Opportunities in the Crises of 2009

by DeepCaster LLC, deepcaster.com | January, 2009

In order to identify Profit Opportunities in what will surely be the Worsening Crises of 2009 we must review the Underlying Causes of these Crises.

The State of the Economy in 2009 will be The Primary Factor determining The Fate of the Equities, Commodities, and Currencies Markets in 2009, as well as the loci of Opportunities.

The Economy

Unfortunately the prospects for the U.S. (and thus the International) Economy in 2009 are more Dismal than the Dismal U.S. Economic Performance in 2008.

However, there are Profit Opportunities in the Markets within even a Deteriorating Economy as Deepcaster pointed out when he correctly Forecast the Fall, 2008 Market Crash in his September 6, 2008 Article “Opportunities in the Impending Perfect Storm.”

Thus, given that ongoing Deterioration, there will be Profit Opportunities on the Short side as well as the Long side. Indeed, in many markets there will be more opportunities on the short side. Therefore, in order to profit, one must be willing to “go short” as well as to “go long.”

To understand the Main Driver of Equities, Commodities and Currency Performance in 2009, it is essential to understand the causes of the increasingly dismal Economic Performance we forecast for 2009. Among them are:

1. The Debt Burden of the U.S. Government (and therefore the U.S. Taxpayer) burgeoned in 2008, and is still burgeoning if one counts the borrowing required to fund the government (Taxpayer) Bailouts, Guarantees, Loans and Authorizations. That Debt Burden was caused primarily by deleterious U.S. Fed policies.

The U.S. Government’s Debt Burden has grown far beyond its capacity ever to repay without a dramatic degradation in the purchasing power of the World’s Reserve Currency, the U.S. Dollar. That is because trillions more U.S. Dollars must be printed and borrowed from the private-for-profit U.S. Fed to meet ongoing obligations.

Of course, U.S. Taxpayers must pay “interest” to the private-for-profit U.S. Federal Reserve on those borrowings, thus further increasing the impossibly high debt burden.

Indeed, given that the present value of all the downstream-unfunded U.S. Government liabilities was (at the end of 2008) well in excess of $60 trillion, a further dramatic destruction of the purchasing power of the U.S. Dollar is “baked into the cake.” One of the several negative consequences of the ensuing crises will be the further impoverishment of those reliant on U.S. Dollar income - - mainly the U.S. Taxpayer/Consumer, and certain Investors around the world.

Thus one consequence of these Fed-facilitated credit and monetary excesses is that the economic and investment landscape has now been seriously damaged for many years to come.

2. Foreign Central Banks Dumping U.S. Agency Debt. Exerting further downward pressure on the U.S. Dollar, Foreign Banks (accelerating) dumping of Fannie Mae and Freddie Mac debt recently reached $167 billion. Of course, virtually the only buyer is the U.S. Fed. That is, The Fed is increasingly monetizing debt, quite a disturbing development as Astute Trader Dan Norcini points out.

3. The Generator of 70% of U.S. GDP, the U.S. Taxpayer/Consumer/Debtor, is increasingly Financially Imperiled.

In fact, no Lasting Remedy for the Financial and Economic Crises can be achieved unless the typical U.S. Consumer/Taxpayer/Debtor (who is 70% of U.S. GDP) is restored to at least some degree of economic health and is thus able to continue paying mortgage and other credit obligations. But no bailout has yet been provided to the typical Consumer/Taxpayer/Debtor and his/her situation is worsening daily.

Even if the Obama Administration provides some “bailout” as we anticipate (a $300 billion tax cut is being discussed), its positive effects are likely to be only temporary given that the structural problems (which we outline here) are so severe.

Of course, as the ongoing Crises indicate, believing the claim that “The System has been saved” by the 2008 bailouts of Favored Financial Institutions is Delusional. In fact, the Bailouts have done no such thing, but have mainly served to “Save the Bacon” and/or line the pockets of the Reckless and Greedy Wealthy in certain Fed-Favored Financial Institutions.

