Investor Opportunities from Central Bank Interventions
Stock-Markets / Financial Markets 2013 May 25, 2013 - 04:10 PM GMTBy: DeepCaster_LLC
“The Fed wants to kill all signs of inflation to hide the damage they're doing to the middle class. First the Fed leaves food and energy out of the CPI, and then they get the Labor Department to lie about the figures. Their last trick -- smash the price of gold and silver. What are they going to do when the bond market (fearful of inflation) collapses? You can't fool all of the people all of the time.”
“Richard’s Remarks,” Richard Russell
DowTheoryLetters.com, 05/20/2013
“The CPI is manipulated, and I believe gold is being manipulated as well. The Fed's QE4ever is inflating everything -- school tuition, hair cuts, food, gas, insurance, medicine. They've already "rearranged" the CPI, so what's left for them to do to keep us from knowing about inflation? Oh yes, it's gold, so c'mon, Bernanke, keep the lid on gold. Slam it in after-market trading in the thin paper-gold markets of the night.
“I promise you, when the true forces of inflation finally break loose, the Fed won't be able to disguise what they've wrought. When the true forces break out -- it will be a national disgrace and an emergency. "Then you will know the truth, and the truth will set you free." The rest of this year should be something to behold.”
“Richard’s Remarks,” Richard Russell
DowTheoryLetters.com, 05/17/2013
Legendary Newsletter Writer (since 1969!), Richard Russell is now singing the same Tune that Deepcaster and others (e.g., gata.org) have been singing for years. The Key Implicit Question which we answer here, is how to Profit and Protect in an Interventional Universe.
Given the Massive, Continuing, Multi-Market Interventions, savvy Investors today face a Great Dilemma.
Whether to continue to bet that Equities Markets will continue to rise, because, they hope, The Fed and other Central Banks will continue to print Hot Money even though they, The Investors, know that Economic Fundamentals do not support the Rally.
OR
Since Economic Fundamentals do not support the Rally to bet against further Equities Rises, since they, The Investors, know this Rally is built on the Sand of mere Printed Liquidity, and cannot last forever and is likely doomed to end in Economic Stagnation and Hyperinflation – i.e., in Hyperstagflation.
Trader Dan Norcini had it nailed when commenting on the Release of The Fed’s Minutes and Bernanke’s Testimony.
“In summary, this is everything that was communicated (by The Fed – ed.): “We will scale back the QE when we think the economy is strong enough to no longer need it in a full dose.” Who among us learned anything new from that statement? This is the same dance that the Fed has been feeding the markets for many months now.
“It just goes to show that everyone with a functioning brain how utterly phony the stock market rally is and how dependent it is on the cocaine being force fed into it to sustain itself. If the Fed spooks the equity markets into seriously believing that they are going to pull the plug on the QE program, what we saw yesterday afternoon with that violent downside selling wave that temporarily engulfed the stock market will look like a mini rehearsal for a massive waterfall decline.
“This is why Bernanke chose to start off his speech in a soothing fashion. He and the rest of the FOMC governors knew they had a tiger by the tail and if they let go, there is going to be serious trouble. …
“…the Fed itself has now become the greatest source of market instability and volatility that any risk manager must reckon with in this day and age.”
Trader Dan’s Market Views, traderdannorcini.blogspot.com
Indeed, the level of the S&P, at any particular time, now has “achieved” a 90% Correlation with The Fed’s Balance Sheet (Haver Analytics, Gluskin, Sheff), so it is a no-brainer to know what would happen if The Fed stopped QE – Lookout below. But this correlation is an ominous and sad commentary on Fed Policy and the True State (sick) of the Economy.
Fortunately, a select few Investments are likely to be Profitable and Protective whichever Result (of the two above) is forthcoming. However, in either case, one and possibly two, Key Sectors are likely to Collapse. But those who have Independent Information Sources and Courage for the Truth are likely to know in advance which ones and when and to prepare.
The Dilemma is apparently made more difficult because the Millennia-tested Safe-Havens, Gold and Silver, have had their Paper Prices dramatically Smashed Down for Many Months and especially in the April, 2013 and subsequent Takedowns.
But it is critical to Note that the mid-April, 2013 and Subsequent Takedowns have been of the Paper Price only. Premiums for Deliverable Physical Metal have skyrocketed.
Why the Brutal Takedowns? And what is Next?
In a Superb essay, “Washington Signals Deep Dollar Concern,” (Institute for Political Economy, paulcraigroberts.org) former Asst. Treasury Secretary, Paul Craig Roberts shows how important it is for The Fed and other Western Mega-Banks to support the Dollar, Of course, if Real Money, Gold and Silver, were to skyrocket in Price, that would further weaken and delegitimize The Fed’s (and other Central Banks’) Fiat Currency and Treasury Securities. Thus the Ongoing attacks on Gold and Silver. Consider:
“Over the past month there has been a statistically improbable concurrence of events that can only be explained as a conspiracy to protect the dollar from the Federal Reserve’s policy of Quantitative Easing (QE)….
“Quantitative Easing has been underway since December 2008. During these 54 months, the Federal Reserve has created several trillion new dollars with which the Fed has monetized the same amount of debt.
“One result of this policy is that most real US interest rates are negative. Another result is that the supply of dollars has outstripped the world’s demand for dollars.
“These two results are the reason that the Federal Reserve’s policy of printing money with which to purchase Treasury bonds and mortgage backed derivatives threatens the dollar’s exchange value and, thus, the dollar’s role as world reserve currency….
