“The three-month euribor/OIS spread, the fear gauge of credit markets, reached the highest level in two years today, jumping 7 basis points to 40 in wild trading.
"Europe's money markets are undoubtedly starting to freeze up," said Marc Ostwald from Monument Securites.
"It's not as dramatic as pre-Lehman but it is alarming and shows the pervasive degree of fear in the markets. People are again refusing to lend except on a secured basis."
The credit stress was triggered by fresh mayhem in the southern European bond markets and ominously in parts of the eurozone's soft core as well, including Belgium. Spanish yields pushed further into the danger zone to 6.42pc. Italian debt reached a post-EMU high of 6.22pc before falling back slightly on reports of Chinese buying.
"We have a revolt taking place by foreign investors in these bond markets," said Hans Redeker, currency chief at Morgan Stanley. "There have been hardly any purchases for several months. We are seeing net disinvestment because people fear that these countries lack the potential to grow their way out of the problem, and risk falling into a Fisherite debt trap."”
“Europe's money markets freeze as crisis escalates in Italy and Spain”
Ambrose Evans-Pritchard, telegraph.co.uk, 7/4/11
Much of the investment world is finally beginning to realize that a number of worsening international economic and financial problems will not be solved by increasing “borrowed liquidity” (via, e.g. QE 1, 2, 3…?) or fiat money injections, because the aforementioned problems are structural problems for which reliance on “earned liquidity” and, ultimately, bullion-backed currencies are necessary but not sufficient conditions for solving.
For example, increasing liquidity by piling debt upon more (often unpayable) debt, only worsens the problem, as the Eurozone members are already discovering, and the USA is beginning to discern.
Indeed, one could argue that the sovereign debt bubble is the largest bubble in history.
These are not observations original with us. Eminent European banker and Austrian school economist Dr. Kurt Richebacher R.I.P. years ago warned us of the dangers of relying on Excessive “Borrowed Liquidity” (thus on leverage) rather than on “Earned Liquidity”.
An economic structure built on excessive “borrowed liquidity”/leverage is doomed to fail. And what is a fractional reserve banking system, if not one founded on creating excessive leverage?
Because many nations have reached or are about to reach “debt saturation”, structural changes (resulting probably in some debt repudiation, with the PIIGS eventually pursing the Icelandic solution, and more fiat currency purchasing power destruction) are being forced upon us.
In sum, thanks in part to certain Mega-Bankers reckless greed, the old economic and financial order is engaged in dancing its last tango, to speak metaphorically, and the August 4 equities market sell-off is merely a harbinger of troubles to come and of emerging new structural realities.
But these prospective structural changes provide great profit opportunities as well as substantial traps for the unwary.
Here, we summarize several actual and prospective structural changes and key consequent opportunities and traps for your consideration. Fuller analysis is offered in our recent articles available at www.deepcaster.com.
Andy Hoffman, Managing Director at San Diego Torrey Hills Capital, effectively emphasizes the importance of certain new realities in spite of (or perhaps because of) his hyperbole.
“So here we are, at the very end of a decade-long journey through hell, which was destined to end more horribly than it began.
It all started in 2000, when the “Age of Stolen Prosperity”(thanks Jim Willie) under Clinton, Greenspan, and Robert Rubin’s “Strong Dollar Policy” (i.e. surreptitiously selling the Fort Knox gold) ended with the commencement of the Tech Wreck.
It gained steam in 2001 following 9/11, when the combination of an economic downturn, Bush’s “War on Terror”, an acceleration of the American jobs exodus to China, and continued financial deregulation sowed the seeds of the maniacal surge in money printing and debt issuance that has brought us to the abyss we stand at today...
And it all ends here in 2011, as a perfect storm of negative events converge to engender global hyperinflation…
Because the U.S. government has run out of moves, and thus the GAME IS OVER!
There is NOTHING left to prop up the economy (in reality or fiction), as debt saturation has now set in (the economy now CONTRACTS when debt expands).
There is NOTHING left to “kick the can down the road”, as all means (reduced interest rates, deficit spending, currency/stock/bond/gold manipulation, falsifying economic statistics) have been exhausted…
Either the U.S. government raises the debt limit, essentially admitting overt QE3 and certain near-term hyperinflation, or fails to do so, inviting immediate default, exploding interest rates, and an immediate global economic collapse that would dwarf the combined strength of the 1930s depression and the 2008-09 meltdown, replete with massive bank liquidations, a collapsing dollar, hyperinflation, and violent social unrest.” (emphasis added)
“RANTING ANDY: CHECKMATE, i.e. ‘MANIPULATION SATURATION’”
Andy Hoffman, lemetropolecafe.com, 7/27/11
Hoffman is right about “Debt Saturation” as developments in the Eurozone and U.S. are demonstrating.
