Investor Opportunities to Profitably Escape Paper Wealth Destruction During 2011

By: DeepCaster_LLC

“…All told, the Fed has bought $20 billion worth of Treasuries in this fashion, $11.15 of which it purchased last week alone. With this kind of weekly money pumping in place, Bernanke and pals don’t need to continue their “behind the scenes” games (like the options expiration week money pumps).

Or do they?

Unbeknownst to most investors, last week Ben Bernanke pumped an additional $11.05 BILLION into the system ON TOP of the $11.15 pumped via the POMOs. In plain terms, the Fed juiced the system by $20+ billion in a single week, bringing its liquidity pumps RIGHT BACK to QE 1 LEVELS.

If you want to know why stocks have rallied in the last month, this is THE reason. The economy isn’t improving and the European Crisis isn’t over. Nothing has improved. All that has happened is the Fed funneled money into the Primary Dealers who ramped the market.

This is also the reason why the latest rally has almost entirely consisted of gap ups: the Primary Dealers ramp the market and then the computer trading programs take care of the rest.

In plain terms, the market is being juiced higher, plain and simple. There is no fundamental reason for stocks to be rallying. Moreover, we have numerous signs of a top forming (mutual fund cash levels, insider selling to buying ratios, negative divergence, etc). Those who choose to buy into the farce of a rally are going to get what’s coming to them. And when they do, it won’t be pretty.”

“The Only Reason Stocks Have Rallied This Month” Graham Summers, Seeking Alpha, 9/28/10

“…the world no longer trusts the US dollar, and various major powers are making plans to do business in currencies other than the dollar.

What can the US do? My suggestion would be to utilize the US’s huge (ostensibly – Ed) reserves of gold. They should mark the US’s stock of gold to the market price, and back the dollar with a percentage of the newly-priced gold…

Incidentally, there are some doubts about how much gold the US actually owns. Congressman Ron Paul has asked for an audit of the US’s gold holdings. It’s insane that anyone would be against such an audit, but Congress has, so far, not given the go-ahead for an audit.

The gold is the people’s property, yours and mine. How dare they not tell us whether the gold is there or not…

With the dollar sinking, the loss of purchasing power among Americans is both frightening and tragic…”

Richard Russell, Dow Theory Letters, 9/17/10

Note that this semi-Covert Fed Equities Market Juicing via POMOS, when coupled with the Public Juicing, constitutes a Massive (e.g. $20+ Billion in one week!) Quantitative Easing. Summers is right. The Ultimate Result of all this Artificial Market Juicing will not be pretty.

Throughout this September, 2010 just ended, it was this juicing and only this juicing that kept the Equities Markets from Crashing (and Maintained Wall Street’s Massive Profits Machine).

But note also the critically Important Effect of this Artificial Juicing on the U.S. Dollar. In that one Month of September alone, the USDX fell from 83ish on the USDX to 79ish, a drop of about 4% in the purchasing Power of the U.S. Dollar in just one month! Of course, degrading the Dollar works a de facto confiscation of the wealth of Savers and Retirees and others who hold their wealth in dollar denominated Assets.

And this U.S. Dollar Drop has helped impel Real Assets, such as Crude Oil and Grains, and Gold and Silver even higher.

Paper “Wealth” held in Dollars (or other Fiat Currencies) has been shown, again, to be vulnerable and even somewhat illusory.

Indeed, it is clear even to the simplest among us that the economy is not recovering, and, that, therefore, even more Q.E. will be coming for the rest of 2010 and well into 2011.

This raises the key question which we address “How does one profitably Escape Paper/Digital ‘Wealth’ whose value in purchasing Power terms, is deteriorating rapidly?”

Investors were understandably dismayed at the Savaging their Portfolios took in the Equities Market Crash lasting from the late Summer, 2008 and through March, 2009.

Unfortunately, given present and prospective Economic and Market Realities, Investors are likely looking at yet another Massive Loss in Paper Portfolio “Wealth” soon, unless they act to prevent it.

In order to do that it is first essential to realize much of the Paper (and electronic equivalents) which suffered dramatic Takedowns in 2008-2009 has thus been de-legitimized as a SECURE Repository of Wealth and that fact remains today.

Indeed, this delegitimization of Paper-continues increasingly to this very day. The recent Mega-Banks suspension of Foreclosures reflects the illusory character of the Ostensible Collateral underlying the “Collateralized” Mortgage Obligations. The banks not only can not prove good Title, but even if they could the Real Value of the Underlying Assets is often Seriously Impaired. The Mark to Model Accounting Deception (rather than the Honest Mark to Market) allows a temporary Disguising of this impaired collateral.

