Fed, Central Banks Trapped Into Continuing Money Printing
Stock-Markets / Quantitative Easing Sep 27, 2013 - 06:36 AM GMTBy: DeepCaster_LLC
“Both stock and blond valuations today are actually explicitly a matter of government policy.” Brett Arends, Wall Street Journal, 09/23/2013
“This looks to me like 2007 all over again, but even worse. All the previous imbalances are still there. Total public and private debt levels are 30% higher as a share of GDP in the advanced economies than they were then, and we have added a whole new problem with bubbles in emerging markets.”William White, former BIS chief economist, 09/20/2013
“’Dangerously Fat Left Tail Risk’: the probability that an Investment will incur losses more than three Standard Deviations from the Mean Loss Probability.”
One Recent Most Important Development is Quite Ominous indeed. This Development has created an increasingly Dangerous Fat Left Tail.
Specifically, that Ominous Development indicates that the Probabilities of another Financial Crisis, with concomitant Negative Consequences, are Increasing.
But although that Crisis would greatly increase the Danger to Bank Deposits, Pensions and Investments (see Deepcaster’s recent article – “Our Deposits, Pension Funds, etc. Vulnerable to Immediate Looting ??!! – Antidotes”) it also creates Opportunities. As the Chinese proverb says: Crisis = Opportunity or in this Case Multiple Opportunities for Wealth Protection and Profit, Opportunities which have generated two recent Deepcaster Buy Recommendations.
The Ominous Development to which we refer is The Fed’s No-Tapering Decision.
Consider that The Fed chose not to taper its $85 Billion Monthly Bond Purchases by even a little bit, not even a $5 Billion or $10 Billion Reduction!!
First and Foremost, this means that The Fed knows what we and other independent commentators have been claiming, and documenting, for many months – that the economy is not recovering (indeed there has been virtually zero Wage Growth in the U.S. in the last five years, despite Trillions in Fed Stimulus) and…
Furthermore, that the Economy and Markets are so fragile that even a small Taper might cause another Financial Crisis. Indeed, The Fed’s No-Taper Decision likely signals that such a Crisis is Impending.
Worse yet, it signals that The Fed (and other Key Central Banks) is trapped into continuing to Print Money -- i.e. QE to Infinity – as we and other Independent Commentators have been correctly forecasting for Months.
And the Ongoing Central Bank QE to Infinity is already leading to Threshold Hyperinflation (9.17% in the USA per shadowstats.com), if one looks at the Real Numbers (Note 1) and not the Bogus Official Ones.
Remember that one Primary Function of Bogus Official Numbers, whether in the U.S., China or elsewhere, is to cover up Politically Damaging Economic Realities, such as the fact that ongoing QE (Money Printing) by Major Central Banks is already Creating Price Inflation despite an increasingly Sluggish Economy. In other words, to cover the Reality that we are increasingly in a Period of Stagflation.
Indeed with Increasing Inflation we are now in a period of StagFLATION.
But this Intensifying StagFLATION creates several Opportunities for both Profit and Wealth Protection.
In order to surmount Impending Crises, we offer three Necessary, but not necessarily sufficient, Essential Criteria which must be met in order to Profit and Protect in the next few Months.
- The Prospective Investment must be one which Profits and Protects from ongoing Monetary and therefore, Price Inflation (when one considers The Real Numbers and not the Bogus Official Ones) and
- The Prospective Investment must be one for which there is a Real, and Relatively Inelastic (regardless of Economic Conditions) Demand.
Typically, such investments involve Real Assets such as Basic Foodstuffs and Energy, and Productive (as in Agricultural land) Real Estate, but not always.
Typically, such investments are not to be found e.g. in The Tech Sector. Indeed, we would argue that businesses such as Facebook are riding for a Fall, for many of the Same Reasons the Internet Bubble Burst in 2002.
For example, people do not have to use Facebook, there are Privacy Concerns (its business model relies on making personal information available to advertisers), there are low Barriers to entry, and there are Alternative Similar (and better in our opinion) Social Media businesses. Thus Facebook fits in what we would call the “Fad Business” Category, subject to a Big Fall, like Many in the Tech Category. Consider the Fate of former Tech Market Leaders like Blackberry and Nokia for example.
