Essential Market Knowledge for Maximizing Real Investor Gains
Stock-Markets / Financial Markets 2013 Jun 01, 2013 - 12:18 PM GMTBy: DeepCaster_LLC
“Since its inception in 1913, The Federal Reserve Board has been responsible for almost 95% devaluation of the U.S. Dollar. All this has been achieved through its ability to continually inflate the money supply.
And, between 1985 and 2005, the Federal Reserve Board has increased the money supply by five times. This extraordinary money creation is merely the catalyst for debt creation. In a fiat money system, money is debt…there is absolutely no way this money can ever be repaid except by continued inflation. But, now that the credit bubble is blown up, inflation is no longer an option; bankruptcy looms.”
“The Federal Reserve…What Has It Done For You Lately?”
Ian Gordon, December 29, 2007, www.axisoflogic.com
Pick any period of rising U.S. Equities Markets whether from the September, 2002 lows through the September, 2007 high, or the December, 2011 lows to the late May, 2013 highs.
These Highs lulled some investors and several commentators into believing that they had Real Gains as of September, 2007 or May, 2013. Unfortunately, when properly measured, many of these Ostensible Gains actually are not.
The Proper Measure for Gains is Purchasing Power.
Consider, specifically, the rise in the U.S. Equities Markets from 2005 through 2006. If one owned shares in the S&P 500 (SPX – the market basket of S&P 500 Securities) for the 12-month period ending April 30, 2006, the value of that market basket of securities would have risen in U.S. Dollar terms.
But it would have declined over 30% since the summer of 2005 when measured by the price of Gold and even more when Real Inflation is accounted for (see below). The point is that, from the summer of 2005 until late April 2006 the S&P 500 was in a Bull Market in Dollar terms, but in a Bear Market in Gold terms.
Consider also the United States Dollar. From January 2002 through late April 2006; for example, the U.S. Dollar, as measured by the USDX (the U.S. Dollar’s value as measured by a market basket of other currencies) lost Purchasing Power in an amount exceeding 25%.
Since many, if not most, of the prices of goods and services purchased are determined in an international economy, such a loss of Purchasing Power is quite substantial. Thus, a person whose increases in U.S. Dollar income from January 2002 through April 2006 collectively amounted to less than 25% actually suffered a loss of Purchasing Power in the international economy in that period.
Such Purchasing Power losses are even Greater when one takes Account of Real Inflation. Real Inflation in the U.S. for example, is a Threshold Hyperinflationary 8.7% (as of May, 2013) per shadowstats.com. Shadowstats measures Inflation the way it was measured in the 1980s before the Official Figures became Politicized and therefore Bogus (see Note 1).
One key point is that one must decide what asset or asset class one will use as the “baseline asset” against which to measure one’s wealth and income increase or decrease. And one must also take account of Real Inflation.
The Ultimate Measures of Value should be Tangible Assets such as Gold , Silver and Key Strategic (especially Food and Energy) Commodities (i.e., generally, Tangible Assets rather than Paper “Assets”).
Why? Because the Private-for-Profit Fed, the ECB, and other Central Banks are increasingly Printing/Digitizing Fiat Money and Credit into existence ($Trillions in recent years) well in excess of any increase in Global Production of Goods and Services, thus diminishing Fiat Currencies’ Purchasing Power. This is why the Purchasing Power of the U.S. Dollar (Federal Reserve Note) has declined by over 95% since The Fed was founded in 1913, confiscating, in effect, the Wealth of Savers and Retirees.
Another Key point is that this Fiat Currency Creation out of Thin Air continues to increase at an accelerating rate and thus is a sure Precursor to Price Inflation.
Thus Gold and Silver Prices should reflect this Monetary Inflation, and indeed they have with the Gold Price increasing five-fold in the past decade, and the Silver Price even more. But owning Gold and Silver is challenging because the prices of the aforementioned Precious Metals and other commodities, as well as Equities, are periodically the victims of Interventional Price Suppression Action by a Fed-led Cartel* of Central Bankers and their Allies and Agents.
Indeed, some Interventions are conducted quite publicly. Interest Rate Adjustments are the most publicly visible. The Fed’s Ongoing $85 Billion per Month QE aimed primarily at supporting The Fed’s Mega-Bank Owners/Allies, and secondarily boosting the Equities Markets is one example. Less visible, but not less potent, are the nearly daily Repurchase Agreement (Repo) injections (by The Fed, via their Primary Dealers), used, inter alia, to influence the levels of the Equities Markets. And there are other Potential and Ongoing, but barely visible, Interventions as well. We have written
[*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.]
Indeed, nearly $486 Billion in OTC (i.e. Dark, not Exchange Traded) Derivatives were available to suppress Gold prices alone as of December, 2012 (as reported by the BIS, the Central Bankers’ Bank based in Switzerland December, 2012 - www.bis.org. (Path: www.bis.org>statistics>derivatives>statistical tables). Indeed, were it not for active Gold Price Suppression by The Cartel, Deepcaster believes Gold would have exceeded $3500/oz. by now.