Part of the answer is to liquidate long Equities position very soon. But then what?

Fortunately, there are Opportunities to insulate oneself from the risks of holding one’s “wealth” in Paper (and to profit as well), Paper which the aforementioned Takedowns (and those which we anticipate) have revealed to be less valuable than earlier thought.

Fortunately also, employing Strategies which provide insulation from such Takedowns also provides opportunities to profit, as we indicate below.

But to insulate oneself from the risks, and to position oneself to take advantage of these opportunities for profit, one must first understand the requirements which Paper must meet in order to genuinely represent Value which is likely to endure.

First, thinking one's wealth resides SECURELY in Paper Assets-in-general (or, even more intangibly, in Evanescent Electronic Data stored on some Remote Server) is often unjustified, and, quite risky, as the aforementioned Market Savagings and recent spikes up in the Precious Metals, Crude Oil and Grains have shown.

Consider first that 'Paper/Electronic Assets' typically have NO INTRINSIC VALUE.

Indeed, Paper/Electronic Assets typically have no value at all unless they REPRESENT (or can, if liquidated, reliably generate) 'Purchasing Power' to obtain goods and services, or ownership rights in Tangible Assets.

Here we do NOT focus on Paper/Electronic Data representing Ownership rights in Tangible Assets such as Real Estate. We focus instead on publicly traded securities which, for example, typically represent 'Equity' Ownership in various business enterprises.

We do focus more narrowly on those Equities which, prior to the aforementioned Takedowns, were thought to be Secure Repositories of Wealth but which, as those Takedowns have demonstrated, were not. We characterize these “Assets” as “De-legitimized Paper.”

As the aforementioned Market Takedowns, Dollar Degradation, and Foreclosure Suspensions, inter alia, have demonstrated, the value of de-legitimized paper measured in market terms is often not SECURELY determined -- it fluctuates according to the vagaries of the marketplace. Over the past two-and-a-half years, that market fluctuation for equities has ranged from a high of just over 14,000 in 2007 to a low of about 6,400 and back up to over 10,800ish (basis the Dow) today. That still represents a considerable (nearly 30%) loss since the 2007 high, and an even greater one if inflation is factored in.

Consider also that to have relatively secure REPRESENTATIONAL value a publicly traded security must:

1. Be able to be LIQUIDATED for SIGNIFICANT value (i.e. Profit, or, at least, not a significant loss) in the market regardless of general market fluctuations, and/or

2. Pay dividends, and/or

3. Have Genuine Appreciation Potential.

But as the recent Market Crashes including the recent infamous “Flash Crash” show, many “Paper” (and arguably most) Securities do NOT RELIABLY have ANY of the above. They have thus been shown to be “De-legitimized Paper.”

In addition, many publicly traded securities (i.e. Paper/electronic) which can be liquidated for a NOMINAL profit (i.e. considering appreciation and dividends together) do NOT have a REAL Profit but rather only an Illusory one, because of four additional factors:

4. Inflation – Investments, which are subsequently liquidated, must, to show a genuine profit, show a profit in excess of Real Consumer Price Inflation. But Real Consumer Price Inflation is now running at about 8.5% annualized, according to the very credible statistics of shadowstats.com.

Shadowstats.com calculates key statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest.

Consider the following Bogus Official versus Real Numbers:

Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)

Annual U.S. Consumer Price Inflation reported September 17, 2010

1.15% / 8.5% (annualized August 2010 Rate)

U.S. Unemployment reported September 3, 2010

9.6% /    22%

U.S. GDP Annual Growth/Decline reported September 30, 2010

3% / -1.25%

U.S. M3 reported September 16, 2010 (Month of August, Y.O.Y.) No Official Report

/ - 4.29 %

In sum, to be liquidated for a ‘Real’ Profit, a Security must show a Total Return (gain plus yield) totaling well in excess of CPI currently at 8.5%. (This is why Deepcaster recently recommended Securities yielding 18.5%, 10.6%, 26%, 8%, and 15.6%, when we added them earlier this year to our High-Yield Portfolio.)

5. Fiat Currency Purchasing Power Degradation: (The ‘Flip Side’ of the Inflation Coin) The U.S. Dollar has over the past eight years lost over 30% of its purchasing power. In the middle and long term, the U.S. Dollar’s Purchasing Power will almost surely continue to degrade.

