Avoiding The Trip to Q.E. Hell
Stock-Markets / Financial Markets 2010 Oct 22, 2010 - 01:29 PM GMTBy: DeepCaster_LLC
“Quantitative Easing will some day be looked back upon as we now look at healing the sick through bleeding back in the 1700s. It is terrible economic policy, in fact should be considered criminal activity. Criminal for many reasons, such as debasing the value of the Dollar, but more importantly because it will be the final nail that destroys our economy. Wall Street is the key beneficiary. Households (consumers) which account for 70 percent of GDP, and small businesses, which account for 70 percent of employment, will not benefit from this fraudulent activity by the Federal Reserve. Where on earth is it right for someone to print trillions of Dollars out of thin air and then buy legitimate legally binding debt instruments in exchange for this printed paper? Anyone else doing this would be arrested and thrown in jail, with the key tossed into the deep blue sea&h
…let’s explore why it is a fraud on pretty much everyone except the sellers of the fixed income securities the Fed will be buying, primarily mega Wall Street firms, surrogates for the president’s Working Group (the Plunge Protection Team).
Bernanke suggested in his speech in Boston Friday on the subject of QE2, that he is justified in doing this to raise the inflation rate, which he believes is too low, and to increase employment. His economics are dead wrong. He believes it is perfectly appropriate to print trillions of dollars of U.S. Federal Reserve notes (Dollars) out of thin air, and then send this money from the Fed’s print shop across the invisible wall that separates the real economy from the non-economy (the Fed) to the lucky recipients of this cash. Here is the problem: This transfer of printed cash for securities in the market are normally known as open market operations, and the point of this exercise is to lower interest rates in the market to spur lending and filter cash through Wall Street intermediaries to banks to borrowers which would stimulate the economy and multiply the money supply in the market. However, short-term interest rates are already zero, and long-term interest rates are at historic lows. So QE2 will not reduce interest rates. Therefore it will not increase borrowing. Therefore it will not multiply the money supply or spur spending, ergo it will not improve GDP, will not help households or small businesses. The cash will simply move from the Fed to Wall Street where the mega banks can then leverage their investing and trading activities which will improve their short-term profits. There will be no trickle down benefits to households or small businesses. Without benefits to households or small businesses, there will be no improvement in spending (GDP) or employment.
What will result from QE2 is the devaluation of the U.S. Dollar as there will be too many Dollars floating around, in relation to hard assets such as precious metals, and foreign currencies. This reduces the purchasing power of Dollars, and reduces the value of cash in bank accounts. In other words, the consumer gets hurt.
The only way QE2 makes any sense at all is if it is conducted in such a way that the cash being printed by the Fed finds its way directly into the hands of households and small businesses, instead of Wall Street. The only way for this to happen is if newly issued debt from the U.S. Treasury from the Fed are sent directly to U.S. Households in the form of massive income tax rebate, and tax cut…
If the intent of QE2 fails to include the household, it should not be allowed to happen. Congress must put a stop to QE2 immediately, and require a full explanation of the intended program before Bernanke destroys our economy. There should be an open debate in Congress on the merits of QE2, with testimony from all interested parties, in front of television cameras, for the American public to study before QE2 is effectuated. This is not something the Fed should conduct in secret. This is new turf, new territory for the Fed, and warrants careful scrutiny. The Justice Department needs to study if in fact the Fed is legally empowered to conduct QE2.”
Robert McHugh, McHugh’s Weekend Market Newsletter, 10/15/10
It has become increasingly clear, as the Fed-Generated post-September 1 Rally has continued to boost Apparent Equity, and many Commodity, Values, (see our comments last week on massive Fed POMO Injections confirmed by the Graham Summers September 28 Article “The Only Reason Stocks Rallied this Month”) that The Fed will brook no impediment to its recent policy of Inflating Nominal Asset Values.
But that Multiweek Fed-generated boosting (via POMOs which are a form of Quantitative Easing -- Q.E.) of Nominal Equities Values, has come at a terrific price – the Purchasing Power of the U.S. Dollar is being rapidly diminished.
Thus the apparent increase in Asset Values (as e.g. in Equities Values) is a Delusion.
The Purchasing Power of the U.S. Dollars into which those Equities can be converted has been, and is still being, considerably diminished.
And the ongoing Q.E.’s being conducted by the Eurozone and Major Nations has the same effect on their Fiat Currencies, and the same Victims.
Not only are Savers, Small Businesses, and Retirees, victims, but also Investors who hold U.S. Dollar-denominated or Euro-denominated Assets. Worse yet, since the Real Economy is not recovering (see Real vs. Official Numbers below*), the Prospects of Several More Major Debt Monetizations (AKA Quantitative Easings) are very high.
