“In his latest interview with King World News, geopolitical analyst James G. Rickards says credit default swaps are fraudulent mechanisms by which the "too big to fail" New York investment banks like J.P. Morgan Chase and Goldman Sachs loot the world with an implicit U.S. government guarantee, making them de-facto agencies of the government.”
“With credit default swaps, banks loot world with a government guarantee, Rickards says”
Chris Powell, gata.org, 7/16/11
Yes, the mega-banks often act with impunity secure in the high probability that if (when) they are in trouble again, as in 2008, the Fed/U.S. government (taxpayers) will bail them out.
After all, such bailouts have already occurred via e.g. the AIG bailout which rescued AIG’s credit default swaps from failing. This was done in the name of keeping the system from failing which it may otherwise have, but without any of the mega-bankers taking any haircut of which we are aware.
Such bailouts are manipulations; they prevent, that is, normal market action from taking place. Such manipulations have winners, typically, mega institutions and losers, and typically, taxpayers/investors.
And then, of course, are the ongoing manipulations such as the Fed-led Cartel* (see below) ongoing attempted manipulation of gold and silver prices.
The question we address is therefore how can the average investor profit (and protect) from such Interventions.
“Why aren’t banks lending to local businesses? The Fed’s decision to pay interest on $1.6 trillion in “excess” reserves is a chief suspect.
Where did all the jobs go? Small and medium-sized businesses are the major source of new job creation, and they are not hiring. Startup businesses, which contribute a fifth of the nation’s new jobs, often can’t even get off the ground. Why?
In a June 30 article in the Wall Street Journal titled “Smaller Businesses Seeking Loans Still Come Up Empty,” Emily Maltby reported that business owners rank access to capital as the most important issue facing them today; and only 17% of smaller businesses said they were able to land needed bank financing…
The Travesty of the $1.6 Trillion in “Excess Reserves”
The bank bailout and the Federal Reserve’s two “quantitative easing” programs were supposedly intended to keep credit flowing to the local economy; but despite trillions of dollars thrown at Wall Street banks, these programs have succeeded only in producing mountains of “excess reserves” that are now sitting idle in Federal Reserve bank accounts. A stunning $1.6 trillion in excess reserves have accumulated since the collapse of Lehman Brothers on September 15, 2008.
The justification for TARP -- the Troubled Asset Relief Program that subsidized the nation’s largest banks -- was that it was necessary to unfreeze credit markets. The contention was that banks were refusing to lend to each other, cutting them off from the liquidity that was essential to the lending business. But an MIT study reported in September 2010 showed that immediately after the Lehman collapse, the interbank lending markets were actually working. They froze, not when Lehman died, but when the Fed started paying interest on excess reserves in October 2008. According to the study, as summarized in The Daily Bail…
The 25 largest U.S. banks account for over half of aggregate reserves, with 21% of reserves held by just 3 banks; and the largest banks have cut back on small business lending by over 50%. Large Wall Street banks have more lucrative things to do with the very cheap credit made available by the Fed that to lend it to businesses and consumers…
In any case, as noted in an earlier article, the excess reserves from the QE2 funds have accumulated in foreign rather than domestic banks.” (emphasis added)
“Why Banks Aren’t Lending: The Silent Liquidity Squeeze”
Ellen Brown, beforeitsnews.com, 7/17/11
Paying interest on “excess” reserves?! How is this anything other than giving away free money to the mega-banks! And these are gifts which dilute the purchasing power of other U.S. dollar (denominated asset) holders.
Moreover, not surprisingly certain of these gift recipients are likely shareholders of the private for-profit Fed as well as its primary dealers.
Bailouts, Q.E., and paying interest on reserves are only three of many vehicles available to the Fed-led Cartel*/agents to manipulate markets, and other outcomes, albeit only temporarily in most cases.
*We encourage those who doubt the scope and power of overt and covert interventions by a Fed-led Cartel of key central bankers and favored financial institutions to read Deepcaster’s December, 2009, special alert containing a summary overview of intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions - III” and Deepcaster’s July, 2010 letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds" in the ‘Alerts Cache’ and ‘Latest Letter’ cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, 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.” 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.
We have examined a number of these manipulation tools and techniques in earlier articles, which can be found in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com.
See: “Saving Investments, Sovereignty, & Freedom from The Cartel ‘End-Game’ (1/13/11)”
“Profit, Protection, despite Cartel Intervention -- Update (12/22/10)”
But the aforementioned tools and techniques are generally available only to mega-institutions.
Consider also a few of the effects and noneffects of intervention.
“The QE2 program was in effect for a year and unemployment did not improve in spite of stimulus 2, or the injection of $862 billion. Housing isn’t going to improve anytime soon, nor is commercial real estate, both of which could remain moribund for many years. By the end of the year home inventories could be 3 to 3.5 million residences. Government has done almost nothing to create substantial numbers of jobs, as our Congress allows transnational conglomerates to keep foreign profits tax free offshore and under free trade, globalization, offshoring and outsourcing gut our job market. No effort is made to stop it. We have lost 11.7 million jobs in 11 years and 440,000 corporations that have moved offshore. We ask, why doesn’t the President and Congress start here and as well clear the 30 million illegal aliens out of the country? The administration is more interested in selling 30,000 weapons to criminals who operate drug cartels. Unemployment is 22.6% and government has to stop lying about the numbers. Government now wants to change the CPI, so ever more bogus figures can be produced.”