6. Market Intervention by the Fed-led Cartel* of Central Banks in the Precious Metals, Strategic Commodities, and Equities Markets. Such Market Intervention has (and can still) convert otherwise “Safe Haven” Assets (such as paper shares in Precious Metals Producers) into quite vulnerable, and (for some) ultimately, de-valued “Assets.”

*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.

But The Cartel’s capacity to Suppress Precious Metals prices has been substantially weakened in recent months. See our recent articles at www.deepcaster.com.

7. The (Increasing!) Risk of Hyperinflation which we describe in our recent Article “Velocity–Armageddon Antidotes, & Just Say “No” to 401(k) & IRA Confiscation (09/01/10)”, which can be found in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com.

One Key Point is that Hyperinflation can, and usually does, occur in a Flash resulting in a Lifetime of Paper-Assets-Building Wiped Out, as Weimar Republic Citizens can Attest.

Thus, to realize a Genuine Profit, an investment must actually and potentially “overcome” all seven of the aforementioned, not to mention overcoming typical Adverse Market Action as well.

Given the above hurdles and the magnitude of recent Takedowns, one inference is clear: Any 'Buy and Hold' Strategy will in most cases be doomed to failure.

Thus The Solution to the aforementioned Challenges must be A Strategy.

Indeed, The “Opportunities to Escape Paper ‘Wealth’ in 2011” reside in adopting such a Strategy.

Successful Investors must be Position Traders with a long-term perspective. Deepcaster has developed such a Position Traders Strategy (particularly relevant to the Gold and Silver markets) additional specific details of which are available in Deepcaster’s 3/28/08 Alert "Defeating the Cartel...with Profit" in the 'Alerts' Cache at www.deepcaster.com.

Moreover, that Strategy must not only take account of Fundamentals and Technicals, but also Interventionals as the Summers excerpt above demonstrated. In addition, there is a strong preference in that strategy that one’s Paper Assets be linked to Tangible Assets as we describe below.

Generally speaking, with the Major Caveats listed herein, the more closely

one's assets are linked to Tangible Assets, and especially to those Tangible Assets which are in great and relatively inelastic demand, the more secure and potentially profitable one's investments will be, in the long term.

This means, for example, that the Opportunities to Profitably escape Paper Wealth in 2011 lie in Precious Metals, Agricultural products, Consumer staples, Energy and similar Tangible Assets Sectors, BUT taking into account the Caveats we note.

Deepcaster has long been, and still is, an advocate of Gold and Silver, as not only the best hedges against Inflation or Deflation, but as having the best Profit Potential. Indeed, These Ultimate Monetary Metals, are our #1 and #2 Selections as the best Fortress Assets for Profit and Protection.

Therefore, Deepcaster has two open ‘Buy’ Recommendations on a particular form (Resistant to Cartel Takedowns) of these Metals. And, as Regular Readers know, Deepcaster has for weeks maintained these open ‘Buy’ Positions notwithstanding ongoing and prospective Gold and Silver Price Suppression Attempts by the Fed-led Cartel* of Central Bankers.

However, regarding Gold and Silver, as we indicated several Months ago, The Cartel’s* Precious Metals Price Suppression Capacity has been weakened considerably by Recent Revelations catalyzed by GATA, Deepcaster, and others, that e.g. certain Major Gold Repositories have very little of the actual Physical Metal that they claim they have.

This has, thankfully, led to an increased demand for delivery of and possession of Physical Gold and Silver.

Deepcaster sees this Fall, 2010 period as critical for The Cartel. Will they continue to be able to suppress Precious Metals Prices? The next few weeks should tell the tale. [To see Deepcaster’s Forecast regarding whether The Cartel will be able to reverse the, thus far relentless, advance of Gold and Silver, see our latest Forecast in the ‘Alerts Cache’ at www.deepcaster.com.] Or has the intensified buying and taking possession of Physical Precious Metals made Precious Metals prices immune from suppression.

Indeed, GATA Board member Adrian Douglas makes a very strong case that The (Second) London Gold (Price Suppression) Pool is likely to fail imminently, thus propelling Gold and Silver to even higher New Highs, very soon.

In any event, in the Middle and Long Term, Gold and Silver are the World’s Best Bets to rise dramatically in terms of all Fiat Currencies.

Thus they are the best Antidotes to a prospective Monetary Velocity-Armageddon and thus the best opportunity to escape Paper “Wealth”.

Best Regards,

By DEEPCASTER LLC

www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
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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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