Investor Profit and Protection, Major Market Moves During QE3
Stock-Markets / Financial Markets 2011 Jun 18, 2011 - 06:32 AM GMTBy: DeepCaster_LLC
“In perhaps the best evidence of silver manipulation to date, the CFTC’s Bank Participation Report for June shows that from May 4th to June 7th, the silver short position held by 4 large US banks increased from 20,613 to 22,628 short contracts. This means that the 4 largest US banks increased their short silver position from 103,065,000 ounces when silver was trading near $50 in early May, to 113,140,000 on June 7th. Basically, The Morgue and HSBS ADDED 10 MILLION OUNCES OF SILVER TO THEIR SHORT POSITIONS WHILE SILVER DECLINED 36% IN PRICE! Lets look at this another way. COMEX silver inventories are down 28.7 million ounces. This means that in 1 months time, The Morgue and HSBS have added NEW short positions equal to 1/3 of the remaining physical silver supply on the COMEX. This means that these 4 US banks are currently short roughly 4x the amount of silver remaining on the COMEX.
Even more interesting is that these new silver shorts the large banks have piled on come after a steady decline in their silver short positions during silver’s recent run-up. Notice that on 4/5, short positions stood at 25,412 contracts, and this number was reduced to 20,613 contracts by May 4th. Essentially the 4 large US banks covered 4,799 silver contracts (24 million ounces of silver) during silver’s “speculative” vault from the mid $30’s to near $50 during April. This indicates that silver’s parabolic move was more as a result of a panic short squeeze covering by the massive silver shorts. Bleeding profusely, the panicked shorts begged the CME to ride to the rescue, and lo-and-behold, 5 successive silver margin hikes in the first 2 weeks of May. These banks were on the rocks folks. Once they found some breathing room, they RESUMED ADDING TO NAKED SHORT SILVER POSITIONS TO CONTINUE THE MANIPULATION!
This proves silver manipulation, as a trader with HIS OWN best interest in mind would have continued covering his shorts with silver sold off, and would have rapidly attempted to extricate himself from those remaining 20,613 short contracts. The fact that these 4 US banks DID THE EXACT OPPOSITE, and again ADDED TO THEIR SHORT SILVER POSITIONS is likely the clearest evidence to date of silver manipulation.”
Bob Chapman, theinternationalforecaster.com, 6/11/11
To understand why QE 3 is inevitable, and the Major Market Moves which will likely result from that, and consequent Investor Strategies for Profit and Protection before and during QE 3, one must first appreciate that Major Markets, and especially the Precious Metal Markets are regularly manipulated by a Fed-led Cartel of Central Bankers and their Allies and factota. (*See note below.)
These Manipulation Interventions take many forms ranging from Intense Participation in the Futures Markets to outright Lending Money “printing” and Securities Purchases and Sales.
“…we now know that the biggest beneficiaries of the Fed's generosity during the peak of the credit crisis were foreign banks… Having been thus exposed, many speculated that going forward the US central bank would primarily focus its "rescue" efforts on US banks, not US-based (or local branches) of foreign (read European) banks: after all that's what the ECB is for, while the Fed's role is to stimulate US employment and to keep US inflation modest… Wrong. Below we present that not only has the Fed's bailout of foreign banks not terminated with the drop in discount window borrowings or the unwind of the Primary Dealer Credit Facility, but that the only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains not only why US banks have been unwilling and, far more importantly, unable to lend out these reserves, but that anyone retaining hopes that with the end of QE2 the reserves that hypothetically had been accumulated at US banks would be flipped to purchase Treasurys, has been dead wrong, therefore making the case for QE3 a done deal. In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!...
In other words, while the Fed did nothing to rescue foreign banks in the aftermath of the first Greek crisis, aside from opening up FX swap lines, one can argue that the whole point of QE2 was not so much to spike equity markets, or the proverbial "third mandate" of Ben Bernanke, but solely to rescue European banks!”
“The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went”
Tyler Durden, zerohedge.com, 06/12/2011
The Courageous Few U.S. Congressmen (such as Ron and Rand Paul) who forced Disclosure-by-the-Fed provisions into recent legislation deserve credit for providing the basis for exposing the Variety of Fed Perfidy. The Congressionally Mandated Disclosure reveals hundreds of billions of loans to European banks.
“Perfidy” – “the quality or state of being faithless or disloyal; Treachery” (Merriam-Webster) “Deliberate breach of faith; calculated Violation of Trust” (thefreedicitonary.com)
For sure, though, it is essential for investors to familiarize themselves with the Variety of Past and Prospective Fed Perfidy, so as to Protect themselves and Profit from what the private for-profit Fed will likely serve up to them in the future, which includes QE 3, however it is disguised.
