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“With Key
Mega-Financial Institutions around the World claiming in 2008 that they
risked collapse if they were not bailed out, one must ask which ones
benefited from the $13 Trillion plus Increase in Gross Market Value of
their OTC Derivatives in the six months between June, 2008 and December, 2008
when the Equities Markets were crashing? A logical Conclusion: Key Central
Bankers and Favored Financial Institutions of The Fed-led Cartel*, quite
possibly including the shareholders of the private for-profit U.S. Federal
Reserve”
Deepcaster, May 29,
2009
For investors, both
Opportunities and Threats reveal themselves in the recently reported stunning
drop ($90 Trillion+) in Total Notional Value of OTC Derivatives
Contracts Outstanding worldwide and an equally stunning rise ($13 Trillion+)
in Actual Gross Market Value of OTC Derivatives Contracts Outstanding,
in just the last 6 months of 2008. (See Chart Below)
The Total Notional Value of OTC
Derivatives Outstanding dropped from some $683 Trillion as of June, 2008 to
$592 Trillion as of December, 2008, according to the Bank for
International Settlements (BIS – the Central Banker’s Bank
– see www.bis.org, Path: Statistics
> Derivatives > Table 19) (Ed Note: A Rough “Cocktail
Party” Definition of “Notional Value” is “Unrealized
Potential Maximum Value.”)
This first drop in Notional
Amount of OTC Derivatives Outstanding in years, mainly reflects the massive
deleveraging which occurred during the Fall, 2008 Market Crash.
Perhaps even more stunning was
the drop in Notional Amounts of OTC Gold Contracts outstanding from $649
Billion in June, 2008 to $395 Billion as of December, 2008. Yet the change in
Gross Market Values of the OTC Gold Contracts outstanding during that period
was minimal – a drop from $68 Billion to $65 Billion. We comment on
what that portends for Gold below.
In order to determine and
evaluate the Opportunities and Threats created by the aforementioned drop in
Notional Value of OTC Derivatives outstanding coupled with a dramatic
increase of $13 Trillion in Gross Market Values we must first consider a few
facts.
To put the Derivatives Monster
in perspective, consider that the value of all publicly (exchange-traded)
Equities now existing in markets world-wide is “only” about $31
Trillion.
That $31 Trillion is only just
over 5% of the still remaining nearly $600 Trillion in Notional OTC
Private (i.e. Dark) Derivatives Contracts outstanding. The implications are stunning:
- If the unwinding of a
“mere” $91 Trillion in Derivatives contracts (to
bring the Total down to $592 Trillion from $683 Trillion) reflected the
Magnitude of the pain that the Fall, 2008 Crash caused, then imagine the
Pain which awaits if and when (and probably when) any substantial
Portion of the $592 Trillion remaining get unwound.
- But a substantial portion
will likely have to be unwound given that various ongoing Crises have
yet to be resolved, and, in many cases are worsening e.g.: Consider:
- The U.S. Treasury/Fed etc
have already committed some $12.8 Trillion (by one reckoning)
for Bailouts, Loans, Stimulus packages and Guarantees, much of it
borrowed from, or guaranteed by, U.S. Taxpayers. Yet, clearly, the
Toxic Derivatives problem has a long way to go before being solved.
- The Fed has moved over
$577 billion of U.S. Treasures onto its Balance Sheet in the short time
since it publicly admitted it was monetizing the Debt. (One wonders how
many hundreds of Billions in Treasures were moved (and where!?) before that public
admission.)
- The Chinese are switching
from a U.S. Dollar basis to a Yuan basis domestically.
- The Chinese have
authorized certain non-Chinese Banks to sell Yuan – based
government Bonds.
- Foreign Creditors own over
half the U.S. Dollar based government and Agency bonds leaving the fate
of the U.S. Economy and Security in the hands of foreigners and
primarily the Chinese government.
- The United Arab Emirates are spearheading plans to launch an
Asset-backed (likely with Gold and Crude Oil) Currency, the Dinar.
- Germany has reportedly
demanded return of all Gold held in custodial Accounts in the U.S.
- The Chinese have increased
their Gold reserves from 400 Tonnes to over 1,000 Tonnes in the past
five years.
- The default rate on U.S.
Option ARMS recently rose to 35%. There are still some $300 Billion of
these loans still outstanding.
- The interest Rates on
about one Million Pick N Pay loans will reset in the next two years.
