Our Crisis = Great Danger + Great Opportunity

by DeepCaster LLC, deepcaster.com | January 18, 2008

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In the week of January 14 – 18, 2008 we saw the price of both Gold and Crude Oil taken down significantly.

Once again it appears that The Cartel* Intervenors trumped The Fundamentals and some Technical indicators.

But for how much longer, if at all, can The Fed-led Cartel* defy The Frightening Fundamentals?

So let’s take a step back to take another look at The Frightening Fundamentals and The Interventional Regime, and to offer some guidelines regarding coping with that Regime, and positioning ourselves to profit.

Nearly all the Mainstream Financial Media (and too many investors) are in denial or are disingenuous about the magnitude of the Financial Crisis facing us.

But with this Crisis, while there is great danger, there is also great opportunity.

Just this January, 2008, more unpleasant facts demonstrating the severity of The Crisis came to light.

The U.S. Government’s total downstream liabilities and unfunded commitments (including Medicare, Social Security, Public Debt, Pensions, etc.) have now exceeded $53 trillion dollars (according to David Walker, the U.S. Comptroller General and Head of the Government Accountability Office). $53 trillion translates into a de facto debt of $455,000 for every American household.

Coping with this debt is going to make American taxpaying consumers very ill. Considering that when the U.S. consumer becomes ill, the rest of the international financial system is likely to sicken also, not many are likely to be spared the pain. (Of course, the private U.S. Federal Reserve Bankers are likely to be spared the pain, because they have an exclusive license to print currency.)

If unchecked, the total U.S. Government liabilities and unfunded commitments will grow by $2 to $3 trillion every year.

“Within the next 5 years, if nothing is done, this country faces a serious economic catastrophe because it is addicted to debt” Comptroller General Walker told the Birmingham, Alabama Rotary Club on Wednesday, January 9, 2008.

Indeed, recently released data reflect this increasingly threatening reality.

Current U.S. Federal debt was up $80 billion just for the month of December, 2007, bringing total U.S. debt to $9.229 trillion on December, 31, 2007**.

As well, The Fed’s reckless money creation is still massively increasing inflationary pressures. At the end of December, 2007, annualized M3 growth was at about 15.2%**, for a doubling time of about five years. 

Finally, the December numbers show that “Holiday Shopping Collapsed” according to shadowstats.com - - “net of revisions, December was down .73%…”

Yet in spite of all the foregoing, The Cartel was able to take down the prices of Gold and Crude Oil in the week ending January 18, 2008, as Deepcaster had forecast the week before that they would. Perhaps the following observation was true one more time: since The Cartel’s derivatives positions** makes it the “Biggest Player” in most markets, it is still able to control those markets.

BUT, given the aforementioned Frightening Fundamentals, for how much longer? To answer that question requires considering the Fed’s “Solutions” to these Fundamental problems.

Deepcaster has long warned of the unhealthy character of the Fed-engineered “Solutions” to our financial system crisis. The Fed’s Solution, or as we describe it “’The Cure’ which is Worse than The Disease,” is to simply make more “borrowed liquidity” available, rather than “earned liquidity.” See Deepcaster’s January, 2008 Letter for a discussion of the distinction between “borrowed” and “earned” liquidity.

The Fed’s provision of ever more “borrowed liquidity” worsens the systemic problem rather than alleviating it.

Indeed, not only Deepcaster but also perhaps the most noted “Fed-watcher” alive today, Ms. Anna Schwartz of the National Bureau of Economic Research in New York, has pointed the finger directly at The Fed for creating this crisis. Ms. Schwartz puts the blame right where it belongs, on Bernanke-Greenspan Fed and their “error” in holding rates at 1% from 2003 to June, 2004 long after the dot.com bubble collapse had runs its course:

“It is clear that monetary policy was too accommodative. Rates of 1% were bound to encourage all kinds of risky behavior….“the new group at The Fed is not equal to the problem it faces…they need to speak frankly to the market and acknowledge how bad the problems are and acknowledge their own failures in letting this happen…this is what is needed to restore confidence…there would never have been a subprime mortgage crisis if The Fed had been alert…this is something Alan Greenspan must answer for…” ** shadowstats.com

Anna Schwartz is no ordinary critic. She was joint author, along with Nobel Laureate Milton Friedman, of “A Monetary History of the United States.” That book properly blamed The Great Depression on The Fed, which refused to stimulate the economy through open market operations such as buying bonds. As a result, Banks continued to collapse and the resulting bank and business collapses and 25% unemployment caused extraordinary suffering for years. Indeed, The Fed raised the discount rate twice late in 1931 while international finance was collapsing - - moves which exacerbated the crisis.

In sum, Deepcaster and eminent commentator Schwartz are in agreement about The Fed’s being The Primary Cause of our developing Crisis.

But it is only Deepcaster and a very few others who have explicitly indicated that it is likely The Fed leadership not only knows, but also is and has been complicitous in taking the U.S. economy and financial system down the path to this Crisis.