As well, increasing the debt limit (as in the U.S.) and piling more debt upon unpayable debt (as in the U.S. and Eurozone) is a de facto QE 3 and has already put us on the hyperinflation threshold if one considers the real numbers (e.g. U.S. CPI is already at 11.3% per Shadowstats.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 August 5, 2011
9.1% / 22.7%
U.S. GDP Annual Growth/Decline reported August 1, 2011
1.62% / -2.83%
U.S. M3 reported July 16, 2011 (Month of June, Y.O.Y.)
No Official Report / 2.29%
Since failing to provide more liquidity would likely result in global collapse, and since that is unacceptable to the powers that be, liquidity will be provided, far in excess of that justified by (de facto nonexistent) GDP growth. Therefore hyper-price inflation is bound to visit us sooner rather than later.
Trap: Failing to prepare for hyperinflation, or more precisely, for hyper-stagflation.
Trap: Consider carefully whether to hold currency in bank deposits – in Europe investors are already fleeing certain banks.
Opportunity: Purchase inflation resistant assets with profit potential mainly found in the three sectors (which Deepcaster has recently recommended)***.
Trap: Given the USA and eurozone officials unwillingness to address and solve the real problems, the U.S. Dollar and Euro/Eurozone are in increasing danger.
“I know it’s early on a Monday morning, but I had to give my take on the “deal” announced last night…
I predicted in my July 28th RANT… “come Sunday night, a triumphant, “bipartisan agreement” to “temporarily” raise the debt limit by roughly $1 trillion, to $15.3 trillion, with essentially ZERO spending cuts or tax increases to back it up – in essence, the worst possible scenario for the dollar and the U.S.’s credibility.”
Unfortunately, what we got was even WORSE, by several magnitudes!... and far worse for my already maxxed out forecast of imminent hyperinflation… the debt ceiling will essentially be raised by $2.1-$2.4 trillion, to roughly $16.4-$16.7 trillion from $14.3 trillion currently, or just enough to get through the 2012 elections if you believe the fatally flawed, insanely optimistic math of the government (4.8% GDP growth, LOL!). Most of the supposed “dollar for dollar” spending cuts… haven’t even been CONSIDERED yet… In other words, it is very likely that the national debt will be in the $16.5 trillion region before even a dollar of spending is CUT!!!! Not to mention, we already have a $2+ trillion/year annual budget deficit…
Of course, gold and silver were attacked immediately including, if you can believe this one, another SILVER MARGIN INCREASE LAST NIGHT (https://silvergoldsilver.blogspot.com/2011/07/here-we-go-again-ib-raised-silver.html)... PAPER derivatives were used to enable the media to spin the recent rises in Precious Metal as due solely to DEFAULT fears, when in actuality they have been rising, as always, due to ongoing INFLATION fears.”
“RANTING ANDY SPECIAL: WAY TO GO CONGRESS, YOU"VE JUST GUARANTEED HYPERINFLATION!”
Andy Hoffman, lemetropolecafe.com, 8/1/11
And it is correct to identify the monetary metals gold, especially, and silver as hedges against inflation and thus profitable investments (both having beaten the performance of the S&P by several hundred percent in the last decade).
But it is also essential to point out that gold and silver are subject to ongoing price suppression attacks by what we have for years long identified as the Fed-led Cartel* of key central bankers and their allies and factota.
*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.
Trap: Failing to acknowledge that the Cartel is still potent (though less than it used to be) as demonstrated by their takedown of precious metal prices in early May, 2011 and again just yesterday (Thursday, August 4).
Opportunity: Buy these precious monetary metals near the bottoms of the dips.
Trap: Thinking the fiat currency system, as presently constituted, will survive unchanged.
Trap: Thinking that wealth can be safely preserved in key fiat-currency denominated assets. The U.S. Dollar has lost over one-third of its purchasing power vis a vis other fiat currencies in the last decade, and lost much more vis a vis gold and silver.
Opportunity: Increasingly in the next few years, currency values will be in large part a function of their links, or lack thereof, to gold and silver, i.e. real money, and to other commodities in relatively inelastic demand, such as foodstuffs.
Of course, purchasing power parity or lack thereof, and comparative interest rates will continue to play a large part in currency values, as well.
