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“Hedge
- - a means of protection…against financial loss.” Many see hedging merely as a way to provide a portfolio with some modicum of downside protection from a major sell-off. But there are flaws with regarding hedging as merely a way to protect against loss. If an investor views hedging as merely a way to dampen market sell-offs, then, typically, “dampening” is all the “protection” one will get. With merely a “dampening” one may nonetheless experience substantial losses. Among other flaws are that hedges are sometimes costly to implement, and they themselves often entail added risk. But these flaws can be ameliorated or eliminated if one hedges for profit as well as protection. Consider the case of a sell-off which is broad based, deep and long lasting. If one has not hedged for profit in advance then one is left with significant portfolio losses which the hedging has only “dampened.” So why not hedge for profit as well as protection? As Deepcaster laid out in its May Letter entitled “Gain & Refuge From the Goldilocks Markets’ Impending Moves - - Gold, Silver, Bonds and Energy” and more recently in its July 1st Alert entitled “Impending Gold & Equities Moves Signal Profit Opportunities,” there are increasing numbers of reasons we may expect a substantial, broad, deep and possibly long lasting equities markets sell-off in certain key sectors. Recent data such as John Williams’ July 11, 2007 “Flash Update” (in his shadowstats.com) that “consistent seasonals suggest a 107,000 June jobs gain, (not 132,000)” indicate both an increasing economic slowdown and more reasons for market weakness. That is why Deepcaster has this week recommended considering a hedge designed to profit from a major markets sell-off (see Alerts Cache at www.deepcaster.com). So how does one know that the forecast sell-off is likely to be long lasting, broad and deep? One certainly cannot “know” for sure, but one can forecast that such a sell-off is probable based on the following considerations. There is much fundamental, technical and interventional evidence supporting the view that a broad based equities market sell-off is impending, as we have described in the aforementioned articles. [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.] Moreover, the interventionals suggest such a broad based sell-off is to be expected in the next few weeks. In response to a Deepcaster admirer’s question: Why would The Cartel engineer such a sell-off? Deepcaster provides a simple answer. It is because the increasingly negative fundamentals and technicals (which Deepcaster has pointed out in recent months) do not, in terms of economic and financial market realities, justify market levels of today’s magnitude. The Cartel must avoid too great a disjunction between the currently existing and negative fundamental realities and managed (and artificially high) market levels because it must preserve credibility and avoid an even greater risk (than we already have) of a financial system meltdown. Thus we expect The Cartel to take down key sectors. If this forecast sell-off is broad based, lasting and deep, then what refuge could possibly be available through a typical partial “protective” hedge? Unfortunately, it is unlikely that many traditional hedging vehicles will survive the coming Takedown, much less profit from it. Thus Deepcaster High Potential Speculator this week recommenced a play designed to profit from a Major Takedown. In the very short-term (i.e. the next few days) we expect the equities markets may go higher, with the Dow approaching or even surpassing 14,000. But Deepcaster’s trade is designed to be a medium term trade (i.e. designed to be profitable over the next two to four months). We are suggesting this trade now because we believe a swift and dramatic market drop in key sectors could come at any time. Such a Major Market Takedown might well be caused by a geopolitical event, either a real or a “false flag” (i.e. created) event. Deepcaster advises seriously considering hedging for protection and profit now.
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