As an example of paper Precious Metals Price Suppression, consider that, in mid-March, 2008 when the Financial Crisis peaked initially with the demise of Bear Stearns, Gold and Silver were smashed down, whereas in a Free Market they would have shot up.
Similarly, Gold and Silver prices were smashed in mid-April, 2013, to hide the inflationary effect of QE and protect the $US. Legendary (since 1969) Newsletter writer, Richard Russell, points out.
“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….
“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 & 05/20/2013
Clearly paper Gold and Silver Prices were and are being capped, as they seem to have been every time negative economic data or market developments are revealed.
Therefore, it is essential to consider the Interventionals as well as the Fundamentals and Technicals when making a Market Forecast or Buy or Sell Recommendation.
That is, the price of Gold and Silver on any given day may not reflect anything near their Ultimate Value. See Deepcaster’s March, 2012 Article “Profit, Protection Despite Cartel Intervention” in ‘Articles by Deepcaster’ at www.deepcaster.com.
Unfortunately, there are also ongoing Interventions in Major Markets other than the Gold and Silver markets. They are especially visible in the U.S. Equities Markets via, for example, the (nearly daily) Repo injections.
Importantly, this fact of Ongoing Intervention is one major reason a mere “Buy and Hold” strategy increasingly fails, especially as far as Equities are concerned. A Holder of the S&P through the last decade would have lost substantial value when Real Inflation is considered, and will likely lose more as Fiat Money Printing intensifies. And it Surely will – just consider this Evaluation of the Economy by Economist, John Williams.
“Nothing is normal: not the economy, not the financial system, not the financial markets and not the political system. The system remains still in the throes and aftershocks of the 2008 panic and the near-systemic collapse, and from the ongoing responses to same by the Federal Reserve and federal government. Further panic is possible and hyperinflation is inevitable.
“The economic and systemic solvency crises of the last eight years continue. There never was an actual recovery following the economic downturn that began in 2006 and collapsed into 2008 and 2009. What followed was a protracted period of business stagnation that began to turn down anew in second- and third-quarter 2012. The official recovery seen in GDP has been a statistical illusion generated by the use of understated inflation in calculating key economic series (see Public Comment on Inflation). Nonetheless, given the nature of official reporting, the renewed downturn likely will gain recognition as the second-dip in a double- or multiple-dip recession.
“What continues to unfold in the systemic and economic crises is just an ongoing part of the 2008 turmoil. All the extraordinary actions and interventions bought a little time, but they did not resolve the various crises. That the crises continue can be seen in deteriorating economic activity and in the panicked actions by the Federal Reserve, where it proactively is monetizing U.S. Treasury debt at a pace suggestive of a Treasury that is unable to borrow otherwise.”
“April Employment and Unemployment, M3 and Monetary Base,”
John Williams, Shadowstats.com, 05/03/2013
The Cartel’s motivation for takedown attempts of Gold, Silver, and other Tangible Assets is clear: they do not want the further legitimization of Gold & Silver (or Tangible Assets in general, for that matter) as Measures and Stores of Value (i.e. Real Money) to compete with their Treasury Securities and Fiat Currencies.
But, notwithstanding the Interventions, one can still utilize a “comparative valuation” approach. The benefit of the “comparative valuation” approach outlined above is that it actually gives one a different and illuminating perspective on Asset Inflation, Asset Deflation, and Purchasing Power. For example, if the reader chooses not to use Gold (Deepcaster’s “baseline asset” of choice) or other Precious Metals as a baseline asset, we invite the reader to consider the consequences of using the Agriculture or Energy Assets Class instead.
But again, the Interventional Caveat applies: there exist $Trillions of OTC Derivatives available to manipulate the price of Crude Oil and other Commodities - - see BIS Table referenced above. (Total OTC Derivatives outstanding were $632 Trillion as of December, 2012.)
So long as the private-for-profit United States Federal Reserve and ECB and now the Bank of Japan and other Central Banks continue to profligately expand the supply of money and credit, we will see continuing debasement of the U.S. Dollar and Euro and other Fiat Currencies in Purchasing Power Terms and this virtually guarantees Price Inflation. Thus much of the Financial Asset and Equities Price Inflation we have seen recently is an “Artificial” (per PIMCO CEO El-Erian) result of ongoing Fed and other Central Bank Q.E. in terms of U.S. Dollars.
In sum, therefore, if one holds appreciated (in dollar terms) financial “assets” one must consider "appreciation (or depreciation) vis-à-vis what?” Depending on one's choice, one may find that the ostensible appreciation is really depreciation. [And especially so, if one factors in the tax consequences of being taxed on a larger number of U.S. Dollars which have a substantially decreased Purchasing Power.]