“Still Seeking Real Solutions for the World Economy”
Bob Chapman, The International Forecaster, 7/13/11
Yes, indeed, QE 3 did not help households or investors/taxpayers but only the mega-banks and Wall Street.
And yes, the official figures are bogus. See note and chart regarding Shadowstats.com** below.
But there is an excellent way to enhance security and profit notwithstanding the interventional regime.
Voltaire gives us the clue.
“Paper money eventually returns to its intrinsic value – ZERO” Voltaire, 1729
Other helpful “clues” are:
“ * The US dollar is down 82% against gold since 1999
* The US dollar is down 49% against the Swiss Franc since 2001
* The Dow Jones is down 81% against gold since 1999
* The Continuous Commodity Index is up 100% since 2009
The above facts are clear evidence of an economy that has been totally mismanaged. But more importantly most of these trends are now starting to accelerate – a clear sign that hyperinflation is just around the corner…
‘There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.’ – Ludwig von Mises”
“APRES NOUS LE DELUGE”
Egon von Greyerz, Gold Switzerland, 3/6/11
And if one considers the real numbers, and not the bogus official statistics (see below) or main stream financial media talking heads’ spin, one realizes that we are at the very threshold of hyperinflation.
In the U.S. for example, real consumer price inflation is over 11% (see below).
Furthermore, given ongoing monetary inflation (e.g. QE 2, and, notwithstanding official denials, a prospective QE 3 and possibly 4 and 5) hyper-price inflation is probably baked into the financial and markets’ cake.
The recent nearly vertical rise of the Continuous Commodity Index (CCI) provides objective confirmation of our recent subjective experience – prices of essential commodities, food and energy, have skyrocketed recently.
Yes, the early May, 2011 commodities takedown interrupted that rise, but key commodities have surged back nearly to pre-May levels.
Indeed, the Weimar experience provides further confirmation of our being on the hyperinflationary threshold.
The monetary explosion in Weimar preceded the actual price explosion by a couple of years. And, we must recall, that Weimar hyperinflation was then followed by The Great Depression.
For guidelines for portfolio preparation for the coming hyperinflation see our article – “Portfolio Preparation for Hyperinflation -- 3 Assets for Protection & Profit (3/10/11)” in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.
Another hyperinflationary harbinger is the continuing swoon in the purchasing power of the worlds reserve currency – the U.S. Dollar, a fiat currency nonetheless. Thus, it is critical to compare the real numbers with the bogus official ones.
For guidelines for portfolio preparation for the coming hyperinflation see our article – “Portfolio Preparation for Hyperinflation -- 3 Assets for Protection & Profit (3/10/11)” in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.
**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 July 15, 2011
3.56% / 11.13 % (annualized June, 2011 Rate)
U.S. Unemployment reported July 8, 2011
9.2% / 22.7%
U.S. GDP Annual Growth/Decline reported June 24, 2011
2.33% / -2.60%
U.S. M3 reported July 16, 2011 (Month of June, Y.O.Y.)
No Official Report / 2.29%
And when we compare the past decades’ stellar performance of gold and silver and more recently, agricultural commodities in all major fiat currencies, we begin to realize that Voltaire’s observation that “paper money returns to its intrinsic value – zero” may well reflect ultimate fiat currency reality. And perhaps even provide… intimations of Zimbabwe in our future?
Finally, essential to note is that in spite of, and in part because of, the aforementioned instances of manipulation for the benefit of the mega-banks, three commodities have been on bull runs: gold, silver, and agricultural commodities.
In sum, investments in these are profitable antidote to manipulation.
We paraphrase Jim Rogers recent quip: if the market rallies, commodities will rise and I’ll profit, and if it doesn’t they will print more money and commodities will rise and I’ll profit.
And the strongest rises of all will be the monetary metals.
Gold
First and foremost is gold. Throughout the process from monetary inflation (QE 1, 2…3? 4?) to price inflation (e.g. beginning now) to price hyperinflation and depression, gold has and will continue to appreciate (caveat: but beware of “paper gold” and ongoing Cartel* price suppression attacks).
Initially, in the fiat currency monetary hyperinflation phase, gold, as the ultimate money, appreciates because all fiat currencies (albeit in varying degrees) decline in purchasing power vis a vis gold.
And then, as price Inflation becomes price hyperinflation, gold soars as fiat currencies’ purchasing power plunges.
Then, as economic depression sets in (and thus when fiat currencies have lost much of their value) gold tends to retain its value vis a vis the damaged or destroyed fiat currencies.
