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“…if they print enough money and
the value of the U.S. Dollar collapses... Then the… Dow Jones can go to
1 Million…in worthless currency…”
Jim Rogers
June 5, 2009
“The Fed is embarked on a vast
experiment in moral hazard”
James Grant
Grants Interest Rate Observer
CNBC, June 10, 2009
The most salient of today’s many Economic
Negatives provides an excellent Profit Opportunity for those savvy enough to
exploit it.
Though the Equities Markets have been rallying
throughout the Spring, 2009, there are not many analysts who think the
Economic Fundamentals provide a healthy basis for a sustainable Market
Rally. Deepcaster
agrees that the Fundamentals are lousy.
And we have laid out in recent articles a whole
panoply of reasons that the economy is not likely to return to health for
many months.
One of the more important is that the U.S.
Consumer/Taxpayer and, often, Mortgage holder who is 70% of U.S. GDP is
increasingly stressed. The
Bailouts and Stimulus Bill have done virtually nothing to improve the
long-term prospects for these people who constitute seventy percent of the
U.S. Economy.
Consider also that the Gross U.S. Federal Debt (of
these Taxpayer/Consumers) stood at $11.322 Trillion as of May 31, 2009
(shadowstats.com) and is still rising.
The U.S. Decline in Retail Sales (3-Month Moving
Average) was the worst ever as of May, 2009 it fell by 9.56%
(shadowstats.com).
The April U.S. Trade Balance Gap widened to $29.2
billion, according to shadowstats.com.
And Real U.S.
Unemployment is 20%, per shadowstats.com. Shadowstats.com is a service which calculate key statistics as they were
calculated prior to official gimmicking which began in 1980’s and
1990’s.
But perhaps the most salient of the long-term
Economic Negatives is the avalanche of Fiat Money (whether printed or created
with keystrokes) unleashed upon the Markets and Economy by the private
for-profit U.S. Federal Reserve in recent years, and, especially, in
recent months.
Unfortunately, much of the Fiat Money has been
“borrowed” from The Fed (which prints it for free) by the U.S.
Taxpayer, who then is on the hook to repay it to The Fed with interest. (See Deepcaster’s
“Coping with the Superpower–Cartel Threat”, 1/30/09 in the
‘Articles by Deepcaster’ cache at
www.deepcaster.com)
A fundamental problem with these increasing
borrowings is that the Crises which were created in large part by excessive
monetary expansion and credit expansion (caused by The Fed) can not in
the long term be cured by even more monetary and credit expansion.
Thus the Economy and the Markets are destined to see
some dark days in the months ahead when the Fed-catalyzed hyperinflation
policies bear their bitter fruit.
That is, Rogers and Grant are both right.
The private for-profit Fed’s Policy of extreme
and persistent liquefaction has been leading and continues to lead to
“moral hazard”, including credit and leverage excesses and to the
debasement and ultimate collapse of the U.S. Dollar.
It is important to examine the numbers because they
reveal the magnitude of this reckless (but profitable for The Fed) Fed Policy
of Monetary Inflation. We see
that M3 increase reached its height near 17% annually at the beginning of
2008, and is still at about 7%, as of June 6, 2009 according to Shadowstats.com’s calculations (The Fed began
hiding M3 in March, 2006).
But this Liquidity Deluge can lead to Profits for
those able to exploit it. How?
While in the long run the Fiat Currency and Credit
Avalanche is hyperinflationary -- with Jim Rogers statement that we could see
“Dow one million … in worthless currency”, being only
slightly tongue in cheek, (See Deepcaster “Opportunties to Escape Paper ‘Wealth’”
11/07/2008 in the ‘Articles by Deepcaster’
cache at www.deepcaster.com), -- in the short run all that liquidity
must go somewhere.
And in that fact lies an
essential key to profit. If one
monitors, as Deepcaster does, the Sectors/Countries
into which money is flowing, that provides an excellent key to potentially
profitable Market Trends.
In recent months, for example, Money has been
flowing into the “BRIC” (Brazil, Russia, India, China)
and other emerging Market Countries and Markets. Seeing the beginning of this trend a
few months ago, Deepcaster recommended purchasing a
China ETF, and just recently recommended taking profit on it.
But the Sectors which are beneficiaries of this
Liquidity Deluge are ever-changing.
Thus one essential Maxim for implementing this Strategy is that one
can not just ‘Buy and Hold’ and expect that Strategy to be
profitable.
“Buying and Holding” not only renders
one’s wealth vulnerable to a Market Crash like the Fall, 2008 Crash
(and we forecast yet another Crash – see Deepcaster’s
‘Latest Letter’ and ‘Alerts’ at www.deepcaster.com for details), but also almost guarantees that any nominal
appreciation will be outpaced by hyperinflation. Lest one think that is not a danger
due to the deflationary forces now extant, consider that the Real Level of
U.S. Consumer Price Inflation is still a 7% annualized as of shadowstats.com
May 15, 2009 report.
One other Consideration is essential when
implementing this Strategy. In
“following the liquidity” one must also follow the Overt and
Covert Market Interventions by The Fed-led Cartel*. There is clear and convincing evidence
that a Fed-led Cartel* of Central Bankers and allies regularly manipulate the
Precious Metals, Equities, and Strategic Commodities and other Markets.
*We encourage those who doubt the scope and
power of Intervention by a Fed-led Cartel of Key Central Bankers and favored
financial institutions to read Deepcaster’s December, 2008 Letter containing
a summary overview of Overt and Covert Intervention entitled “A
Strategy for Profiting from the Cartel’s Dark Interventions &
Evolving Techniques” and Deepcaster’s July, 2008 Letter entitled
“Market Intervention, Data Manipulation - - Increasing Risks, The
Cartel End Game, and Latest Forecast” at www.deepcaster.com. Also consider the
substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org 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.”
Thus, while Gold and Silver are legitimately the
“go-to” Assets to protect against and Profit from hyperinflation,
investments in them should be implemented according to a Strategy which helps
insulate against losses caused by the regular Cartel Interventions to cap and
drive down prices. Deepcaster has
developed such a Strategy. See
Deepcaster’s “Defeating the Cartel with Profit” (3/28/08)
in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.
Thus the Essential Maxim for Profiting in our
Hyperinflationary Universe is: “Follow The Liquidity and Interventionals, and Eschew ‘Buy and Hold’”.
Deepcaster LLC
Deepcaster.com
All
the other articles by Deepcaster
Wealth Preservation - Wealth Enhancement
Financial and Geopolitical Intelligence
Gravitas, Pietas, Virtus
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