Of course, there are a Few Tech businesses which have Sustainable Business Models, one of which is Google. People, rich or poor, in Good times and Bad, need Information and Goods and Services, and Google delivers all with a few clicks.
- A significant Portion of Assets should be held outside of the Banking and Financial System. See our latest Article – “Our Deposits, Pension Funds, etc. Vulnerable to Immediate Looting ??!! – Antidotes” – at www.deepcaster.com and our recent Alerts.
And consider a Mega-Reality regarding the USA, the issues of the World’s Reserve Currency.
“…the nation’s debt is compounding into a monster that defies financial description.”
Richard Russell, 9/20/2013
Thus, the Dangerously Fat Left Tail Risk that arises (and given the USA’s unsolved Serious Structural Problems, especially since The Fed will have to continue QE or restart it even IF there eventually is modest tapering), is that ongoing Fiat Money Creation will eventually bring about the Major degradation of the U.S. Dollar, vis a vis the Yuan, Major Commodities Currencies (e.g. OZ$, Canuck Buck) and Inflation Assets such as Key Commodities in relatively Inelastic demand. (Crude Oil)
In sum, we expect The Force of Hyperinflation to help impel serious $US Dumping to begin sooner rather than later (see our Forecasts for probable Timing).
As well, longer-term, long dated U.S. Treasuries are arguably the Greatest Bubble in Economic History, and are doomed to Burst if for no other reason that the Fed has become by far the Major, and nearly only, purchaser, and with ever-more printed Fiat money yet.
This Hot Fiat Money Game cannot in principle, continue indefinitely, which is why our analysis has targeted a 10 yr. U.S. Treasury Note interest rate level which would likely signal the Bubble Burst is launching.
So far as Profit and Protection from much Dangerous Fat Tail Risk is concerned, consider Gold and Silver.
Continuing diminished tensions over Syria and the Mideast, Apparent Eurozone Recovery and Stability supported by the German reelection of Angela Merkel, and Cartel (see Notes) Price Capping all have, and are, contributing to the apparent diminishment of the Rationale for owning Gold and Silver as Safe Havens, short term and thus to a reduction in their Paper Price..
However, though Indian tariffs continue to retard legal imports, demand for Physical from India and China especially is rising, making the Price Prospects, mid to long term, Bright Indeed.
But, above all, the Price Prospects are bright because of the ongoing Fiat Money Printing By Key Central Banks around the World.
It will however likely take a Catalyst to get Gold and Silver moving decisively into an Uptrend.
But there are plenty of Potential Catalysts out there – Another Fed No Tapering Decision, in October (likely) an eruption of an intensified Mideast Crisis, a widely publicized move up in Inflation. One or more of these is sure to come, and we think one of these is likely in the next few weeks according to our timing Projections.
So last week’s No-Tapering Launch up of Gold and Silver was the first Harbinger of The Coming Bull Trend and another (likely) No-Tapering Decision by The Fed in October would strongly impel these Precious Metals higher.
In sum, Buy Physical Now while it is cheap.
It is important to reiterate that while the U.S. Equities Markets continue to be bullish, they continue to be levitating almost solely on Fed provided QE and the prospect of its Continuation – witness the Bullish Action after the Fed’s No Tapering Decision.
And if the USA’s Budget Problems are resolved (not solved) by raising the Debt Ceiling (i.e. printing more money) as is probable, Equities and the Precious Metals should launch up again (absent Major Negative Geopolitical Events) eventually to hit their all-time highs.
The only difference will likely be that Equities will eventually crash (because the artificial levitation cannot last for much longer), while the Precious Metals will likely continue to dramatically increase in value. The Main Catalysts will probably be a major sell-off of both U.S. Treasury Bonds and the U.S. Dollar.
In sum, though The Primary Trend is currently still somewhat Bullish (but with the Bull Trend weakening), Equities Markets are fundamentally very fragile. The S&P dropped 3% in August and has recently broken below, but is now back above, its 50 day MA. And, though the Dow is still above its 200 day MA, we still have several “live” Hindenburg Omen Observations.
Given the aforementioned, now is an excellent time to acquire Assets which should perform well as Dangerously Fat Left Tail Risks are Realized.
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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