Essential Investor Knowledge for Maximizing Real Gains
Stock-Markets / Financial Markets 2014 Mar 01, 2014 - 10:53 AM GMTBy: DeepCaster_LLC
“Noted investor Jim Rogers says outgoing Federal Reserve Chairman Ben Bernanke has set the stage for the collapse of the U.S. central bank within the next decade, and had turned the nation’s fiscal balance sheet into ‘garbage.’
“In a recent interview with the British financial website Mineweb, Rogers said Bernanke and his fellow central bankers in other countries have brought the global economy to the brink of disaster….
“Rogers predicted that history will remember Bernanke as ‘the guy who set the stage for the demise of the central bank in America.’
“‘It’s not a possibility,’ Rogers said, ‘it’s a probability. People will realize that these guys have led us down a terrible path. The Fed balance sheet has increased by 500 per cent in the last five years, and a lot of it’s garbage.’…”
“Jim Rogers: The Federal Reserve’s Days Are Numbered,”
Moneynews, 01/06/2014
Master Investor Jim Rogers’ Negative view of the private-for-profit Fed is echoed by former Director of the OMB, David Stockman, who said that The Fed has created “The Mother of All Bubbles.” We agree, and would add that the ongoing and prospective Effects of Fed Policy and Market Interventions are the Most Essential Data (among several) for Maximizing Real Gains going forward.
So it is Important to Understand How and Why Fed Policies and their Effects are Most Essential. And How can Investors and Traders Profit and Protect from them?
Indeed, Signals from Interventions, as well as Fundamentals and Technicals have facilitated Deepcaster’s recent Profitable Recommendations (see Note 3 below).
“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
Indeed, a few months after Ian Gordon correctly announced “the credit bubble is blown up,” it (the housing Bubble), bust and the 2008-2009 Market Crash ensued.
But there is an even greater wealth destroying effect of Fed money-printing Policies – the Destruction of the Purchasing Power of that Fiat Currency itself.
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 March, 2012 highs.
These Highs lulled some investors and several commentators into believing that they had Real Gains as of September, 2007 or March, 2012. Unfortunately, when properly measured, many of these Ostensible Gains actually are not.
Deepcaster contends that 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. 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.
As an Alternative Measure, 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 9.17% (as of February, 2014) 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 and Chart).
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.
Deepcaster‘s view is that the Ultimate Measures of Value should be Gold (first), then Silver and the other Precious Metals and Key Strategic Commodities (i.e., generally, Tangible Assets including especially Crude Oil 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—including The Fed’s $4 Trillion Balance Sheet!) 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.
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 (see Note 1). Even Money of Zero Maturity (MZM) has increased 10-fold since 1980.
Thus Gold and Silver Prices should reflect this Monetary Inflation, and indeed they have with the Gold Price increasing four-fold in the past decade. But owning Gold and Silver is challenging.
In other words, one should employ this Golden Tangible Asset ―Ultimate‖ Valuation Measure but with caution because the prices of the aforementioned Precious Metals and other commodities, as well as Equities, are periodically the victims of Interventional Action by a Fed-led Cartel (see Note 2) of Central Bankers and their Allies and Agents. Indeed, some Interventions are conducted quite publicly. Interest Rate Adjustments are the most publicly visible. The August 17, 2007 Fed Discount Rate Cut 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 manipulate the levels of the Equities Markets. And there are other Potential and Ongoing, but barely visible, Interventions as well.
For example, nearly $470 billion in OTC (i.e. Dark, not Exchange Traded) Derivatives were available to suppress Gold prices alone as of June, 2011 (as reported by the BIS, the Central Bankers’ Bank based in Switzerland - 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 $3000/oz. by now.
For example, observing the markets upon arising on Tuesday, August 19, 2008, Deepcaster noted that the two main stories headlined in the Big Financial Media were the prospective collapse of Fannie Mae and Freddie Mac, as well as the July PPI increase of 1.2% — twice what was expected.
Of course, as Safe Havens, Gold and Silver should have rocketed up on this news but, instead, Gold was taken down several dollars at the time and moved very little when the PPI number was announced.
Similarly, in mid-March, 2008 when the Financial Crisis culminated (temporarily) with the demise of Bear Stearns, Gold and Silver were smashed down, whereas in a Free Market they would have shot up.
Clearly Gold and Silver Prices were and still are subject to capping attempts, as they seem to have been nearly every time negative economic data or market developments are revealed.
However, the Cartel is finding it increasingly difficult to successfully and sustainably cap paper prices because of huge drawdown of available bullion, bullion which is increasingly being shipped to China (e.g., recent 360% increase year over year).
One insight which we garner, again, from these and many similar observations is that it is essential to consider the Interventionals as well as the Fundamentals and Technicals when making a Market Forecast or Buy or Sell Recommendation.
Thus, for example, 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 the ‘Articles by Deepcaster’ Cache 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. [However, on the positive side, our attention to Interventions and related signals has facilitated several Profitable Recommendations recently – see Note 3].
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.
“QE to Infinity is set in cement in the ‗European Stabilization Mechanism Treaty‘. This is the new European Union and the euro. It will be in place and operative by July of 2012.