Opportunity: As the early May and early August, 2011 takedowns of precious metal prices have shown, considering the interventionals, as well as fundamentals and technicals can help one know when to “buy near the bottom of the dips” thus enhancing profit potential.
Opportunity: The environment for equities-in-general will only continue to deteriorate. Therefore potentially profitable properly timed hedging with short or leveraged short exchange traded funds is advisable.
Finally, we need to avoid the wealth confiscating trap of the Fed-led Cartel’s End Game (see Deepcaster’s articles - “Saving Investments, Sovereignty, & Freedom from The Cartel ‘End-Game’ (1/13/11)” and “Gold-Freedom versus The Cartel ‘End-Game’ & A Strategy for Surmounting It (09/23/10)” in the ‘Articles by Deepcaster’ cache at www.deepcaster.com). Congressman Dennis Kucinich has one plan which could allow us to avoid the End Game trap.
“Dennis Kucinich says Congress must direct the Treasury Department to issue US Notes (like Abe Lincoln's Greenbacks, but which would also be issued in electronic deposit form) to pay off the National debt. He says the US must also gradually increase the reserve ratio that private banks are required to maintain from 10% to 100%, thereby gradually ending banksters ability to create money out of thin air and then loan this funny money out at interest…
In this bill, HR 6550 IH, Kucinich proposes a means by which we can:
- create a full employment economy;
- provide for public investment in capital infrastructure;
- provide for a reduction in the cost of public investment;
- retire public debt;
- stabilize the Social Security retirement system;
- restore the authority of Congress to create and regulate money, modernize and provide stability for the monetary system of the United States, retire public debt, and achieve the goals just listed
Step 1: Direct the Treasury Department to issue U.S. Notes (like Lincoln's Greenbacks, but which can also be in electronic deposit format) to pay off the National debt.
Step 2: Gradually increase the reserve ratio that private banks are required to maintain -- from 10% to 100%, thereby ending their ability to create money out of thin air when they loan it out at interest.
These two relatively simple steps, which Congress has the power to enact, would extinguish the national debt, without inflation or deflation, and would end the unjust and parasitic practice of private banks creating interest-generating money every time they make a loan through fractional reserve banking.
Paying off the national debt would wipe out our $400+ billion annual interest payments and thereby balance the budget. This would in turn stabilize the economy and end the boom-bust economic cycles caused by fractional reserve banking and the systematic exploitation of our money supply by banksters.”
“The Kucinich Plan for National Economic Reform and Recovery”
Richard Clark, opednews.com, 7/25/11
There is nothing particularly radical about the Kucinich plan. After all, President John F. Kennedy ordered the U.S. Treasury to issue U.S. Notes a few months before he was killed.
New structural realities require new strategies for wealth protection and enhancement as well as systemic stability. These strategies can succeed if one recognizes the opportunities and avoid the traps.
Recognizing that the current structure is dancing its last tango is the first step toward these recognitions.
Best regards,
Deepcaster
August 5, 2011
Note 1: One way of beating impending hyperinflation (already real U.S. CPI is 11.13% per Shadowstats.com) is to invest in a portfolio whose aim is to beat inflation via total return (gain plus yield).
All of the high yield stocks, recommended by Deepcaster but two are above our buy prices and they keep generating remarkable yields. To consider our high-yield stocks portfolio with recent yields of 18.5%, 10.6%, 26%, 6.7%, 8%, and 15.6% when added to the portfolio; go to www.deepcaster.com and click on ‘High Yield Portfolio’.
***Note 2: Deepcaster addresses the questions of profit and protection in light of fiat currency purchasing power destruction in his recent article – “Essentials for Wealth Acquisition Acceleration” and provides guidelines.
Using such guidelines allowed Deepcaster to make buy and sell recommendations resulting in remarkable profits recently if acquired and liquidated when we recommended*, approximately:
38% Profit on Silver on July 18, 2011 after just 201 days (i.e. about 68% annualized!)
150% Profit on Gold Stock Calls on July 13, 2011 after just 56 days (i.e. about 975% annualized!)
40% Profit on leveraged Short Treasuries ETF Puts on April 15, 2011 after just 3 days (i.e. about 4800% annualized!)
30% Profit on Silver on April 6, 2011 after just 98 days (i.e. about 111% annualized!)
To read our recent article -- “Essentials for Wealth Acquisition Acceleration”, go to www.deepcaster.com and click on the ‘Articles by Deepcaster’ Cache.
Past profitable performance is no assurance of future profitable performance.