And they are complicitous in Deepcaster’s view because they likely have an “End Game” which is certainly not in the interest of the American people, nor of investors and consumers everywhere, who rely on the strength of (or suffer from its weakness of) the U.S. economy.

Perhaps the strongest clue regarding this “End Game” is the evidence that for years now The Fed-led Cartel** of Central Bankers and associated agencies has quite apparently been manipulating a wide variety of markets and data, including not just the Gold and Silver market but the Equities and Strategic Commodities markets as well as the CPI, GDP and money supply data.

Those who are skeptical should review Deepcaster’s January, 2008 article “Market Intervention, Data Manipulation, Increasing Risks, The Cartel and Latest Forecast.” 

The weight of the evidence is that The Fed will use its massive Market Interventional Machinery to take us down the rocky road to their “End Game” which we describe in detail in our August, 2006 Alert “Massive Financial-Geopolitical Scheme Not Reported by Media” as well as our June, 2007 Letter entitled “Profiting From the Push to Denationalize Currencies and Deconstruct Nations,” all available at www.deepcaster.com.

Central to “progressing” toward that ‘End Game” is (from The Cartel’s perspective) periodically taking down the price of the Monetary Metals, Gold and Silver, so they will not compete with The Cartel’s Treasury Securities and Fiat Currencies, as stores and measures of value. For example, one week ago Deepcaster forecast “Major Gold & Crude Oil Moves Imminent” and correctly forecast both moves would be down, based on Interventional considerations.

Fortunately, Deepcaster has laid out a “Strategy for Profiting from Cartel Intervention in Gold, Silver, Crude Oil and Other Tangible Assets Markets” (see Alert for week ending 12/23/07) including a list of “junior” Precious Metals companies with large reserves available in the “Alerts Cache” at www.deepcaster.com. The following “Guidelines for Protection and Profit” in Precious Metals and Strategic Commodities are central to that Strategy, and are designed for use as “The End Game” plays out:

• To the extent you are able, buy near interim bottoms of Cartel Takedowns. Typically, these opportunities have come two or three times a year. 

• Do NOT buy Precious Metals or Strategic Commodities on margin. Positions bought on margin are very vulnerable to forced sales. 

• Deepcaster’s strong preference is for purchase of actual physical metal in the form of Gold and Silver coins purchased near the bottoms of Takedowns. If you do not intend to hold physical coins yourself, it is important that it be held in a segregated account. The fact is that even though the market price may be temporarily taken down, buying physical means that you own and have physical. The more physical that you and other investors have, the less physical that The Cartel can have or acquire. 

• If you also buy shares (more below), give preference to those shares of “Junior” companies (which, typically, are not yet in production but) which have abundant reserves. Deepcaster has developed a Short List of several such candidate companies (see December, 2007 Alert). The shares of these companies tend to be somewhat immune to Takedowns simply because when share prices are dramatically depressed through a Cartel Takedown those Juniors with atypically large precious metal reserves become ever cheaper in the eyes of prospective acquirers. Indeed, many of these companies with very ample reserves (particularly the smaller capitalization ones) are now candidates for buyouts or takeovers based on the value of those reserves. The potential for being acquired provides a potential equity “kicker” for such an owner of shares in these Juniors. 

• Be very wary before buying the shares of Precious Metals Exchange-Traded Funds. The bullion ostensibly held in certain widely held Exchange-Traded Funds is not capable of being adequately audited, in Deepcaster’s view. For example, certain Funds allow their ostensible bullion holdings to be held by un-audited sub-custodians. Even though you may think that you own shares in actual bullion via an Exchange-Traded Fund, for some funds it is not clear that one could adequately audit one’s holdings, much less actually take possession of them 

• If you buy producers, buy well-managed unhedged producers with large reserves near the bottoms of Takedowns. Several of the larger gold production companies have hedged downstream sales. Needless to say, this hedging is inimical to potential profit downstream, when Gold and Silver prices rise. Why risk your investment funds buying companies with hedges where you have a limited upside and you are subject to a great downside as the result of a Cartel attack. 

• How one holds one’s Gold and Silver assets is extremely important. For example, shares of major Gold producers are most vulnerable to takedowns. (In this connection, examine the “precious metal share lending arrangement” between Oppenheimer & Co. and JPMorgan Chase - - what could this lending arrangement be for except to help implement The Cartel-initiated takedowns? 

• Sell into strength and buy weakness near interim bottoms. 

• Sell at least one-half of your producer shares near “tops” and await the next Takedown and interim bottom to buy again. This is known as “taking profit.” 

As the December 13 and 14, 2007 and the January 16, 2008 Cartel Takedowns of Gold and Silver have shown, The Cartel is still potent. It is Deepcaster’s hope that the aforementioned Guidelines will help readers preserve wealth, and profit.

It is also Deepcaster’s hope that the foregoing Guidelines will help ensure that The Cartel’s ‘End Game’ is not realized.

Copyright © 2008 DeepCaster LLC
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