Surmounting False Investor Assumption Traps of Serious Wealth Destruction
Stock-Markets / Financial Markets 2012 Nov 02, 2012 - 02:26 AM GMTBy: DeepCaster_LLC
Those who invest and trade on False Assumptions risk being trapped into losses and Serious Wealth Destruction.
Those who are aware that certain commonly accepted Assumptions are False have substantial Profit and Wealth Protection Opportunities.
For example, it should be clear to all that acting on certain commonly accepted but often False assumptions – like “Buy and Hold” is the way to make money in stocks – is as a general rule (to which there are only a few exceptions) often a surefire way to lose money.
For example, Buying and Holding would have resulted in a loss if one had held the S&P Basket of stocks over the past decade, especially if one takes Real Inflation into account. (See shadowstats.com)
Another Assumption which is often but not always True – Don’t Fight The Fed – can be damaging or even Lethal to Profiting or Protecting Wealth in those instances in which it is not true.
For example, a Trader who bet The Fed’s announcement of QE3 would boost the Equities Markets would have lost money. As we write, the S&P has dropped 4% since Bernanke announced QE3.
Far more significant, consider that if one bet, or invested, on the theory that the various forms of Fed and ECB QE would heal the Real Economy, and reduce unemployment, one would have been quite wrong.
In fact, Inflation and Unemployment are Rising and Economic Activity is slowing (per shadowstats.com, see Note 1). But the fact that there is no Recovery in the Real Economy can provide Profit Opportunities. (See, e.g., Note 2)
To the extent that corporate earnings and guidance reflect Economic Health, the Third Quarter of 2012 results are telling us that no such recovery has taken place or will take place any time soon. Indeed, multiple QE’s have only increased the debt of the already-unpayable debts of Sovereign Nations. Ultimately, this entails a Lethal Debt Saturation Outcome for the economic health of Greece, Spain, and many others to come.
Thus the Investor seeking Profit and Wealth Protection should be looking to short the Equities Market soon.
And another Lethal Assumption is that the Fed’s and ECB’s QE & Related Actions are not Inflationary.
Money Printing in excess of increases in goods and services production increases is inherently Price Inflationary because when such excess fiat paper is added to the money stock, the Purchasing Power of each unit of fiat currency diminishes. The record high pre-drought prices of essential Grains, Corn, Wheat, and Soybeans, and of Crude Oil, testify to the Inflationary Effect of the repeated and ongoing QE.
Indeed, if one looks at the Real numbers, one sees that, for example, the U.S. CPI is already threshold Hyperinflationary at 9.64%. (See Note 1.)
And it is no surprise to us that the Continuous Commodities Index has shown an average of 15% annual Commodities price inflation in recent years.
And, by the way, where is all the Deleveraging the Powers-that-be want us to perceive?
- Sovereign Nations are increasing their Indebtedness.
- Consumer Credit is still Rising.
Deleveraging is generally not occurring.
And because the Economy is not recovering, the Money Printing will continue and thus so will the move ever closer to Hyperinflation.
One Reason that the Increasing Inflation is not more obvious to the public is that the Official Statistics are Bogus and not just in the U.S., but in China and other countries as well. (see Note 1 below for the Real U.S. Numbers).
The other is that the Velocity of Money is now extraordinarily low. Higher and increasing Monetary Velocities are associated with higher and increasing Inflation.
And note well, that other indications of a supposedly improving economy, such as retail sales, provide no such evidence when Real Inflation is factored in. That is, it is price inflation which makes it appear as if Retail Sales, or sales of houses, reflect an improving economy.
For example, consider the recent Case-Shiller Report which indicates House Prices are up 2% year over year.
Factor in inflation at 9.6% per year and one sees that Real House Prices are STILL generally declining, as the purchasing power of Major Fiat Currencies is degrading.
Degrading Fiat Currency Purchasing Power is a Main Reason Crude Oil is still trading near $90/bbl. And this is thanks to The Fed and ECB’s Q.E.
Only Operation Twist – in which The Fed sells short-dated Treasury securities and “Sterilizes” (i.e. renders non-inflationary) those funds by using the same funds to buy long-dated ones – is arguably non-inflationary because the proceeds do not circulate in the economy.
All the other Fed QE and Related Actions are Price Inflationary.
But note well that The Fed has nearly run out of short dated securities to sell. Thus ongoing and all further QE will be Price Inflationary.
In sum, the Money Printing will continue bringing Hyperinflation even closer.
We have made several recommendations in recent Letters and Alerts aimed at profiting from this Prospect.
Knowledge that certain commonly accepted Assumptions are False, can provide an opportunity for both Profit and Wealth Protection.
Best regards,
www.deepcaster.com
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