Financial Markets Profit Opportunity Thresholds Today
Stock-Markets / Financial Markets 2009 Nov 06, 2009 - 01:42 PM GMTBy: DeepCaster_LLC
“One of the great current myths that is being propounded by those in charge is that they are going to magically withdraw, at the appropriate time, the stimulus which is currently preventing the world economy from imploding.
What a bad joke, that is! Tim Geithner, the U.S. Treasury Secretary, may have given the whole ruse away when he said recently that it was important that the authorities publically discuss the subject of withdrawing the stimulus because it was important in sustaining the confidence of financial markets. Very simply, that’s what this is all about. It is a large con job to keep financial markets elevated so the average citizen will ignore the rot which is eating away at the foundation of the economy and the financial system.
Jim Sinclair, the brilliant gold trader and a man who early on recognized the true destructive nature of OTC derivatives, has coined an expression for the whole sordid procedure. He calls it Management of Perception Economics or MOPE as an acronym. It is patently designed to mislead the public by producing phony economic statistics to promote the idea that a sustainable economic recovery is underway.” (emphasis added)
Con Job in the Financial Markets Continues John Embry, Investor’s Digest of Canada, Vol. 41, No. 19, October 23, 2009
“The stock market rally was helped by a wave of liquidity from near-zero interest rates and quantitative easing, says economist Nouriel Roubini — but what’s really fueling this asset bubble is the weakness of the U.S. dollar, driven by “the mother of all carry trades.”
"Traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade," Roubini writes in the Financial Times.”
Roubini: Huge Asset Bust Ahead Julie Crawshaw, Newsmax.com, November 5, 2009
Key Technical Signals are Warning us that the Equities Markets are Headed for a Big Fall. Indeed, it is mainly The Cartel* (see below) which has been boosting Equities Markets in recent weeks.
But those signals also constitute an Invitation to Profit which can be realized provided one chooses the Right Strategy, Vehicles, Timing and Sectors. We offer guidelines for making these choices, below. However, as background, it is essential first to consider key Fundamentals and Technicals.
The Fundamentals support the “Impending Fall” View as well. It bears repeating that 70% of U.S. GDP is the U.S. Taxpayer/Consumer, and, often, Mortgage Holder. A glance at the Real (see below) Payroll and Unemployment numbers (coincident, NOT lagging, indicators, by the way) show that the economic condition of that Main Street “Sector” is worsening.
These numbers and others mean that consumer spending will be increasingly impaired and that the companies which rely on it (not just American, but Chinese and others) will take a big Earnings hit.
It also means that Mortgage Foreclosures will continue to rise, especially in light of the dramatic increase in Variable Rate Mortgage Interest Resets slated for 2010 and 2011. And it means that government tax revenues will continue to fall.
News that the Economy has recently become “less bad”, is largely a result of Bailouts and the Stimulus package (and Data Gimmicking – see below), whose positive effects are temporary and will dissipate soon.
-- The Fed has been spiking the Monetary base at a rate so extreme that one can conclude they are panicking – since the August 12, 2009 near-term trough they have increased the monetary base at an annualized rate of 96.6%, up to nearly $2 trillion in the 2 weeks ended October 2, 2009.
As well, consider just of few key Technicals:
-- Equities Markets interim highs in recent months have come on increasingly lower volumes.
-- An increasing number of Sectors show losses over the last three months, and a decreasing number show gains.
-- Ascending Bearish Wedge and Bearish Megaphone Patterns are near Completion
-- The Realities of our Economic and Financial Crises are being hidden from us by the Official Distortion of Key Statistics.
Consider the Real versus Official Numbers as reported to us by Shadowstats.com, which calculates Statistics the old-fashioned way they were being calculated before the political gimmicking began in earnest in the 1980’s and 1990’s.
Official Numbers vs. Real Numbers
Annual Consumer Price Inflation reported October 15, 2009
-1.3% 6.1% (annualized October Rate)
U.S. Unemployment reported November 6, 2009
10.2% 22.1%
U.S. GDP Annual Growth/Decline reported October 29, 2009
-2.33% -5.71%
One other factor must be added to this constellation of factors impelling the Equities Markets toward a Fall -- Market Intervention by a Fed-led Cartel*.