Thus, given the continuing deteriorating health of the economy and the consumer, coupled with 16% (and increasing) U.S. Unemployment (see below), more defaults and a continuation of the ongoing economic and financial crises are sure to come.

Specifically, the aforementioned will continue to cause defaults in the vast ($683 Trillion) OTC Derivatives Markets and increasing weakness in the Economy and Equities Markets.

In sum, the deterioration of the Economy and Markets has only just begun and will likely take several years to bottom.

The aggregate effect is that we will be tortured by the threat of Systemic Collapse for years. Thus, the Assumption that the Strategy of investing-as-usual to “Buy and Hold” for the long-term, will generate profit will, in many cases, be an utterly false and profitless fantasy.

4. The True State of the Economy is much worse than the Official Figures suggest.

Indeed, as the Real Numbers mentioned below demonstrate, our ongoing economic and financial crisis is not merely a “normal” business cycle Recession, but a System-Threatening Crisis. Knowing these Real Numbers facilitated Deepcaster’s recommending “Opportunities in the Impending Perfect Storm” - - the title of his early September, 2008 (pre-Crash) Article warning of the impending Crash (available in the Articles Cache at www.deepcaster.com)

It is thus another Naïve and False Assumption that the Official Figures accurately reflect the state of the Economy and Markets - - for example, that the current Recession is merely a normal “business cycle” phenomenon.

Making matters worse, Investors and citizens-at-large are misled by Official Statistics which have been gimmicked, as shadowstats.com demonstrates. Consider the following Real Numbers from shadowstats:

Consumer Price Inflation (CPI) has actually averaged about 11% annualized for much of 2008, rather than the 5% to 6% figures which have been reported as Official Statistics. Thus, the consumer must cope with diminished purchasing power and the threat or reality of job loss.

U.S. Unemployment has (according to Official Numbers) been ranging 4% to 6% from 1995 to 2007, spiking “only” to about just under 7% in late 2008. In fact, Real U.S. Unemployment in 2008 now exceeds 16% and is still increasing. Thus the consumer (70% of U.S. GDP, we reiterate) is increasingly unemployed, under-employed, and indebted.

Indeed, just as we write, while the Official Job Loss Number for December, 2008 was a record 524,000, the Actual December Job Loss Number was a much higher 697,000 according to shadowstats.com.

As well, the Delusion of Economic Growth claimed by Official Statistics is just that - - a Delusion. Real GDP has been negative since 2004. Indeed, in 2008 GDP is a negative 3%. Thus the consumer is faced with a deteriorating economy, as well as diminishing job prospects and purchasing power.

But the Congressional Budget Office, in a surprising display of just a bit of reality, just (1/9/09) estimated a 2.2% annual contraction I GDP for 2009.

As well, the 2008 U.S, Federal Deficit, rather than being $1 trillion as reported officially, is over $5 trillion if one includes Social Security and Medicare. And, if downstream-unfunded U.S. obligations are included, the U.S. National Debt is about $66 trillion!

All of the foregoing Genuine Numbers are calculated by shadowstats.com which calculates them according to traditional methods used in the 1980s and 1990s, before The Political Adjustments currently being utilized began.

5. Covert Market Intervention and Data Manipulation by a Fed-led Cartel* of Central Bankers and their Allies and Factota serve to hide key negative market, financial and economic realities from investors around the world much to their detriment.

*We encourage those who doubt the scope and power of Intervention by a Fed-led Cartel of Key Central Bankers and favored financial institutions to read Deepcaster’s December, 2008 Letter containing a summary overview of Intervention entitled “A Strategy for Profiting from the Cartel’s Dark Interventions & Evolving Techniques” and Deepcaster’s July, 2008 Letter entitled “Market Intervention, Data Manipulation - - Increasing Risks, The Cartel End Game, and Latest Forecast” 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 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.”