One other consideration relates to gold (and other precious metal) mining shares. Their value tends to track bullion more or less, except that they are after all, and above all, stocks. Thus, overall stock market performance is likely to be a greater determinant of their value, short-term, than their ultimate value as actual or potential precious metal producers.
Maximizing profit in precious metal shares (as opposed to bullion) is thus in large part a matter of timing… Generally speaking, they are better purchased near the bottom of equities markets downlegs. (See our article “Power and Profit for Precious Metals Partisans (3/17/11)” in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.)
Silver
Silver, the poor man’s monetary metal, can, in the hyperinflationary process, be expected to perform similarly to gold, except for the fact that it is also an industrial metal, used, and used up, by industry.
While gold has recently powered up to trade above its all-time nominal high, silver has been stronger even yet, recently trading around its all time high of $50/oz.
But it is important to note silver has recently been acting more like the monetary metal that it is, rather than the industrial metal that it also is.
The prospect of sustained higher oil prices justifiably exacerbates fears that such high prices will dampen economic activity, thus dampening demand for industrial metals. But silver as safe haven money has spiked up along with gold and crude. Indeed, silver prices are spurred by a critical and worsening supply shortage of physical.
Thus we have, and will continue to have, this very volatile situation in the precious metals arena with the contenders being: the Cartel vs. economic and financial reality.
Any perceived diminishment of the chaos and/or a major equities takedown will surely bring renewed and intensified Cartel suppression attacks on the precious metals prices.
As we earlier forecast, we expect an even more vigorous cartel attack on precious metal prices to launch in the next few weeks.
In our most recent alert, we forecast the outcome of the “Battle” between Cartel precious metal price suppression attempts and upward price pressure generated by intensifying supply shortages.
We expect the next few weeks will provide a test of the Cartel’s price suppression power.
Food
The third protective category with profit potential is agricultural products (and producers) in inelastic demand. Whether in a hyperinflation, or in a depression, people will buy food first above all else.
In this sector, there is one extraordinary investment opportunity, still a “Sleeper” sector to some degree, which, some would argue, is, at this time, even better than gold and silver.
Indeed, we are among those who agree that gold and, with the right timing, silver, are two of the three best investment opportunities for the next decade.
But we must also agree that this “Sleeper” opportunity may at this time be the best of all, because there are still several companies in this sector which are quite undervalued.
Indeed, Deepcaster recently recommended two*** -- one trading at just over $5/share and the other at under $2/share in his most recent alerts.
And recently, we recommended a third ‘Sleeper’ sector industry leader***, which has a huge and expanding Asian market and a recent P/E ratio of under 4, and which trades under 50 cents/share (in $U.S.) and has a strong balance sheet tremendous appreciation potential.
In sum, in the medium and long run, we see the aforementioned equities bearish factors overwhelming the bullish ones, which will have severe negative consequences for equities-in-general and for certain commodities which are in elastic demand.
Given this negative scenario, safe havens with great profit potential are gold, silver (with timing caveats for shares) and agricultural commodities in relatively inelastic demand (such as wheat and foodstuffs in general), and businesses focusing on them.
Deepcaster’s recommended response to cartel market manipulation (i.e. especially in the precious metals market) is sixfold:
- Buying on dips, coupled with a willingness to tolerate great price volatility
- The core holdings of ones’ precious metals position are best held in one particular form (see our precious metal recommendations) of the physical metals, in personal possession
- that well managed reasonably priced miners with substantial reserves be bought on dips, and, if one is a trader, a portion sold near interim highs
- that a portion of one’s holdings be in a dividend paying precious metals fund such as one which we have recommended, and
- Regarding silver, since it is also an industrial metal, it is especially vulnerable to slowdown in economic activity and (especially for the shares) takedowns in the equities markets.
- Another important guideline is that financial and economic conditions are such that we do not recommend shorting gold and silver, even in advance of a likely Cartel* takedown attempt.
We reiterate, finally, that, given the aforementioned negatives, a crisis is likely already “baked into the cake.” The Fed’s (and Eurozone bankers) price boosting via Q.E. can not go on forever, and, in any event, Q.E. worsens the inevitable crash because it serves only to pile more debt upon already unpayable debt.
In sum, we expect another markets crisis later in 2011 or early 2012 (and may well already have) and gold, silver and food are the place to be.
Gold and silver and essential food products and producers are the most important means to profit and protect regardless of economic, financial, or other market conditions, when preparing one’s portfolio for hyperinflation and other crises to come.
Best regards,
Deepcaster
July 21, 2011
*** To consider these three “Best of the Best” sleeper sector investments, read our latest letter – “Main Gold, Silver & ‘Sleeper’ Sector Price Movers; ‘Sleeper’ Buy Reco.; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar, and U.S. T-Notes & T-Bonds; March 2011 Letter”, and alert -- “Golden Green Opportunity Buy Reco.; Forecasts: Commodities, Gold, Silver, Equities, Crude Oil, U.S. Dollar, and U.S. T-Notes & T-Bonds” in the ‘Alerts Cache’ at www.deepcaster.com.
