Investors Profiting from the Quantitative Easing Threat
Stock-Markets / Quantitative Easing Aug 13, 2010 - 12:49 PM GMTBy: DeepCaster_LLC
“Why the Fed will Soon Print $2 Trillion” - Barron’s Magazine Cover, August, 2010
Q.E. is a Major Threat, but one which properly positioned Investors can use for profit.
Just this past Tuesday, August 10, 2010 The Fed announced it would undertake a modest bit of Q.E. (Quantitative Easing) by using proceeds from its mortgage bond investments to buy U.S. Government Debt.
That would put that “modest” amount of money (used to buy U.S. Government Debt) into the Economy with the aim of Economic Stimulus.
But as we laid out in our article last week: “White Swans into Black: Golden Antidotes”, there is considerable evidence The Fed is already Covertly conducting Q.E. to the tune of several hundred billion already in 2010. We cite the evidence for such, inter alia, in the comments (quoted in that article) from Jim Willie, Eric Sprott and Jim Grant.
In any event, the modest August 10th Q.E. most definitely signals The Fed’s willingness to do more Q.E. as necessary. And it most certainly will be necessary, as the Barron’s Article Title above confirms. (A mere $2 Trillion is an under-estimate, in our view.)
Thus, it behooves us investors to considers the Threats and Profit Opportunities from future Q.E. almost sure to continue to come.
Q. E. (Quantitative Easing) is in its simplest terms, the euphemism for The Fed (or other Central Bank) creating additional fiat currency out of thin air, usually to buy Debt (e.g. U.S. Treasury Securities) to fund even more U.S. deficit spending.
Theoretically, this boosts the economy by putting more money into Circulation.
But Q.E. is a Threat too, because putting more money into circulation chasing a slower-growing (or Static) quantity of Goods and Services can lead to significant Consumer Price Inflation, or even to Hyperinflation, and, in the case of the U.S., to a substantially reduced value (Purchasing Power) of the U.S. Dollar.
Thus, while significant Q.E. would likely lead to higher Equities (and Bond) prices temporarily (because of more fiat money available to bid up their prices), the gains achieved thereby would be largely illusory, because the higher apparent dollar-value of those Equities would in fact be diminished by the reduced Purchasing Power of those Dollars.
Indeed, all the Q.E. (Fiat Money Creation) so far is already a major factor in the Consumer Price Inflation from which we already suffer! – Real CPI is 8.37% Annualized per Shadowstats.com. But it is in the interests of the private for-profit Fed, and its Cartel* (see below) to hide such Realities from us.
Shadowstats.com calculates the Statistics the way there were calculated in the 1980’s and early 1990’s, before data manipulation began in earnest.
Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported July 16, 2010
1.05% 8.37% (annualized June 2010 Rate)
U.S. Unemployment reported August 6, 2010
9.5% 21.7%
U.S. GDP Annual Growth/Decline reported July 30th, 2010
3.17% -1.25%
U.S. M3 reported August 8, 2010 (Month of July, Y.O.Y.)
No Official Report - 5.41 %
“Armed” with the Real Numbers, we can thus see that not only did the Dow (etc.) not appreciate in the past decade (Nominally, it is about where it was ten years ago), BUT a Dow holder over that decade would also de facto-have suffered a Great Loss because during that period the Purchasing Power of the Dollars in which the Dow is valued, declined 30%+.
Therefore, considering the Situation Today and the Real Numbers above, The combined Appreciation and Yield of any Truly Profitable Investments must exceed today’s 8.37% CPI figure (or, more precisely, exceed present and projected CPI).
So, Given these Realities, what should Investors do to Profit and Protect? Consider the following Analysis and Conclusions.
We see the Fed’s August 10 decision as a “Punt” – No substantial overt Q.E. yet, but just a modest bit of it.
But more importantly it is a Signal – more Q.E. is surely coming. The only question is how much and when.
Why “Surely”.
Because the U.S. (and Eurozone and several other major countries) have unsustainably high, and de facto unpayable (!) levels of debt.
For example, the U.S.’ $13 Trillion Debt is nearing 100% of GDP. And the U.S. has $77 Trillion (and Growing) Downstream Unfunded Liabilities. (The Eurozone will have to engage in more Q.E. as well for similar reasons.) The only “Solution” (other than Outright Default, which the U.S. is unlikely to accept) is to dramatically degrade the value (purchasing power) of the Dollar via Q.E. Eventually, this is bound to create Hyperinflation!