“Washington has stifled the threat from other currencies by convincing other large currencies to out-print the dollar. Japan has complied, and the European Central Bank, though somewhat constrained by Germany, has entered the printing mode in order to bail out the private banks endangered by the ‘sovereign debt crisis.’
“That leaves gold and silver. The enormous increase in the prices of gold and silver over the last decade convinced Washington that there are a number of miscreants who do not trust the dollar and whose numbers must not be permitted to increase.
“The price of gold rose from $272 an ounce in December 2000 to $1,917.50 on August 23, 2011. The financial gangsters who own and run America panicked. With the price of the dollar collapsing in relation to historical real money, how could the dollar’s exchange rate to other currencies be valid? If the dollar’s exchange value came under attack, the Federal Reserve would have to stop printing and would lose control over interest rates.
“The bond and stock market bubbles would pop, and the interest payments on the federal debt would explode, leaving Washington even more indebted and unable to finance its wars, police state, and bankster bailouts.
“Something had to be done about the rising price of gold and silver….
“That the decline in gold and silver prices is an orchestration is apparent from the fact that the demand for bullion in the physical market has increased while naked short sales in the paper market imply a flight from bullion.
“What does this illegal manipulation of markets by the Federal Reserve tell us? It tells us that the Federal Reserve sees no way out of printing money in order to support the federal deficit and the insolvent banks. If the dollar came under attack and the Federal Reserve had to stop printing dollars, interest rates would rise. The bond and stock markets would collapse. The dollar would be abandoned as reserve currency. Washington would no longer be able to pay its bills and would lose its hegemony. The world of hubristic Washington would collapse.
“It remains to be seen whether Washington can prevail over the world demand for gold and silver. …
“When the dollar goes, Washington’s power goes, which is why the bullion market is rigged. Protect the power. That is the agenda. Is it another Washington over-reach?”
“Washington Signals Dollar Deep Concerns,” Paul Craig Roberts,
paulcraigroberts.org, 05/18/2013
Roberts raises the right question. Will The Fed be able to pull it off, i.e., protect the Dollar, continue to successfully suppress the Precious Metals Prices and in so doing, revive the Economy (of course, The Fed’s Main Goal -- to protect its Mega-Bank shareholder/Owners and other Mega-Banks -- has largely been achieved provided The Fed can continue its Money Printing Game).
Our regular readers know that we think the Most likely Result is that Fed and other Central Banks’ Money Printing is creating an Equities Bubble and will result in Hyperinflation (already at 8.7% in the USA, e.g., per shadowstats.com) and an eventual Economic Crash.
Thus, Hyperstagflation is the outcome we believe will occur.
But we could be wrong. The Fed and allied Central Banks and Mega-Banks could pull it off.
In any event, Fortunately, there are Select Investments which provide Profit and Protection in either Scenario.
One General Category for Profit and Protection is Food Commodities. With 80 Million People added to the World’s Population each year and hundreds of millions in the Developing World with increasing Purchasing Power, the demand is there. And supply increases are constrained by the fact that Most Arable Farmland is already in use and production increases from the “Green Revolution” have mainly reached their limit.
The Other Category is Real Money, i.e., Physical Gold and Silver, acquired at Current Bargain Basement Prices. But Timing and the Form of Precious Metals purchased are Critical as we explain in our June 2013 Letter at deepcaster.com.
In any event, Short term, (for the next few weeks or very few months) the Fed’s strategy of a Strengthening Dollar, vis à vis other Fiat Currencies, is working. The Fed has succeeded in getting other Key Major Central Banks to increase Fiat Money Printing as well.
Indeed, the Bank of Japan is in the lead. And the European Central Bank and Bank of Australia and others are following.
And to conceal the Price inflating effect of all this – but only for a while – the Central Banks have been suppressing Gold and Silver Prices, and the BLS has cooperated by dramatically understating Real Inflation.
But given The Fed’s Ongoing Orgy of printing ($85 billion per month) long-term the $US is likely toast vis à vis Real Assets. The move away from the $US has begun already, with Australia and France and others already agreeing to close deals in Chinese Yuan.
However, Short-term The Market most vulnerable to collapse is the U.S. Treasuries Market, since, considering U.S. downstream unfunded liabilities of over $100 Trillion as well as $17 Trillion in Outstanding (and unpayable, given any reasonably likely economic scenario) Debt, the U.S. is the most Heavily indebted Nation in the World. Indeed, the 10-year U.S. T-bond is already hinting at collapse with the yield popping over 2% as we write. We will be watching the Ten Year Yield very closely.
The Great Bond-Bubble Bursting is near thanks to Fed printing, the only issue is which month, or week, will the Acceleration to that Burst occur.
If (when) the US 10 Year continues down (i.e., and Yield Spikes Up), a Massive Collapse in the Bond Market (i.e., much lower Bond prices / much higher Interest rates) becomes increasingly probable. Such a Collapse would Wreak Havoc on the economy because credit would become very expensive or unavailable, as it became in the late 1970s to early 1980s and again in 1994.
Consider Goldman CEO Lloyd Blankfein’s Warning about the Prospects for a Bond Market Collapse:
“I worry now…I look out of the corner of my eye, to the ’94 period … you’d think in hindsight (it) should have been expected … (it) really was stunning.”
Lloyd Blankfein, 05/01/2013
But consider his approach to this prospect:
“We focus on how to benefit from the Crisis.”
Blankfein, Bloomberg, 05/22/2013
In sum, long-dated U.S. Treasuries and the $U.S. provide Great Opportunities for Profitable Shorting when the time is ripe. And Gold and Silver provide Great Profit and Protection Opportunities Period.
Best regards,
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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