Trap for Stock Market Bulls, Profit Opportunity for Others
Stock-Markets / Stock Markets 2010 Apr 30, 2010 - 11:34 AM GMTBy: DeepCaster_LLC
Equities Markets are becoming a Trap for Investors, but a substantial Profit Opportunity is developing in other Markets, as we explain.
The now nearly fourteen months long Equities Rally is not raging, but continues to grind fitfully upward, except Tuesday this week.
In recent months, this has roasted Bears who have relied on mixed to Negative Technicals and largely Negative Fundamentals, to be short.
Predictably, the Financial Mainstream Media has been promoting this Rally for all it is worth, helping create a bit more positive Investor Sentiment, or just complacency. But this is a dangerous situation for Equities Bulls for many reasons, one of which is that Consumer Confidence (per Univ. of Michigan) was down at 69.5 in April (average 100).
For us it is clear that the Stimulus Bills ‘Sugar (albeit Temporary) High’ and Fed-led Cartel* Intervention have been the prime Movers behind the Rally. (The Fed-led Cartel* has its own Essential Motivation – to make the pending Financial “Reform” legislation as Fed-Favorable as possible; and, so far, they are succeeding).
As well, the Financial Wrongdoing Hearings on Capitol Hill function primarily to deflect attention from the Real Action – The Fed’s attempt to make the pending Financial “Reform” legislation as Fed-favorable as possible. And they are generating positive Markets and Economic Sentiment which maximizes their chances of success.
But what of the ongoing Equities Rally? Are its ‘legs’ real?
So far, yes, indeed. For several weeks we have opined that Equities could hit 11,100 basis the Dow and we are now bouncing around that level.
And, given Cartel* Equities Market Juicing and temporary Stimulus Effects, Equities Prices could go higher to 11,500 or even 12,000. (Also important to note The Cartel has for years been engaged in Taking down the prices of Gold and Silver, and manipulating other markets such as Strategic Commodities.)
*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, 2009 Letter entitled "A Strategy For Profiting From The Cartel’s Dark Interventions & Evolving Techniques - II" 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.
But we would be remiss to advise putting any Money on a Major Equities move higher.
That is because it is highly unlikely that Equities prices in the 11,000-12,000 range are sustainable any time in the near future.
Why not sustainable? In a word, Value.
With P/E Ratios now at an average 22 (basis the S&P) Equities are substantially overpriced compared to the historic (100 years) average P/E Ratio of 16. We do not recommend being long overpriced Equities-in-general (and neither does Warren Buffett).
And the Prospects for Sustainable Earnings Improvement are, realistically, utterly dismal. Need we elaborate on the following?
- Unpayable Sovereign Debt Levels (cf. this week’s credit downgrade of Greece and now Portugal and Spain is a Domino Effect in the making)
- 21%+ Real Unemployment among U.S. Consumers – 70% of U.S. GDP (26 Million Officially Unemployed – the Real Number is much higher**)
- A blizzard of Mortgage Rate Resets coming in 2010, 2011, 2012
- Higher Taxes and more government Regulation from the Obama Administration
- The Apparent Recovery is built on Zero Interest Rate Policy (for Mega-Banks) courtesy of The Fed – a Policy which cannot last
- Home sales are still down 70% from their pre-recession highs
** In order to make profitable investment decisions, it is essential to have the Real Data, such as that provided by Shadowstats.com, on the U.S. Economy. Shadowstats.com calculates Statistics the way they were calculated before Official Manipulation began in earnest in the 1980s and 1990s. For example, compare the recent Real Numbers with the bogus Official Numbers.
Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual Consumer Price Inflation reported April 14, 2010
2.31% 9.47% (annualized April 2010 Rate)
U.S. Unemployment reported April 2, 2010
9.7% 21.7%
U.S. GDP Annual Growth/Decline reported April 30, 2010
2.55% -1.48%
The Bottom Line is that typical Equities Values do not support Equities Prices at these levels.
In other words Equities are substantially overpriced at these levels.
Since our Main Metric is Value (as is Warren Buffett’s), we have recommended some “short” positions (as well as some long ones) available in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com. And we have developed a Strategy designed to minimize the Negative effects of Cartel Price Takedown attempts, especially Cartel Takedowns of Precious Metals prices. See “Defeating the Cartel... With Profit, Part 2” (06/19/2009) and “Defeating the Cartel... With Profit, Part 1” (03/28/2008) in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com.
Yes, short-term, Equities Prices may continue to rise with the Stimulus, Media-generated positive Sentiments, and, especially, Cartel Intervention, as the Catalysts.
However, Medium and Long-term, Equities Values do not support Prices at these levels. Indeed, according to a Value Metric (e.g. Historic P/E Ratios) the Dow should be about 2,500 points lower today.
