“The lack of growth in the M3 measure — traditional broadest money supply measure used by the Fed until its abandonment in March 2006 — suggests a re-intensifying systemic solvency crisis, as does the continued lack of growth in bank lending. The implications here remain extremely negative for broad economic activity. On the inflation front, however, where there is an overhang of $7 trillion or so outside the United States — being held at the whim of dollar investors — that has to be considered in the U.S. monetary picture. Higher prices already are being seen in a number of dollar-denominated commodities, ranging from oil to food. The higher prices are anticipating and fueling the early stages of Mr. Bernanke’s desired debasement of the dollar.”
“Commentary Number 349: Crisis in Economic Reporting, Systemic Liquidity”
John Williams, shadowstats.com, 2/7/11
“The U.S. Dollar is being devalued by the Federal Reserve…
QE2 is nothing more than devaluation of the dollar for the benefit of only Wall Street Money Center Banks. This is a fraud on the American people who will get nothing from QE2, not jobs, no reduction of their debts, no increase in the values of their homes, no reduction of taxes, no cash, nothing.”
Robert McHugh, McHugh’s Weekend Market Newsletter, 1/14/11
“Nothing has changed fundamentally to improve the outlook for the U.S. economy. It remains in a protracted downturn that has started to deepen anew and that shows no signs of sustainable economic recovery in the year ahead…
…the economy in 2011 should remain much weaker than generally is expected, with ongoing negative implications for systemic solvency, for the federal budget deficit and for U.S. Treasury fundings. Such also implies a likely accelerating expansion of the Federal Reserve’s "quantitative easing," reflecting active monetization of U.S. Treasury debt and debasement of the U.S. dollar.
The Fed…It always can force an economic downturn by contracting broad liquidity, but its ability to expand the economy is problematic. It always can create inflation by debasing the U.S. dollar, but bringing inflation under control can be quite difficult when the inflation is not driven by strong economic demand. The inflation being pursued by the Fed, at present, is of the "difficult" kind. The nascent inflation is driven by distorted monetary policy, with resulting foreign-exchange weakness in the U.S. dollar…Here, the higher prices do not reflect increasing economic demand…
All these factors favor an environment that should see significant selling of the U.S. dollar — eventually an outright dumping of the U.S. dollar and dollar-denominated paper assets — and the onset of an increase in consumer inflation that likely will open the door to hyperinflation.”
“No. 342: Economic, Market and Systemic Outlook for 2011”
John Williams, ShadowStats.com, 12/30/10
“Laos is one of the most sparsely populated countries in Asia; with just 6.3 million people…
…the country is home to some of the most fertile soil in the world: more than 20% of its land mass is ripe for agricultural use. This is an astounding number…
Put another way, Laos, with its vast resources and small population, might loosely be considered an agricultural version of Kuwait…
Given its resources, it certainly seems ironic that the prices of staple foods in Laos, including rice, have soared in recent months…
Thing is, it's not that there are food shortages in Laos; this isn't an issue where supply has failed to keep up with demand (thus resulting in rising prices). The price hikes are simply another indicator of monetary inflation causing severe price inflation, particularly in the developing world.
How does this happen? The trillions of new currency units being compulsively manufactured by central bankers are finding their way to developing countries. This surge heats up local markets, causing prices to rise.
The government in Laos will most likely raise the minimum wage.
Rising wages like this are a common ingredient in hyperinflation, spawning a vicious cycle of higher prices, which then beget higher wages, which then beget higher prices, and so on.”
Simon Black, SovereignMan.com, 1/18/11
Despite the recent Happy Talk from the Main Stream Media and relatively quiescent and modestly uptrending Equities Markets, it is Macro-Trends which ultimately determine the fate of the Markets and Investor’s Profits and Losses.
Just over a month ago, we indicated that the “ongoing Reality of Q.E. would create or facilitate other Macro-Trends” and “Tangible Inflation Assets, such as Agriculture Products…are the place to be”.
Indeed, so far in 2011, we have seen this Q.E. “Hot Money” facilitate the boosting of Equities Markets, and raise the Prices of Essential Foodstuffs to record levels causing extraordinary hardship for the working poor.
As Simon Black notes above, recent Food Prices increases are not primarily caused by Supply/Demand Factors, but by The Fed and other Central Bank’s “Hot Money”.
The “Hot Money” has, however, provided an extraordinary Opportunity for Profit in the Agricultural Commodities Area. Indeed, we recommended one Grain/Cattle/Oil/Gas producer and one Water Management and Production Company trading at under $2/share, in our most recent Alerts.
Thus a Macro-Trend that has and will continue to play out so long as Q.E. continues is the Price Magnification of Essential Commodities in Food and Potable Water Businesses.
So let us consider this Macro-Trend in light of Others to gain additional perspective about how one might Profit and Protect.
Among successful Investors, it is widely understood that it is much easier to achieve Profits and avoid losses, if one invests with Macro-Trends (i.e. “Beta”), than if one invests “against” them.
Merely “Seeking Alpha” (i.e. Appreciation via Individual Stock Selections) if an Alpha Selection/s is of a Stock in a Sector which is Declining (i.e. investing against ‘Beta’), often results in a loss, even though that Stock would have been a leader had that Sector been in an Uptrend.