The Fed-led Cartel’s Covert Interventions work to periodically take down Precious Metals prices, control the levels of Equities Markets and manipulate the price of Crude Oil and other Assets. The Cartel apparently employs three vehicles to conduct their Covert Market Interventions.

About $683 trillion in Dark OTC Derivatives positions (as of June, 2008 as reported by the BIS (www.bis.org)

The Repurchase Agreement (Repo) Pool

The TLSF Pool

For details on each of these three Vehicles and on this Interventional Regime in general, see Deepcaster’s December, 2008 Letter and July, 2008 Letter at www.deepcaster.com.

Three (of several) key negative consequences of this Overt and Covert Interventional Regime are that:

It prevents genuine market forces from operating

It makes the financial and economic systems reliant on, and, simultaneously, vulnerable to the Cartel’s Market Intervention Regime and on gimmicked, and quite inaccurate, Official Statistics.

It presents a false picture of Economic and Financial Realities and prevents the Market from purging unsuccessful businesses, lightening debt burdens, and generally making wise business and financial decisions, thus postponing any possible recovery for years.

However if one regularly tracks The Interventionals, as Deepcaster does, it gives one an edge in investment selection. Indeed, as of the beginning of September, 2008 (i.e. before the Fall Market Crash) Deepcaster had recommended five “short” Equities Positions. Those positions were all subsequently liquidated showing substantial profit. See Deepcaster’s Front Page (www.deepcaster.com) for details.

06. No resurgence in the housing market in 2009. Home prices will drop another 15% in 2009 according to a recent Case-Schiller Report. Thus there will be no resurgence in the housing market to help bring us out of the Deepening Recession.

07. Defaults on credit obligations will continue to increase. There will be an additional $1.6 trillion in loan losses suffered by Financial Institutions in 2009, according to a recent Goldman-Sachs Report.

08. The crisis in Financial Institutions will last for years. The average banking crisis lasts 4 years according to a report by Professor Ken Rogoff of Harvard. Deepcaster reiterates that this ongoing crisis is much worse than average.

09. U.S. Manufacturing is Collapsing. The January 2, 2009 Institute of Supply Management Report recently showed a 29-year low. Such a result was predictable of course, given the U.S. Job Destroying Policies in NAFTA and related so-called “Free Trade” Agreements.

10. Declining government, personal, and corporate income are thus “baked into the cake” for 2009, given the foregoing.

11. Multi-trillion U.S. Dollar “printing” to fund bailouts, loans, and guarantees will ensure increasing monetary (and eventually accompanying price) hyperinflation.

One reflection of Monetary Hyperinflation is The Fed’s Balance Sheet which exploded to over $2 trillion in 2008 and is expected to exceed $5 trillion in 2009, according to a Goldman-Sachs Report.

12. M3 creation has jumped back up over 10% as of December, 2007, according to a January 3, 2009 shadowstats.com report.

Of all the factors listed above, one factor will perhaps above all others serve to move the Equities Markets at the beginning of 2009. That factor is the addition of trillions of “printed” and borrowed Dollars into the economic system via the U.S. government bailouts, guarantees, loans, etc. and the prospective Obama Stimulus Program.

Much of this will be funded from monies created out of thin air by the private-for-profit U.S. Fed and lent to the U.S. Taxpayer at “interest.”

Nonetheless, all this “borrowed” money will provide additional liquidity to the commodities and equities markets.

Given the foregoing, the following are guidelines which can be employed to seize opportunities in 2009.

Identifying Opportunities

In order to identify opportunities investors should:

1) Get the Real Data. As many Investors suspect, Crucial, Official Government and Agency Economic and Financial Data are of questionable validity. The Data set forth above from shadowstats.com is a good starting point.

Educate yourself about the realities of the marketplace using Alternative Data Sources such as Deepcaster, Gold Anti-Trust Committee (www.gata.org), and shadowstats.com. Gathering and staying attuned to authentic information regarding the marketplace can save one much financial grief as well as positioning one for profit.