- Clearly, given the
foregoing, acquiring Gold and Silver as Safe Haven Assets is the Prudent
Course. However, Gold and Silver are subject to price Manipulation by
the Fed-led Cartel* of Central Bankers and Favored Financial
Institutions as we explain below. But we also explain that there is a
Strategy to Profit from these Interventions while acquiring an
increasing core Position in these Precious Metals.
- A substantial portion of
the aforementioned $592 Trillion in OTC Derivatives is available to The
Fed-led Cartel* to continue to overtly and covertly
manipulate the Precious Metals, Strategic Commodities, and Equities
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.”
- And Market Manipulation is
an Enterprise
with Great Profit Potential. Consider specifically, as of June 2008 the
Gross Market Value of all Derivatives Outstanding was $20,353
billion (see chart below). By December 2008, that $20 trillion has risen
to $33,889 billion, a rise of over $13 trillion in Actual Gross Market
Value of OTC Derivatives. Clearly, some of the Derivatives that were
liquidated in the drop from the notional value $683 to $592
trillion resulted in (or, at least, were accompanied by) a very
considerable increase in market value (otherwise known as
“profits” – whether realized or unrealized) for the
Mega Financial Institutions holding them.
These remarkable
developments reflected in the BIS Gross Market Value of OTC Derivatives
figures (below) for period June 2008 through December 2008 prompt certain
questions.
a)
First question:
which financial institutions in the world experienced an increase in $13
trillions of market value in their OTC Derivatives Positions in the
last six months of 2008 while the Equities Market were crashing?
b)
Why do
we not see anyone publicizing this information (Tongue-in-cheek-intended)
much less the private for-profit U.S. Federal Reserve, which has declined to
respond to inquires from Members of Congress about the specific amounts of,
or parties to, their transactions and holdings.
c)
Can we
not logically conclude that some Mega-financial entities profited immensely
from the market takedowns of the Fall 2008 – specifically profiting in
the amount of $13 Trillion in increase Gross Market Value of derivatives
owned?
Consider too
that the aforementioned figures were generated by the Ultimate Official
Source. They come from the Bank of Central Banks itself, The Bank Of
International Settlements, Switzerland,
housed in the Tower
of Basel.
Indeed we
encourage readers to consider the figures themselves, by visiting
www.bis.org > statistics > derivatives > Table 19,
“Amounts outstanding of over-the-counter (OTC) derivatives by risk
category and instrument.” Of course, not all “official”
statistics are accurate as we demonstrate below. Indeed, some are
intentionally misleading.
But an
increase of $13 trillion in gross market value of Derivatives held by
major Financial Institutions, is testimony to the Resources and Power of The
Fed-led Cartel*. See Deepcaster’s article “Coping with the
Superpower-Cartel Threat!” (1/30/09) at www.deepcaster.com.
- Moreover, Key Statistics
continue to be gimmicked by Official Sources much to the detriment of
American Citizens and Investors Worldwide.
Indeed, the True State of the
Economy is much worse than the Official Figures suggest.
As the Real Numbers mentioned
below demonstrate, our ongoing economic and financial crisis is not
merely a “normal” business cycle Recession, but a
System-Threatening Crisis. Indeed, we have entered into a Depression.
(see below)
It is thus another Naïve
and False Assumption that the Official Figures accurately reflect the state
of the Economy and Markets - - for example, that the current Recession is
merely a normal “business cycle” phenomenon.
Making matters worse, Investors
and citizens-at-large are misled by Official Statistics which have been
gimmicked, as shadowstats.com demonstrates. All of the following
Genuine Numbers are calculated by shadowstats.com, which calculates them
according to traditional methods used in the 1980s, and early 1990s, before
The Political Adjustments currently being utilized began.
Consider the following Real
Numbers from shadowstats:
U.S. Consumer Price
Inflation (CPI) actually averaged about 11% annualized for much of
2008, rather than the 5% to 6% figures, which have been reported as Official
Statistics. Thus, the consumer must cope with diminished purchasing
power and the threat or reality of job loss.
Though Official Figures show CPI
dropping to 0% in early 2009, the Real early 2009 numbers reveal that CPI was
still about 7% annualized.
U.S. Unemployment has (according to
Official Numbers) been ranging 4% to 6% from 1995 to 2007, spiking
“only” to about just under 7% in late 2008 and 8% in early
2009. In fact, Real U.S. Unemployment in 2009 now about 20% and
is still increasing. (shadowstats.com) Thus the consumer (70% of U.S.