We thus offer Analysis and Strategy directed toward that end.
Though the Fed-Foreign Banks Bailout is Old News, and though the Zero Hedge Analysis contains Oversimplifications and a Key Omission, it nonetheless makes Key Points. It does make clear, for example, that the private for-profit Fed-led Bailout of Foreign Banks was and is done at the expense of American Taxpayers and has worked to increase U.S. Unemployment and increase inflation in the U.S. (and across the globe, e.g. in Food and Energy costs) quite contrary to The Fed’s Express Mandate. Perfidy, in other words.
Of course, this is no surprise to us, since certain of the Foreign Banks are Fed Shareholders. And, commendably, the Zero Hedges contentions that Fed Actions make QE 3 inevitable (a position which we and others share) and that QE 3 will be detrimental to Investor-taxpayers around the World are also correct.
“…out of 20 Primary Dealers, 12 are.... foreign… what happened is that the $600 billion in cash was promptly repatriated and used by domestic branches of foreign banks to fill undercapitalization voids left by exposure to insolvent European PIIGS and... And one wonders why suddenly German banks are so willing to take haircuts on Greek bonds: it is simply because courtesy of their US based branches which have been getting the bulk of the Fed's dollars in 1 and 0 format, they suddenly find themselves willing and ready to face the mark to market on Greek debt from par to 50 cents on the dollar. And not only Greek, but all other PIIGS, which will inevitably happen once Greece goes bankrupt... In fact, the $600 billion in cash that was repatriated to Europe will mean that European banks likely are fully covered to face the capitalization shortfall that will occur once Portugal, Ireland, Greece, Spain and possibly Italy are forced to face the inevitable Event of Default that will see their bonds marked down anywhere between 20% and 60%. Of course, this will also expose the ECB as an insolvent central bank… the German are preparing for the end of the ECB, and thanks to Ben Bernanke they are certainly capitalized well enough to handle the end of Europe's lender of first and last resort…
…prepare for the Bernanke hearings and possible impeachment. For if it becomes popular knowledge that the Chairman of the Fed, despite explicit instructions to enforce the trickle down of "printed" dollars to US banks, was only concerned about rescuing foreign banks with the $600 billion in excess cash created out of QE2, then all political hell is about to break loose… Furthermore the data above proves beyond a reasonable doubt why there has been no excess lending by US banks to US borrowers: none of the cash ever even made it to US banks!”
Id.
While there is no question that considerable QE 2 funds went to foreign Banks, one must also consider that The Fed is the International lender of last resort for the U.S. Dollar and many foreign banks hold U.S. Dollar Assets.
But the Statement “None of the Cash ever made it to U.S. Banks” is an overreach. Cash is fungible. More important, the Zero Hedge Article fails to Note (though they are surely aware) that The Fed employs several Other Vehicles (than just QE 2 funding) to accomplish its purposes, such as U.S. Bank Capitalization.
Of course, the other purposes also include Manipulation of several Markets including Precious Metals and Equities. Regarding Equities, Graham Summers so notes in his excellent Article “The Only Reason Stocks Have Rallied This Month” referenced in our 9/30/10 Article “Surmounting the Wealth Destruction Juggernaut” in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com.
Nonetheless, the Thrust of the basic Zero Hedge contention – that U.S. Banks are Now better Capitalized (than in 2009) and are not significantly lending it out, is correct.
“Implication #3 explains why the US dollar has been as weak as it has since the start of QE 2. Instead of repricing the EUR to a fair value, somewhere around parity with the USD, this stealthy fund flow from the US to Europe to the tune of $600 billion has likely resulted in an artificial boost in the european currency to the tune of 2000-3000 pips, keeping it far from its fair value of about 1.1 EURUSD. If this data does not send European (read German) exporters into a blind rage…
Alas: the digital cash generated by the Fed's computers has long since been spent... a few thousand miles east of the US.
Which leads us to implication #5. QE 3 is a certainty… The one thing people always forget is the change in Fed liabilities, all of them… This means that as banks are about to face yet another risk flaring episode in the next several months, the Fed will need to release another $500-$1000 billion in excess reserves. As to what asset will be used to match this balance sheet expansion, why take your pick; the Fed could buy MBS, Muni bonds, Treasurys, or go Japanese, and purchase ETFs, REITs, or just go ahead and outright buy up every underwater mortgage in the US. This side of the ledger is largely irrelevant, and will serve only two functions: to send the S&P surging, and to send the precious metal complex surging2 as it becomes clear that the dollar is now entirely worthless.
That said, of all of the above, the one we are most looking forward to is the impeachment of Ben Bernanke: because if there is one definitive proof of the Fed abdicating any and all of its mandates, and merely playing the role of globofunder explicitly at the expense of US consumers and borrowers, not to mention lackey for the banking syndicate, this is it.”
