“The Fed doesn’t have a clue about markets or economics. They are dangerous people. Printing money is not good for the world and will lead to more problems for the world….
“What the Federal Reserve is doing now is ruining an entire class of investors.”
Jim Rogers, Bloomberg Interview, 6/29/11
One primary cause of the bullish outlook for gold and silver is indeed ongoing and prospective massive QE. And we would note, a massive semi-covert QE3 is already ongoing.
But QE also boosts food and energy prices which dampens economic growth and hurts the middle class (since July, 2010 wheat is up 84% and Sugar up 77% e.g.). This is not good for Equities-in-general.
Jim Rogers indicates one class of investors which is being hurt, and we would add there are several adversely affected sectors.
But massive QE provides opportunities too, as we outline.
We are not so negative about the near-term prospects for nominal asset price growth in certain sectors as we were six months or a year ago.
That is mainly because the E.U. mega-banks, and The Fed, have already de facto launched a massive quantitative easing 3, with more likely to come.
This QE will serve as a major force impelling (but not necessarily successfully) nominal asset prices up, for example, for equities.
But before one becomes too enthusiastic about the prospects one should consider the implications of forecasts for nominal assets prices strength (or weakness), in certain sectors.
The practice of issuing bogus (U.S. and other key official) inflation figures obscures the fact that real inflation is very rapidly depreciating the purchasing power of most fiat currencies – by about 11% per year in the u.s. e.g. (per shadowstats.com**) overall.
Consider, for example, a U.S. hypothetical: if one purchases a security which subsequently appreciates by 11% in one year, and then sells it, the 11% gain is illusionary because the purchasing power of those U.S. dollars has depreciated by 11% in that period, ceteris paribus.
Also important to note is that, while massive Q.E. is a major inflationary force pumping up prices in certain sectors, there are powerful deflationary forces operating as well – the depreciating housing markets in the U.S. and China come to mind.
Indeed, China provides a superb example of the new abnormal. Some sectors are deflating dramatically, like Chinese real estate, down over 25% in some areas. But Chinese food prices are up 9% year over year.
The key to identifying the great opportunities (and great potential losses) is knowing which sectors will likely have inflating asset prices and which will have deflating ones.
See our “Gaining from the Inflation/Deflation Conundrum” (12/15/11) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com. For a specific sector analysis see our February 2012 letter.
Investors who fail to evaluate inflation/deflation prospects on a sector-by-sector basis will have missed great opportunities and fallen into a dangerous trap, thinking that we will have either inflation-in-general or deflation-in-general obscures opportunities for profiting in certain sectors and avoiding losses in others.
Consider equities for example:
Though equities continue our forecast mini-rally into January, their internals are weak. Moreover, there are increasing headwinds to the equities market including a spate of recent earnings disappointments and fundamental Eurozone and U.S. economic weakness and debt saturation.
Ongoing mass Eurozone ratings downgrades are not good for U.S. equities (14% of S&P 500 companies earnings come from the Eurozone) and are generally negative for equities around the world for that matter.
On the other hand, the hot money generated by QE3 will boost certain asset sector prices (but not necessarily enduring values) periodically throughout 2012, that is, through the U.S. presidential election, surprise surprise.
But not to be overlooked is a major deflation force and danger to equities (and other) markets and the economy, as identified by the Aussie Advisor “The Privateer”
“What A Wonderful "Coincidence"!
Two very interesting events - so interesting that nobody in the US mainstream financial press took any notice of them - took place on January 12. First, President Obama officially sent a request to the US Congress to raise the Treasury's debt limit by $US 1.2 TRILLION…
The second even, which also took place on January 12, was the official announcement by the Fed that foreign holdings of US Treasury debt in their "custody account" had declined for the sixth straight week. This is the longest consecutive bout of foreign (read central bank) selling of Treasury debt ever…
And the "wonderful coincidence"? Well that took place in a carefully choreographed fashion on the afternoon of Friday, January 13…carefully waiting until about half an hour after US markets had closed for the week, S&P announced the downgrade of NINE European nations - including France. That leaves only three "AAA" nations left in Europe and only one - Germany - whose rating is still officially "stable".
Look at all the wonderful things that this S&P mass downgrade accomplished. First and foremost, it brought the EUROPEAN sovereign debt crisis right back into the headlines after a few days when it was threatening to wane…
How convenient for the Executive and Legislative bodies of the US government, both of which are TOTALLY dependent on perpetual and perpetually increasing Treasury borrowings for their future operation…the longer the focus remains on Europe, the longer the US establishment has to go on pretending they can fix their equivalent problem.”
“The Privateer”, January 2012
Thanks to JBGJ for bringing this to our attention. in sum, the ailing economy and markets in the U.S.A. are still the ailing elephant in the world’s financial house. Neglecting to see this is a dangerous trap for the unwary. (See Notes 3 & 4 for specifics.)
Regarding gold and silver:
Perhaps the most important phenomenon is the divergence of physical prices from paper prices.
We can expect to see this divergence magnify, with physical increasingly commanding a premium over “paper” as 2012 proceeds.
Of course, this divergence is mainly due to cartel* (see Note 2) price suppression of “paper” prices.
And it is specifically due to the fact that it is easier for the cartel to suppress the price of paper gold and silver (and also paper shares) than it is for them to suppress the prices of the physical precious metals.
Indeed, our forecast two weeks ago was based in large part on this divergence.
“Gold and silver and their shares appear to be putting in a bottom.”
And a week ago, Matsui UK agreed:
“Our Asian office reports robust physical demand below $1610 for a second day and this is helping to define the bottom…”
In sum, the physical precious metals “sector” is performing more robustly than the paper p.m. “sector”.
Sector by sector analysis is essential when drawing conclusions about ongoing and prospective inflation or deflation, and therefore about opportunities for profit and risks of loss.
Best regards,
Deepcaster
January 19, 2012
Note 1: 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 December 16, 2011
3.39% / 10.99% (annualized November, 2011 Rate)
U.S. Unemployment reported January 6, 2012
8.5% / 22.4%
U.S. GDP Annual Growth/Decline reported December 22, 2011
1.46% / -2.89%
U.S. M3 reported December 17, 2011 (Month of November, Y.O.Y.)
No Official Report / 2.84%
And Office Source Disinformation continues, consider Shadowstats comments on the January 6, 2012 release of U.S. employment data:
“The reported seasonally-adjusted 200,000 jobs surge in December 2011 payrolls included a false, seasonally-adjusted gain of roughly 42,000 in the “Couriers and Messengers” category. That gain was an artifact of the seasonal-adjustment process and will remove itself in the January 2012 numbers.
“The problem is that this 42,000 gain is part of a seasonal pattern that fully reverses itself each January…”
“December Payroll Seasonal-Adjustment Problem”
www.shadowstats.com, John Williams, 1/6/12
Note 2: 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.
Note 3: Another Ominous Development occurred during the Jan. 6th equities market session. The release of (ostensibly) much improved Employment Data – a drop in the official (bogus) U.S. Unemployment Rate to 8.5% – did not touch off an equities market rally.
Consider this along with recent record low volumes (“retail” Investors fleeing the markets) and one has all the makings of a Major Equities Market Top.
However it is clear that The Plunge Protection Team is hard at work boosting the equities markets. And in fact, we are still in rally mode and several key technical indicators confirm this rally is a “buy.”
But is an equities market top close to being “in”?
Have gold and silver bottomed?
Will the US$ and U.S. Treasuries continue to strengthen? And the Euro continue to weaken?