2) Take Account of both Covert and Overt Cartel Intervention. Many of these same investors who suspect Official Figures also rightly suspect that the private-for-profit U.S. Federal Reserve and/or Central Banks overtly and covertly manipulate Major Markets. But they might not be aware that covert Market Intervention and Data Manipulation are likely far more pervasive than generally believed, as detailed in Deepcaster’s articles mentioned above.

As well, such investors may not have thought systematically about how one copes with and profits from such Intervention and Data Manipulation.

Considering one example, the Traditional Safe Haven from inflation, deflation, and risk, Gold has, during the periods of extreme financial market turmoil, been taken down in price from its highs of over $1000/oz down to around the mid-$700 level (e.g. 2008) when it should have skyrocketed.

In early March, 2008 Gold was over $1000/oz. when the Bear Stearns Crisis revealed the fragility of the Financial System. Gold should surely have skyrocketed then. Instead, it was brutally taken down. Were its price not manipulated, Deepcaster’s view is that its price would be over $3,000.00 per ounce.

Deepcaster and others, including the Gold AntiTrust Action Committee, have offered considerable evidence that the Cartel* of Central Bankers and Favored Financial Institutions are the culprits behind these dramatic and devastating Takedowns. See Deepcaster’s Alert of 12/25/07 “A Strategy for Profiting from Cartel Intervention in Gold, Silver, Crude Oil and Other Tangible Assets Markets” in the Alerts Cache at www.deepcaster.com.

But there is a Profitable Refuge from Market Intervention and Data Manipulation. That Profitable Refuge lies in the Strategy described in the aforementioned Alert, certain characteristics of which we outline here:

3) Recognize that the “Buy and Hold” strategy rarely succeeds anymore. The Eminence Grise of Newsletter writers, Harry Schultz perhaps put it the best when he recently stated that “buy and hold no longer works anymore, even with Gold.” Recent Market Developments should suffice to demonstrate this principle!

4) Track the Covert Interventionals as well as the Technicals and Fundamentals. Tracking the Footprints, as it were, of the Covert Interventionals (e.g. the Repo and TSLF Pools) daily can often, but not always, give one excellent clues about The Cartel’s next likely Interventional Move - - such clues are essential to preserving wealth and making profits. Deepcaster’s recent tracking of The Interventionals, for example, allowed him to recommend five short equities positions going into September, 2008, all of which he has subsequently recommended be profitably liquidated.

5) Perhaps most important, be prepared to go both long and short Major Market Sectors - - long near the bottoms of Interim Takedowns and short near Sector Tops. The Interventionals are essential to helping identify these tops and bottoms. In Deepcaster’s view, it will be increasingly difficult to achieve a net profit for one’s portfolio if one is unwilling and/or unable to “go short.”

Fortunately, in recent years, we have seen the advent of the increasing use of Exchange Traded Funds and Exchange Traded Notes. One great advantage of these is that they are designed so that investors will not likely lose due to the time and risk premium erosion which one has in Options. Moreover, some of the funds called “Double” Funds provide an opportunity to obtain twice the leverage of the anticipated move whether short or long. [Indeed, now there are “Triple” Funds which Deepcaster is monitoring prior to possibly recommending.] So Deepcaster and others are increasingly recommending these Funds as an alternative for those who do not like the risks of Options. These funds allow investors to go short or long with ease. Savvy investors should consider them.

6) Be aware of the overall Geopolitical Landscape in order to gain an adequate understanding of how that Landscape might affect the present and future direction of the Markets. It is essential that one understand the motivations of the major players in the market and the resources at their disposal.