*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, 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, 2009 Letter entitled "A Strategy For Profiting From The Cartel’s Dark Interventions & Evolving Techniques - II" in the “Latest Letter” Cache 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.”
For those who wish to investigate the subject of Interventions of greater length we recommend Deepcaster’s article “Defeating the Cartel...With Profit” (03/28/2008 (part 1) and 06/19/2009 (part 2)) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com, and “There are no Markets Anymore, Just Interventions” Chris Powell www.gata.com, and “An Overview of the Fed’s Intervention in the Equities Markets, via the Primary Dealer Credit Facility” zerohedge.com, Tyler Durden, October 25, 2009.
And the title of John Embry’s (Sprott Asset Management) recent Article “Con Job in the Financial Markets” confirms The Cartel’s objective – “to keep markets elevated so the average citizen will ignore the rot eating away at the foundation.” Investors Digest of Canada, October 23, 2009. (But they can not keep them elevated forever – for Deepcaster’s latest Forecasts regarding Timing and Sector Moves see his latest Alert in the ‘Alerts Cache’ at www.deepcaster.com.)
So, we offer the following Guidelines to help the typical investor cope.
Strategy:
-- Income Investors need to consider Crossover Trends. Changes in Dividend Increases versus Dividend Decreases in relation to other Market Factors: generally for example, dividends tend to get cut when Mainstreet – the average Consumer/Mortgage Holder -- is most severely economically hamstrung (See “What the False Recovery Means to Income Investors”, Lifetime Income Report, 11/5/09). Thus, Investors need to rotate in and out of income-generating equities.
The foregoing ‘Crossover Trends’ Guideline is a subspecies of the following broader Guideline.
-- Buy and Hold rarely works anymore. If one seriously considers the foregoing, as well as the fact that the Dow was at 10,000 just over a decade ago, and that the purchasing power of the U.S. Dollar has declined over 35%, basis the USDX, in just last seven years, one should not need any more convincing.
-- It is essential to consider the Interventionals as well as the Fundamentals and Technicals. Consider the articles cited above as well as Deepcaster’s “Defeating the Cartel...With Profit” (03/28/2008 (part 1) and 06/19/2009 (part 2)) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.
-- 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 as indicated above. Gathering and staying attuned to authentic information regarding the marketplace can save one much financial grief as well as positioning one for profit.
-- 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” as well as “long”.
The Blossoming of the 200% 300% (and other) leveraged ‘short’ and ‘long’ ETF’s described above provide a superb opportunity to go short and long with ease, but not, as we explain below, without risk.
-- 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 key Central Banks is the protection and enhancement of the legitimacy of their Treasury Securities and Fiat Currencies as Measures and Stores of 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 and, since July, 2008, of Crude Oil, become understandable. And the fact that The Fed is a private for-profit entity (which prints money for free and then charges Taxpayers interest on it!) makes it even more 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 regularly, as Deepcaster does, and is aware of the other Interventional tools that The Cartel has at its disposal, then one gains a considerable edge.
Vehicles Given Interventional Realities, and especially the Cartel’s capacity to move the Markets at will, (or to ensure they do not move substantially over long periods of time, as they wish) two considerations are especially important: Sector Selection and Time and Risk Premium Erosion. Sector Selection is so important we treat it separately below.
But, given Cartel Interventional Capacity, it is essential for those using options to insulate oneself against time and risk premium erosion. Fortunately ETFs and especially leveraged ETFs allow one to do this, though they themselves are not without risk.
The 200% and 300% leverage ETF’s are Exciting Newcomers to the Exchange Traded Funds Territory in recent months.
For example, these 300% Funds seek leveraged investment results which are triple that of the underlying benchmark, in the case of the ‘Long’ Funds, and triple the Inverse of the underlying benchmark in the case of the ‘Short’ funds.
Clearly, a Major Positive of such Exchange Traded Funds is the substantial avoidance of the Time and Risk Premium decay inherent in Options. By substantially eliminating that Premium decay, one barrier to Profit is removed.