So, in addition to the hundreds of Billions of Covert Q.E. likely already occurring (see our latest Alert for this week ending August 13, 2010: “More August SURPRISES! & another HI-POTENTIAL RECO in Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds” in the ‘Alerts Cache’ at www.deepcaster.com), we can forward to several more rounds of Overt and very Public Q.E.
Eventually this will dramatically increase CPI above its current real 8.37% level, (and even though the economy is stagnating) and dramatically reduce Purchasing Power.
Q.E. is thus a Serious Threat, because by facilitating (hyper) inflation it enables a Theft from Savers and Retirees and “Main Street” and Small Business, among many others. And the Bogus Official Statistics are “Complicitous” in this Theft.
Of course, we expect Officialdom to continue to Attempt to keep the Realities Hidden via the Bogus Statistics and otherwise.
But take note that, with a Stagnant Economy and 8.37% Inflation, Serious Stagflation is already happening and thus is both an ongoing and prospective Threat.
Thus the Challenge becomes: how to preserve wealth and profit.
There are three main “Vehicles” which will do the Trick and only if acquired according to a well-designed Strategy (for reasons we mention below). We lay out such a Strategy in our articles entitled “Defeating the Cartel... With Profit, Part 2” (6/19/2009) and “Defeating the Cartel... With Profit, Part 1” (3/28/2008) in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com.
The three Main Vehicles are Gold, Silver, and Securities for which present and prospective Price Appreciation plus Yield is likely to significantly Exceed the Real Inflation Rate, now 8.37%. (There are a few other Vehicles as well, such as Selected Agricultural and Resource Products, if timely selected, but we leave these aside for now.)
Our Regular Readers are aware that, while we are quite Bullish on Gold and Silver, both are subject to Price Suppression by the 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, 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.
Though the Cartel has been weakened in recent months (see our Alert for Week Ending April 16, 2010 – "Cartel Failing? Precious Metal Buy Reco! Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & Bonds" in the ‘Alerts Cache’ at www.deepcaster.com), it is still potent. It has been able to keep the Gold price – below $1,250/oz. for many weeks now, for example.
But for the long haul, Gold is still in an uptrend, having quadrupled in price in the last ten years.
And though Silver is an Industrial as well as a Monetary Metal, given tight above-ground supplies it is also in a sustained and sustainable Uptrend. Thus we have recommended acquiring a specific Form of Gold and Silver, which is resistant to Cartel Price Suppression Attempts (see our recent Alerts in the ‘Alerts Cache’ at www.deepcaster.com).
As to the Third “Vehicle”, reasons for acquiring Securities with Appreciation Potential plus Yields in excess of today’s 8.37% CPI, need no further elaboration. A few weeks ago Deepcaster recommended four securities whose yields when we recommended them were 15.6%, 26%, 18.5% and 10.6%. (See Deepcaster’s Alert for Week Ending July 23, 2010: “NEW HIGH YIELD PORTFOLIO: 15.6%, 26%, 18.5% & 10.6% Recent Yields” in the ‘Alerts Cache’ at www.deepcaster.com for a list of these Securities.) Such high-Yielders provide a potentially Profitable Cushion against Q.E. and Consequent Inflation.
In sum, repeated Q.E. virtually guarantees continued appreciation of Gold and Silver, notwithstanding repeated Cartel Attempts to Suppress their prices. Though these attempts may be intermittently successful in taking down the Precious Metals prices, these Takedowns are not sustainable.
Thus we recommend acquiring Precious Metals near interim Takedown bottoms per our Strategy.
And because, with rampart and repeated Q.E., Fiat Currencies Purchasing Power diminishes, we recommend holding only limited amounts of U.S. Dollars or Euros.
Gold and Silver (or even the Aussies and Canadian Dollar or Swiss Francs) provide a much better Security Blanket and Profit Potential.
Best Regards,
By DEEPCASTER LLC
www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation Wealth Enhancement
© 2010 Copyright DeepCaster LLC - All Rights Reserved
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.
DEEPCASTER LLC Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