For example, a major motivation of the U.S. Federal Reserve and other Central Banks is the protection and enhancement of the legitimacy of their Treasury Securities and Fiat Currencies as Measures and Stores and Value. Therefore, one can understand that one of their Major Goals will be to attempt de-legitimize Gold, Silver and the Strategic Commodities, including especially Crude Oil, as Stores and Measures of Value. With this in mind, the periodic takedowns of Gold and Silver become understandable. Moreover, such an insight applied daily to the market can result in a tremendous edge in understanding market performance, present and future.

Moreover, regarding the assets at The Cartel’s disposal, if one tracks the Repurchase Agreement and TSLF Pools daily, as Deepcaster does, and is aware of the other Interventional tools that The Cartel has at its disposal, then one gains a considerable edge.

7) Opportunities from Overt and Covert Interventions. One key to short-term opportunities comes from considering The Bailouts, Excessive Credit Creation in recent years and Monetary Hyperinflation. As of the latest figures, annual Money Supply Increase (M3) is over 10% (as reported by shadowstats.com). Earlier in 2008 M3 was at a record high of over 17% annualized. Of course, this Rampant Monetary Inflation has shown up in Real Consumer Price Inflation and will continue to be massively inflationary.

Contrary to the Official Figures “asserting” that CPI is nearly 6%, Real Consumer Price Inflation, through December, 2008, was almost 10% annualized, as calculated by shadowstats.com. [Note: Even though Oil price drops and market losses are deflationary, on a net basis we are still experiencing hyperinflation, mainly as a result of the private-for-profit Fed-instigated Bailouts and Excessive Money Printing.]

So, whence come the opportunities?

The fact is that the private-for-profit Federal Reserve and U.S. Treasury have rolled over the generally clueless Congress (Ron Paul and a very few others excepted) and their actions are guaranteeing massive monetary, and therefore eventual price, inflation. The Fed’s balance sheet has grown by 133% in the past year according to a November, 2008 report by Grants Interest Rate Observer. It used to be that a Fed Balance Sheet annual growth rate of 10% seemed high, if not excessive. Thus 133% is a staggeringly large increase.

By November 2008, it had exceeded $2 trillion. The President of the Federal Reserve Bank of Dallas said it could be $3 trillion by year-end 2008. This exploding Fed balance sheet is massively inflationary. The Fed increases its balance sheet by buying “assets” (albeit some “assets” of dubious value). How do they do this? They print money out of thin air! Deepcaster and others have shown what an unsustainable Ponzi scheme this printing out of thin air is (see “Private Ownership of U.S. Fed Unsustainable” of 1/4/08 in the Articles Cache at www.deepcaster.com).

Nonetheless, by massive loans, equity purchases and injections and expansion of the actual Money Supply by over 11%, The Fed has guaranteed massive inflation in future months and years. Similarly, key Central Banks around the world that have conducted similar actions and have thus bolstered massive inflation. What this means is that, in the long run, the U.S. Dollar and many other major currencies will buy less, much less, in the future.

However, given that the financial system and key heavyweight investors are awash with printed and borrowed money, certain Key Sectors should explode upward very soon until the long-term negative Economic Fundamentals drag them down again. Of course, this will not happen in one fell swoop, it will happen in Spurts. And, indeed, we think the first Spurt from this Monetary Inflationary Juice is not far off. Indeed, we have recently forecast that this should be reflected in higher Equities prices very soon in certain Key Sectors identified in Deepcaster’s latest Alert posted at www.deepcaster.com.

Thus, these considerations provide speculative investment opportunities, certain of are identified in Deepcaster’s January 2009 Letter available at www.deepcaster.com. The Rampant Monetary Inflation reflected in M3 and in the various bailouts and loans are in the trillions of Dollars. And this tremendously increased monetary base is available to temporarily inflate the paper value of the Equities and other Markets, when money managers first think the markets have a chance for a sustained (for a few months, or even weeks only) rally, and, when The Cartel Interventional Regime “agrees” with them. We have thus forecast Major Moves soon.

Copyright © 2009 DeepCaster LLC
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