And since our approach is to capitalize on value in the Medium Term, and since our anticipated holding period is typically several months, we do not recommend “long” momentum Trading in this Equities Market.
Some Emerging Markets (Brazil, Russia, India and China) are relatively strong now; thus ‘Resource’ Countries (Australia, New Zealand, Canada) are strong.
But, China is on a bubble (for reasons we described in a recent Alert). If China pulls back, all the aforementioned countries would be hurt, but India hurt least.
In sum, Major Equities Risks are to the downside.
As to Timing, Equities would have pulled back long ago, were it not for The Cartel boosting them up. To us, what we indicated as a possibility before, now seems likely, that no major Equities Takedown will be launched until the Fed-led Cartel has achieved certain of its key ‘End Game’ Goals as we described in the referenced Alert and in our Article “Surmounting The Armageddon Scenario & Cartel ‘End Game’” (02/26/2010) available in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com.
Our analysis of The Cartel’s ‘End Game’ Strategy is consistent with our view of this “Sugar High” Rally, which we reiterate:
So, how long will the Sugar High Rally likely continue?
There are two main Factors to consider in answering this question. First, it is crucial to reiterate, that the Markets of 1987 and 2000 provide a significant Clue.
Some of you will remember the period leading up to the Market Crash of 1987. For months, the Fundamentals and Technicals deteriorated while the Equities Markets continued to rise.
The same was true of the period leading up to the Internet Bubble Burst of 2000. The bubble “should” have burst earlier than it did. But the shorts had to wait for months before profiting.
In our view, a similar situation exists today. The Stimulus Bills and Cartel Interventions have created a “Sugar High” in the Markets. And the (Equities particularly) Markets are Irrationally Bullish).
But just keep in mind that Market Crashes and Takedowns typically strike suddenly, before one has time to “get short, or exit longs”. And from this analysis facts arises Opportunity.
Opportunity Knocks – Selectively acquire Gold & Silver
We are more cautiously optimistic about the price prospects for Gold and Silver Bullion and Shares than we have been for some time. Note that we have always been Bullish about the Value of Gold and Silver – the Ultimate Measures of Value – but the Price has been suppressed via periodic, violent Cartel-generated Takedowns for years, as recent reports in the Mainstream Media and recent testimony before the CFTC demonstrate. (See our two most recent articles in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.)
Heretofore, as our regular Readers know, the Main Reason we have been Bearish on Gold and Silver prices were the repeated, and potent Cartel-generated Price Takedowns. (E.g., most recently, the $50 Gold Price Takedown Days in early December, 2009, early February, 2010 and $24 just a few days ago.)
But three developments in recent weeks have caused us to recommend being selectively long.
- Widespread, (even in the Mainstream Media) revelations about Cartel Manipulation of the Precious Metals, (and testimony to the CFTC to this effect) and other Markets, and
- most important, widely publicized Revelations that certain Repositories/Markets actually have much less actual physical Gold than “advertised” (e.g. the allegation that the London Bullion Market Association has only 1/100 the actual physical Gold that is shown as “deposited”). Thus more than ever, large bullion investors will now want delivery and possession of actual physical Metal.
- Sovereign Debt is being increasingly recognized for what it is – unbacked Paper. Greek, Portuguese and Spanish debt was recently downgraded with Greece’s downgraded to de facto “Junk” status, with more associated Crises sure to come.
To see our conclusions regarding the Effect of and Profit Potential arising from these Revelations see the aforementioned Alerts and Articles.
However, it is still our view that the Precious Metals prices will be subject to periodic sharp Cartel attacks, which could drive Gold and Silver prices down for a short time. However, there is one particular investment in Gold (and a similar one in Silver) which is resistant to Price Takedowns and which we recommended in our Alert for the week ending April 16, 2010.
Thus, on the positive side, any Price Takedowns should be seen as Buying Opportunities.
In sum, the Safe Havens Gold and Silver are the Ultimate Currency and serve as protection against ongoing Fiat Currency Purchasing Power degradation (cf. Shadowstats.com), and as a considerable Reservoir of Security and Profit Potential.
Even so, the U.S. Dollar is still the World’s Reserve Currency, and thus is among the “least bad” relative to other Major Fiat Currencies.
As such it is the beneficiary of “flight to quality” support. But given that the U.S. Dollar is nonetheless a Fiat Currency, the Ultimate Beneficiaries of the ongoing Markets and Economic Crises are the prices of Gold and Silver.
Therefore, with further indications recently that the Eurozone and Markets and Economy are far from being out of the woods, the Dollar, predictably, strengthened.
But Gold strengthened More. An Omen for the Wise.
Best Regards,
By DEEPCASTER LLC
www.deepcaster.com
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