Clearly, also, a Major Negative is that the losses which result from an incorrect judgment about the direction of a particular Market Sector are magnified threefold or more with potentially catastrophic results.
Yet in our view these Triple Funds have their place, and not just for hedging, but for profit plays as well, but for sophisticated investors only.
A benefit in using these funds is that precise timing becomes somewhat less important, provided one gets the Direction of the next major move right.
Another major advantage -- particularly in today’s Markets in which ‘Buy and Hold’ rarely works anymore -- is that one can profit whether markets rise or decline. When we last checked there were about as many 300% leverages inverse (i.e. short) funds, as there are 300% “long” funds.
For More details about the opportunities and Risks associated with these funds see our “A Profit Strategy and Vehicle for Brutal Markets” (5/22/09) article in the ‘Articles by Deepcaster’ at www.deepcaster.com.
Timing
-- Take Account of both Overt and Covert Cartel Intervention. Many of these same investors who suspect Official Statistics also rightly suspect that the private-for-profit U.S. Federal Reserve and/or Central Banks and their Favored Financial institutions overtly and covertly manipulate Major Markets. But they might not be aware that covert Market Interventions and Data Manipulation are likely far more pervasive than generally believed, as detailed in Deepcaster’s articles mentioned above. Fortunately, some Covert Interventions “leave tracks” which can be read by astute Investors.
As well, such investors may not have thought systematically about how one copes with and profits from such Intervention and Data Manipulation.
Consider one example of Cartel Intervention: the Traditional and Legitimate Safe Haven from inflation, deflation, and risk, is Gold. Yet, Gold has, during the recent periods of extreme financial market turmoil beginning early in 2008, 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 still manipulated, Deepcaster’s view is that its price would be over $3,000.00 per ounce today.
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 in this article:
-- Track the Covert Interventionals as well as the Technicals and Fundamentals and Overt Interventionals. Essential to Timing Decision is tracking the Footprints, as it were, of the Covert Interventions (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 tracking of the Interventionals, for example, allowed him to recommend five short positions going into September, 2008, (i.e. before the Market Crash) all of which he has subsequently recommended be profitably liquidated.
Sectors
As should be evident by now Prices in entire Sectors have a sad history of being moved by Cartel Intervention. Gold and Silver prices have, for years, been the Primary, but certainly not the only victims.
Derivatives Risk Militates in favor of Sector Investing The demise of Lehman Brothers, Bear Stearns, AIG and CIT are only a few of the indicators that OTC (i.e. not publically traded and thus “dark”) Derivatives can bring down any individual company.
The Fall, 2008 Crash reduced the Notional amount of OTC Derivatives outstanding by “only” some $91 Trillion. There still exist, as of the latest BIS report (www.bis.org, path: Statistics>Derivatives>Table 19), some $592 Trillion in Toxic or Potentially Toxic Derivatives World Wide.
But short of a total systemic collapse, OTC derivatives risks threaten some companies more than others. Unfortunately, these risks are often not visible, even in the most detailed SEC Filings and Financial Reports.
Why?
That is because these risks are often realized through counterparties to contracts or other relationships with the company in question.
For example, suppose a major aircraft manufacturer has a framing metal supply contract with a privately held Specialty Metals Manufacturer. And suppose that Specialty Metals Manufacturer is destroyed by Toxic Derivatives problems. Thus, no specialized metal, no planes.
The plane manufacturer’s Financials and Filings might well not have revealed this upstream counterparty’s OTC derivatives risks. Therefore, Ceteris Paribus, Sector Investing through ETF’s is often (but not always) the preferred way to go.
Sector Investing Requires Special Attention to the Interventionals.
Cartel Interventionals favor, or disfavor as the case may be, certain Sectors over others. Which Sectors are favored, and by how much, varies through time. Sectors fall into, and out of, Cartel favor periodically. Thus for Sector Investing it is especially important to track the Interventionals.
Careful attention to Strategy, Timing, Sectors and Vehicles is thus essential to profiting in Bull or Bear Markets.
These Four provide the Profit Opportunity Thresholds, whether in Bull or Bear Markets.
Best Regards,
By DEEPCASTER LLC
www.deepcaster.com
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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