“The European Stability Mechanism (ESM) is a permanent rescue funding programme to succeed the temporary European Financial Stability Facility and European Financial Stabilisation Mechanism in the 17-member Eurozone. The ESM is due to be launched as soon as Member States representing 90% of the capital commitments have ratified it, which is expected in July 2012.”
Jim Sinclair, Mineset, 04/19/2012
And Ellen Brown eloquently describes the profitable consequences of the ESM bailout coup for private mega banks, some of which are shareholders of The private, for-profit Fed!
“The Goldman Sachs coup that failed in America has nearly succeeded in Europe—a permanent, irrevocable, unchallengeable bailout for the banks underwritten by the taxpayers”
“The European Stabilization Mechanism, or How the Goldman Vampire Squid Just Captured Europe,” Ellen Brown, webofdebt.com/articles, 04/18/2012, via LeMetropoleCafe.com
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, because their Paper Prices are Manipulated. We invite the reader to consider the consequences of using the 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.
As long as the private-for-profit United States Federal Reserve and ECB continue to profligately expand the supply of money and credit, we will see continuing debasement of the U.S. Dollar and Euro in Purchasing Power Terms and this virtually guarantees Price Inflation and another Bubble, a Financial Assets Bubble which caused Billionaire Carl Icahn to correctly call the current (3/1/2014) levels of Stock Prices a “Mirage.” Thus much of the Financial Asset, in terms of U.S. Dollars, which we have seen in recent years, is really only dollar depreciation. Indeed, the U.S. Dollar has depreciated over 30% between January, 2002 and July, 2008, for example.
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.]
Specifically, for example, measured (as of May 1, 2006, just to pick a salient date) against Gold or even other currencies, the ostensible appreciation of financial assets from late 2002 through the end of April, 2006 is arguably only a delusion. 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.
John Brimelow, a savvy long-time observer of Markets writes,
“Bloomberg, which in JBGJ‘s informed opinion is exceptionally top-down directed on an ideological basis even by American mainstream Media standards, has apparently been mobilized to counteract inflation fears: CPI Conspiracy Theories Fail to Die with Banana-to-Haircut Check. The invocation of the ‘Conspiracy Theory’ concept in the context of 21st Century America polemics is the most extreme form of antithematization. “Excommunication if this severity suggests alarming inflation data at least at the anecdotal level is looming.”
JBGJ LLC, 04/18/2012
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, like basis Foodstuffs, interests in Food Producers and Distributors and Crude Oil.
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 still subject to the considerable price manipulation Suppression Attempts by The Cartel of Central Bankers (Note 2).
[Indeed, as long as The Cartel is in a very active interventional mode (e.g. as in taking down the price of Gold and Silver periodically) one should not be lured into thinking that the periodic up spikes in the prices of Gold and Silver necessarily present a "breakout" or a buying opportunity. As a practical matter, technical breakouts are sometimes a lure designed to suck in more "longs" prior to a subsequent deeper Takedown. Consider the parabolic spike up in both Gold and Silver prices in the hours before the Massive February 29, 2012 Takedown began.]
However, there is increasingly reason for optimism. The Cartel‘s ability to implement and 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.
Moreover, Central Banks have begun to be Acquirers of Physical, and China has become (and India is) a Major net importer.
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 his most recent Forecasts in his latest Letter and Alerts 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.
As Jim Rogers and David Stockman point out, Fed Policy is impelling us to such a Climax.
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 (9.17% as of February, 2014 in the U.S. See Note 1)
In sum, among the key components of Deepcaster‘s prescription for achieving ―Real Gains‖ are:
1. Locating one‘s capital primarily in Tangible Assets which are in great and relatively inelastic demand, including in
2. The Agricultural Commodities, Production and Distribution Sector (which by the way, have generally begun to uptrend in late February, 2014), and in the
3. 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.
4. Stay informed, daily, as much as possible, regarding “The Interventionals” as well as the Fundamentals and Technicals.
5. Know the Real News and Real Statistics. Do not rely on often-spun MSM “News” and Bogus Official Data.
6. Monitor the Value of the $US, since it is the Advent of Major Climacterics.
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 Interveners extremely active it behooves investors to regularly attend to the Interventionals as one acquires, and disposes of, and reacquires Key Tangible Assets.
Deutsche Bank assures us that the Worst is yet to come
“The worst may be yet to come in the global financial crisis as the central bank spending that kept defaults low runs out, according to Deutsche Bank AG.
Credit-default swap prices imply that four or more European nations may suffer so-called credit events such as having to restructure their debt, strategists led by Jim Reid and Nick Burns said in a note. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments including Spain and Italy jumped 26 percent in the past month as the region‘s crisis flared up.
“’If these implied defaults come vaguely close to being realized then the next five years of corporate and financial defaults could easily be worse than the last five relatively calm years,’ the analysts in London said.
“Much may eventually depend on how much money-printing can be tolerated as we are very close to being maxed out fiscally.”
“Deutsche Bank: Worst of Global Crisis Yet to Come as Rescue Cash Runs Out,” Bloomberg, 04/18/2012
That analysis, written nearly two years ago, is even more strongly applicable today.
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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