GDP, we reiterate) is increasingly unemployed, under-employed, and indebted.
As well, the Delusion of
Economic Growth claimed by Official Statistics is just that - - a
Delusion. Real GDP growth has been negative since 2004.
Indeed, in early 2009 GDP “growth” is a negative 5%. (shadowstats.com)
Thus the consumer is faced with a deteriorating economy, as well as diminishing
job prospects and purchasing power.
As well, the 2008 U.S,
Federal Deficit, rather than being about $1 trillion as reported
officially, is over $5 trillion if one includes Social Security and
Medicare. And, if downstream-unfunded U.S. obligations are included, the U.S. National Debt is
about $66 trillion and rising!
Knowing these Real Numbers
facilitated Deepcaster’s recommending “Opportunities in the
Impending Perfect Storm” - - the title of his early September, 2008
(pre-Crash) Article warning of the impending Crash (available in the Articles
Cache at www.deepcaster.com) and his making five
short (and subsequently quite profitable) recommendations to subscribers at
about that time.
A Strategy for Profit
and Protection
Normally, (that is to say, in a
Genuine Free Market situation) the go-to “Safe Haven” Assets in
times of Financial Crisis would be the Precious Monetary Metals Gold and
Silver, as well as other assets such as Strategic Commodities.
We say “normally”
because nearly every time yet another Financial Market Crisis has come
prominently into the public eye in recent years The Cartel* of Central
Bankers has successfully taken down the price of what would normally be The
Safe Haven Assets - - the Precious Monetary Metals. A prime example
occurred during the much-publicized demise of Bear Stearns in March, 2008,
which was accompanied by a vicious Takedown of Gold and Silver. In a
non-manipulated Market, given the fact that Bear Stearns reflected great and
increasing weaknesses in the Financial System, Gold and Silver should
have skyrocketed. But instead they were dramatically taken down.
Yet, the late 2008 - early 2009
Crises appear to be different. Gold launched from the mid
$700s/oz. to around $900/oz. during September, 2008, fell back to the low
$700s and then launched again toward $900 in December, 2008 and has actually
exceeded $900 several times in 2009.
So the question now, near the
beginning of June, 2009, is it different this time around? Have Gold
and Silver finally thrust off the shackles of Cartel
Intervention? Or will The Cartel be able once again to cap and
take down the prices of these Precious Monetary Metals and Strategic Commodities?
Deepcaster has very recently addressed this question in a Forecast he issued
for the likely fate of Gold, Silver, Crude Oil & the U.S. Dollar in the
Alerts Cache at www.deepcaster.com.
One thing is certain: The
Cartel will certainly attempt again to take down Gold, Silver and
Crude Oil at the earliest opportunity because the Strategic Commodities and
Precious Monetary Metals are Competitors as Stores and Measures of Value with
the Central Bankers’ Treasury Securities and Fiat Currencies.
Yet there is a Strategy which
accommodates Cartel Interventional attempts and at the same time provides
excellent Profit Opportunities, whether the Cartel Interventional attempts
are successful or not.
A major premise of The Strategy
is that one can certainly remain a Hard Assets Partisan (as Deepcaster is)
while at the same time insulating oneself somewhat from future Takedowns.
The following points provide an outline of The Strategy (particularly as
applied to the Gold and Silver Markets) and are designed to help avoid
Portfolio unpleasantness, or even possible financial ruin, in the future, as
well as to profit along the way:
1)
Recognize
that The Cartel is still Potent, as difficult as that may be psychologically
for Deepcaster and other Hard Asset Partisans to acknowledge. The
Cartel is still the Biggest Player in many markets and, if the timing
and market context are propitious, the Biggest Player makes Market
Price. In addition, The Cartel has the advantage of de facto
controlling the structure and regulation of various marketplaces and that is
a tremendous advantage; just as the Hunt Brothers years ago discovered much
to their dismay and misfortune, when they tried to corner the Silver Market.
2)
Accumulate
Hard Assets near the Interim Bottoms of Cartel- engineered Takedowns.
3)
In
order to know when one is likely near the bottom of a Cartel-generated takedown,
it is essential to take account of the Interventionals as well as the
Technicals and Fundamentals. Paying attention to the Interventionals
facilitated Deepcaster recommending five short equities positions as of early
September (just before the Fall Crash) all of which we subsequentially
recommended be liquidated profitably.
