in the Gold and the equities markets and indicates the likely timing of those moves in its latest Alert posted at www.deepcaster.com. The fundamentals, technicals, and interventionals all increasingly indicate Major Market Moves ahead.
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