That is, it is arguably only an artifact of The Fed's profligate printing of paper money and increase of credit -- enabling an unhealthy “borrowed liquidity” as opposed to a healthy “earned liquidity” (e.g. savings) to use the late Dr. Kurt Richebacher’s (R.I.P.) superb distinction. Given this Reality, the ostensible appreciation reflects only the Increasing depreciation of the Purchasing Power of the U.S. Dollar. That is we have Prices Inflation which The Cartel and its Media Allies and Agents try to hide from us.
Former Asst. Secretary of the Treasury, Paul Craig Roberts, gives one cogent explanation.
“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 is coming.
In the long run, Deepcaster believes one can find no better “Safe Haven” and Measure and Store of Value than in the Precious Monetary Metals, Gold and Silver, and selected other Tangible Assets.
BUT, we must reiterate that one essential Caveat regarding finding a “Safe Haven” and Measure and Store of Value in Precious Monetary Metals: in the short run they are subject to the considerable price manipulation Suppression Attempts by The Cartel of Central Bankers*.
However, there is increasingly reason for optimism. The Cartel’s ability to sustain Takedowns has been considerably weakened recently largely because of increasing demand for Delivery of Physical Gold and Silver (as opposed to “paper” e.g. Certain Precious Metal ETF shares) – See Below. The Mid-April, 2013 Takedown of the Paper Price of Gold by over $200 catalyzed a Skyrocketing worldwide demand for Physical and consequently dramatically increased Premiums (over Spot) for Physical.
Moreover, Central Banks are increasingly Acquirers of Physical, and China and India are massive net importers.
Therefore, it is essential to study the Fundamentals and Technicals even though the Interventionals can temporarily override the Fundamentals and Technicals. One must study the Fundamentals not only for all the usual reasons but also because Fundamentals somewhat constrain the timing and effectiveness of Interventions by The Cartel.
Similarly, one should study the Technicals for all the usual reasons and, in addition, because it is in The Cartel’s interest to make its actions seem technically plausible in order to continue to “run mainly under the radar.” It is not in The Cartel’s interest to make its Interventions any more visible than they already are. Indeed, there is Powerful evidence that The Cartel often uses and/or helps create technical patterns (aka “Painting the Charts”) which lure certain investors (such as hard asset investors) into getting “off sides” before Cartel actions such as taking down the price of Gold or Silver.
So the question is, in the next round, will The Cartel price suppressors win out when it comes to Precious Metals and other Tangible Assets prices, or will increasingly bullish fundamentals propel them further up? Deepcaster provides its most recent Forecasts in its latest Alert and Letter posted at www.deepcaster.com.
Whatever the answer, the mounting evidence is that the Fed-led Cartel is knowingly creating conditions designed to force the U.S (and, indeed, the entire industrialized world), to eventually choose between a Hyperinflationary Depression and the Cartel’s ominous “End Game,” which Deepcaster has described in its Alert of 8/13/07 “Massive Financial-Geopolitical Scheme Not Reported by Big Media” and June, 2007 Letter “Profiting From the Push to Denationalize Currencies and Deconstruct Nations” all and 9/23/10 Article “Gold-Freedom versus The Cartel ‘End-Game’ & A Strategy for Surmounting It” available at www.deepcaster.com.
In addition to acquiring Gold and Silver, another way of surmounting the Hyperinflationary Effect of ongoing Fed and ECB QE is to Invest in High Yield stocks such as those listed in Deepcaster’s High Yield Portfolio with selections aimed at achieving Total Return (Gain plus Yield) in excess of Real Inflation (8.7% as of May, 2013 in the U.S. See Note 2)
In sum, among the key components of Deepcaster’s prescription for achieving “Real Gains” are:
- Locating one’s capital primarily in Tangible Assets which are in great and relatively inelastic demand and which are inflation-resistant, including in
- The Agricultural Commodities Sector, and in the
- Precious Monetary Metals (e.g. Gold and Silver) but, preferably when acquired near the interim bottoms of Cartel-generated Takedowns. Timing and Selection here are key. For further details see Deepcaster’s 12/23/07 Alert entitled “A Strategy for Profiting From Cartel Intervention in Gold, Silver, Crude, & Other Tangible Assets Markets” at www.deepcaster.com.
- Stay informed, daily, if possible, regarding “The Interventionals” as well as the Fundamentals and Technicals.
- Know the Real News and Real Statistics. Do not rely on often-spun or censored MSM “News” and Bogus Official Data.
Ultimately, the authentic stores and measures of value are Gold and Silver and other key Tangible Assets, not paper Fiat Currencies and Treasury Securities. But with the Intervenors extremely active, it behooves investors to regularly attend to the Interventionals as one acquires, and disposes of, and reacquires Key Tangible Assets.
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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