4)
For
example, regarding Gold & Silver, near such Interim Bottoms, accumulate a
combination of the Physical Commodity (Deepcaster prefers “low premium
to melt” bullion coins) and well-managed Juniors with large
reserves. (Deepcaster provides a list of such Junior Candidates in our
December 20, 2007 Alert “A Strategy for Profiting from Cartel
Intervention” available in the Alerts Cache at www.deepcaster.com.) The
“Physical” and “Juniors” are for holding for the
long-term as a Core Position.
5)
Then, to
the extent one wishes to speculate on the next “long” move, one
should buy the major producers or long-term call options on them. These
latter positions are for ultimate liquidation at the next Interim Top and are
not for holding for the long-term.
6)
However,
there will be a time when The Cartel price capping is ineffective and Gold
& Silver make record moves upward. The benefit of this Strategy is
that one will likely be long in one’s speculative positions when this
happens.
7)
Near the
next Interim Top, liquidate the long options and majors. Again, in
order to know when we are close to the next Interim Top, it is essential to
monitor the Interventionals, as well as Fundamentals and Technicals.
8)
Near
that Top, sell short or buy puts on Majors. We re-emphasize the Majors
as preferred vehicles for trading positions because such positions are more
liquid and tend to be quite responsive to Cartel moves.
9)
Near the
next Interim Bottom, cover your shorts and liquidate your puts and go long
again to begin the process all over again. We emphasize that it is
essential to consider the Interventionals as well as the Fundamentals and
Technicals in order to determine the approximate Interim Tops and Bottoms.
10)
Finally,
Hard Assets Partisans have the opportunity to become involved in Political
Action to diminish the power of The Cartel. It is truly outrageous that
the average unsuspecting citizen, and prospective retiree, can and does put
his hard won assets in Tangible Assets and/or Retirement Accounts only to
have those assets effectively de-valued by Cartel Takedowns and other Cartel
actions. This is extremely injurious to many average citizens in many
countries who are saving for the rainy day or retirement and have their
retirement and/or reserves effectively taken from them. In order to
help prevent this and similar outrages, we recommend taking three steps:
a)
Become
involved in the movement to Audit and then abolish the private-for-profit U.S. Federal Reserve as Deepcaster, former
Presidential candidate Rep. Ron Paul, and legendary investor Jim Rogers, all
have advocated. The ‘Audit The Fed’ Bill is H.R. 1207 (and has
over 180 co-sponsors); and The Abolish The Fed Bill is H.R. 2755.
b)
Join
the Gold AntiTrust Action Committee, which works to eliminate the
manipulation of the Gold and Silver markets (www.gata.org). GATA is a
non-profit organization, which makes a great contribution by gathering
evidence regarding the suppression of prices of Gold, Silver and other
commodities.
c)
Work
to defeat The Cartel ‘End Game.’ Deepcaster has
laid out the evidence regarding the Ominous Cartel “End
Game.” Clearly The Cartel is sacrificing the U.S. Dollar to prop
up Favored International Financial Institutions and to maintain its
power. But this sacrifice cannot continue forever. See
Deepcaster’s July 2008 Letter in the ‘Latest Letter’
Archives at www.deepcaster.com.
If this aforementioned Strategy is employed
effectively, it can result both in an increasing Core Position in Gold and
Silver, and in considerable profit along the way.
Additional insights and details
regarding this Strategy, which are essential to profiting from The
Cartel’s Policies, are laid out in Deepcaster’s article of
3/06/09 entitled “Investor Advantage: Revisiting The Cartel’s
‘End Game’.”
Protection and profit required
Proactivity and attention to the Interventionals, Fundamentals and
Technicals, not “Buy and Hold.” “Buy and
Hold” rarely succeeds anymore as current market conditions attest.
Indeed, the Key Point of the
Strategy for Protection and Profit is careful attention not only to the
Fundamentals and Technicals but also to the Interventionals. These
Overt and Covert Cartel-generated Interventions have the power to move
markets as those who study the matter can attest.
Thus, the Key to Profit and Protection is a Strategy:
Successful Investors must become Long-Term Position Traders, with their
trading choices informed by the Interventionals, as well as the Fundamentals
and Technicals. Moreover engaging in the Actions suggested above can help
prevent The Cartel’s obtaining Superpower status, and aid in achieving
wealth protection and profits as well.
Deepcaster LLC
Deepcaster.com
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the other articles by Deepcaster
Wealth
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