Id.
And, yes “QE 3 is a certainty”, but when, and in what form (likely not called QE 3) are yet uncertain.
But while the Assertion that future Fed buying will eventually send the S&P and the Precious Metals complex surging is correct, Zero Hedge’s conclusion that “This side of the Ledger is largely Irrelevant”, is flat wrong.
The Food and Energy price Inflation which we have already seen testifies to this error.
(Indeed, Inflation and Unemployment are much worse than the Bogus Official Statistics that the public is lead to believe. See the Real Numbers from **Shadowstats.com below.)
That is because QE 1, 2 and prospectively 3 etc. have and are substantially degrading the Purchasing Power of the U.S. Dollar (as do similar Central Banks Actions for other Fiat Currencies) thus de facto stealthily confiscating the Wealth of Taxpayers/Investors around the world for the benefit of the Mega-Bankers and their Allies and factota.
Indeed if (or perhaps we should say when) QE 3 causes Equities to Soar again, we shall not rejoice, because that Soaring will be a Confirmation of Hyperinflation. A Hyperinflation which will Rob the U.S. Dollar, Euro and other de facto Fiat Currencies of much of their Purchasing Power.
Think the Weimar Republic or Zimbabwe Equities Markets Currency-Devaluation-generating Equities Bull Runs.
The Soaring S&P will have created only the illusion of Wealth.
Thus, in anticipation of, and during QE 3, we can expect the following Major Moves in Key Sectors.
First and Foremost, expect dramatic Price Increases in Gold and Silver as impending (and then ongoing) QE 3 will impel more and more investors into these Precious Metals.
Nonetheless, Cartel* attacks on Gold and Silver Prices will continue with some modest and temporary success. The prices of Paper Gold and Silver tend to be much more vulnerable than the prices of Physical.
But, to these extent these Takedowns are successful, they will allow you to buy these Precious Metals at bargain prices – a Golden and Silver lining.
Note: *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.
However, mid and long term, both Precious Metals are winners, Big Winners both for Wealth Protection and Profits taken along the way.
Buying the Dips to supplement your Core Position is a good strategy here.
As to Equities, the Rally since March, 2009 has been an Artificial (i.e. Fed Money-printing-and-POMO-pumping-induced and, not mainly based on Savings and Investment) Rally. We have recently (see our latest Letter and Alert) addressed the question of whether we are on the brink of the anticipated Reversal and first leg of a Major and multi-leg Equities Decline.
Bottom Line, simply note that a QE 3 induced Equities Rally expressed in Dollar (or Euro) terms would be in Dollars (or Euro) with much degraded Purchasing Power.
Regarding the U.S. Dollar, though it is weakening as the World’s Reserve Currency, the U.S. Dollar is still a Safe Haven.
Thus bad economic News tends to relaunch the U.S. Dollar up temporarily. Therefore since QE 3 will only be instituted on Bad Economic News, the tendency of the Dollar to drop upon widespread awareness of QE 3, would tend to be tempered by its Safe-Haven Status.
And note that any such relaunch creates additional downward pressure for Prices of Precious Metals, Equities and Commodities-in-General.
Longer term, the US Dollar is likely toast, thanks to the private for-profit Fed.
Regarding Crude, even absent “Geopolitical Developments”, mid and longer-term Crude Prices are nonetheless highly likely to rise again, eventually to record highs, due to the Hyperinflationary environment created by the Fed money printing, including prospective QE 3 and the fact that long-term Demand, especially from the BRICs, is trending higher than supply.
Regarding U.S. Treasury Securities, many weeks ago we forecast ten-year yields would drop below 3%, and that has just come to pass.
Short-term, and as the international Economic and Financial Conditions continue to worsen, expect U.S. Treasuries to continue to stay strong, because they will continue to be seen as Safe Havens (and because overtly and/or covertly they will likely continue to be bought up by The Fed and/or cooperating Central Banks). But eventually (and we aim to “call the turn” when it is impending) Yields should Spike as Hyperinflation starts to take hold.
But consider that when Q.E. 3 is implemented that could be just the catalyst for dramatically lower values U.S. Treasury Securities and much higher yields, because that would be confirmation that the Fed was going to abandon the US Dollar.
Yes, Treasuries could also suffer when QE 2 goes away (after all who else is buying them these days, but The Fed). But the ensuing lack of support for the Equities markets (and likely the European Banks’ stealth repatriation of U.S. Dollars gained in QE 2 back into U.S. Treasuries) would tend to drive investors into the perceived safety of U.S. Treasuries.
Q.E. 3 is virtually guaranteed. Be Prepared!
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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