Ideally one Invests “with” Beta Trends and seeks Alpha via Individual Selections which are consistent “with” the prevailing or prospective Trend, whether Up or Down.
Thus it is essential to get the Macro-Trend, whether Up or Down, “Right” to maximize the chances for Profit and Protection.
So what are the other Key Prevailing or prospective Macro-Trends for 2011?
1.)First and Foremost, we know that the Q.E. (Money Printing will continue--) The Private for-Profit Fed has told us so (and the E.U. just keeps doing it). This ongoing Reality will create or facilitate other Macro-Trends.
2.)For example, this will facilitate, but not ensure, the continued growth of Asset Bubbles which Currently exist, particularly the Equities-in-general, and U.S. Treasury Securities, Asset Bubbles.
3.)This Q.E. will also increase the Vulnerability of the U.S. Dollar (and Euro) and continue the enrichment of the Mega-Financial Institutions (which are the private for-profit Fed’s Constituency and some of whom are its Shareholders) via Equities Price Boosting and de facto Zero or near-zero-percent money (for the Mega Institutions only).
4.)It also facilitates continued Sovereign borrowing which loads more Debt onto U.S. (and similarly for Eurozone) Taxpayers. Unsustainable Debt burdens will increase for a time.
5.)Default Risk of Sovereign and Private Debt and Defaults will continue to increase. Note well that The Swiss National Bank announced on January 5, 2011 that it would not accept Irish Sovereign Debts as collateral for loans made from it to the rest of Europe. What Sovereign Debts are next to be thus rejected?!
6.)Surely, the U.S. Muni Debt Arena will see Hair cuts and defaults this year. Caveat Emptor!
7.)Perhaps the most important Macro-Trend of all, The ongoing Liquefaction (Mainly via Money Printing and Borrowing) of Major National Economies, far in excess of their GDP Growth will, and is, ensuing Monetary and Price Inflation; i.e. a degradation of the Purchasing Power of Fiat Currencies the world over.
8.)The foregoing all lead to a MACRO-TREND WARNING! De Facto Bankrupt or prospectively Bankrupt governments have begun to move in the Direction of CAPITAL CONTROLS!
For example, the UK government just announced an increase to its Bank Tax on their worldwide balance sheets.
And in the U.S. serious consideration is already being given to requiring that some portion of citizens retirement accounts be invested in U.S. Treasury Securities.
Capital Controls are designed to keep money from moving overseas, and to enhance government access to individuals capital at home.
Readers should consider opening a foreign bank account before such controls are imposed.
And a Key Contextual Reality is that Official Statistics from the U.S. (and certain Eurozone and Asian Nations) are Bogus. Note Below that Real U.S. CPI is 8.91% -- well above the 1.5% Official Numbers and on the threshold of Hyperinflation.
Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest.
Bogus Official Numbers vs.Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported January 14, 2011
1.50% / 8.91% (annualized December, 2010 Rate)
U.S. Unemployment reported February 4, 2011
9.0% / 22.2%
U.S. GDP Annual Growth/Decline reported January 28, 2011
2.79% / - 2.21%
U.S. M3 reported February 5, 2011 (Month of January, Y.O.Y.)
No Official Report / - 2.18%
Note also the Negative Real U.S. GDP “Growth”.
In sum, we are facing increasingly Stagnant Economies and increasing Inflation, notwithstanding any appearance to the contrary, and notwithstanding Mainstream Media Happy Talk.
Given this Scenario, Investments for Profit and Protection are, provided they are implemented at the right time:
1.)Tangible Inflation Assets’ such as Agricultural Products and businesses focusing on them (of which Deepcaster has recommended two in the last two weeks) and other Tangibles in High Inelastic Demand are still the Place to Be. Also, the Monetary Metals, with the Caveat below.
2.)Short the U.S. Dollar and Euro – Money Printing is destroying the Purchasing Power of the U.S. Dollar and Euro. Short the U.S. Dollar and Euro, at the Right Time and, typically, vis a vis Tangible Assets (Very short Term, however, see our Latest Alert)
3.)Short Long-Dated U.S. (and Eurozone Nations) Treasuries – just as Hyperinflation is launching
4.)Short Equities in the Mid-term (see latest Letter and Alert for timing) and
5.)Continue to be “long” the Monetary Metals Gold and Silver with the following Caveat:
Gold and Silver for years have suffered from Cartel* Price Suppression Attacks, though they have become less vulnerable to these attacks in recent months. See Deepcaster’s Article “Opportunities to Profitably Escape Paper “Wealth” into 2011 (10/07/10)” in the ‘Articles by Deepcaster’ Cache, for details.
Indeed, Financial and Economic Conditions are such that we do not recommend shorting Gold and Silver, even in advance of a likely Cartel* Takedown attempt.
Fortunately, The Cartel* has lost considerable Power to Suppress Prices in recent Months due to Revelations by GATA, Deepcaster and others that various Bullion depositories likely do not have the Metal they say they do with the result that increasing Numbers of Investors are demanding physical Delivery and Possession of their Bullion, as well they should.
But as recent weeks' action shows, The Cartel* still has some Power to Temporarily Suppress Prices.
*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 Deepcaster’s website. 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 Deepcaster’s website 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.
Gold and Silver will be the Ultimate Profit Keys and Wealth Protection in the Coming Years, as will Agricultural Products (and businesses focusing on them) in increasing Demand.