Over the Long-term these Q.E.’s will guarantee a continued weakening of the Purchasing Power of the U.S. Dollar and Euro, thus further confiscating the Wealth of Savers, Taxpayers, Small Businesses and Investors. Indeed, since the private for-profit Fed was founded in 1913, the U.S. Dollar has lost over 95% of its Purchasing Power.
Let’s look at the Real Numbers for the U.S.A., which support our Contentions.
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 October 15, 2010
1.14% 8.48% (annualized September, 2010 Rate)
U.S. Unemployment reported October 8, 2010
9.6% 22.5%
U.S. GDP Annual Growth/Decline reported September 30, 2010
3.00% -1.25%
U.S. M3 reported October 17, 2010 (Month of September, Y.O.Y.)
No Official Report -3.71%
Note that Real Inflation is already 8.48%/year, in large part a result of excessive Q.E. in recent years.
One Necessary inference from that Real CPI Statistic is that for an investment to show a Real Profit the Total of its Appreciation plus Yield must exceed 8.48%/year.
So the First Step on the Road to Avoiding Q.E. Hades is to purchase only Securities whose likely Prospective Total Return exceeds Real and Prospective Inflation (now 8.48%/year).
How many Equities or (other investments) are likely to do that?
Not many!
The Others will be losers, working a de facto Wealth Confiscation from their owners. [See Deepcaster’s High Yield Securities Portfolio, chosen because their prospective Appreciation plus recent Yields of 18.5%, 10.6%, 26%, 8%, and 15.6% when added to our portfolio, exceed that Real Inflation Rate of 8.48%, at www.deepcaster.com.]
Furthermore, note that Real GDP is a Negative 1.25%, not the positive 3.00% the Official Sources Claim.
That is, the Real Economy is contracting even more, not strengthening.
Couple this fact with the fact that Real Unemployment in the U.S. is 22.5% (and a number of similar Magnitude in several Eurozone Nations), and it is hard to see how the Consumers in those countries can generate sufficient demand (for Western or Asian produced goods) to generate an Economic Recovery, much less bolster corporate Earnings necessary for sustained robust Equities values.
And the Wealth of export-based Economies like China is based in large Part on Demand from the Contracting Economies of the U.S.A. and Eurozone.
Recovery is not happening! Or not, at least, any year soon.
So, we ask whether the Fed-POMO-Equities-Q.E.-“Pump” will continue to boost Equities in post-U.S.-Election November and beyond, and thus allow The Fed to continue its U.S. Dollar Destruction Derby?
To Answer this question, it is essential to distinguish between Short-term and long-term Prospects.
Mid and long-term, it is likely that the destruction of the U.S. Dollar will continue (for one reason, there is far too much debt, sovereign and private, to ever be “repaid” without devaluing Major Fiat Currencies), and that there will be therefore, in the mid-term at least, a resulting artificial temporary Equities price (but not value) boosting effect.
But, short-term may be a different story indeed.
Short-term (i.e. the next few weeks), the Equities Markets have already priced in and continue to “expect” more Q.E. And the aforementioned and other Fundamentals, and Key Technicals, are lousy.
This is a perfect set-up for a Post-Election (clearly The Fed-led Cartel** would like to retain as many members of the Pro-Fed Congress as possible) Equities Crash and resulting temporary U.S. Dollar boost. Indeed, a harbinger of that Equities Crash/U.S. Dollar boost may have occurred Tuesday, October 19, a bit prior to the U.S. election.
But will there actually be a post-Election Equities Crash? Do not the Massive Q.E. injections already in the System, guarantee higher Equities (and Gold and Silver) prices? Deepcaster’s Latest Letter (at www.deepcaster.com) addresses these questions.
In any event, if there is an Equities Takedown, it is likely that accompanying any such Equities Takedown will be a Fed-led Cartel** attempt to Takedown the prices of Gold and Silver as well. See below.
**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 has been significantly Weakened in recent months. Will their Price Suppression Attempts on Gold and Silver Succeed? Gold and Silver are down two out of the last three days, as we write.
Whether the U.S. Dollar continues to Fall will be one Key Factor in determining whether Equities and Gold and Silver Continue to Rise or Fall.
Even so we have witnessed in recent years, and especially in recent months, the beginning of The Beginning of a Great Bull Market in Gold and Silver.
Yet we expect any Equities Takedown to be accompanied by a Major Precious Metals Price Takedown Attempt by The Cartel, launching soon.
The October 19, $35 Takedown Day for Gold could have marked The Launch of that Attempt. Or it could be just a Deception, to be followed by another “Lure-Rally” until just after the November 2, U.S. Election.
But, that recent $35 Gold Takedown Day (and 53 cents for Silver) does signal two things for us.
- The Cartel is Still Potent – given the rapidly increasing Bullish Sentiment for the Precious Metals lately, what other force could have generated that big a one Day Takedown?
(And just because certain Central Banks are now buying Gold, it does not follow that they intend to keep it… some may well be buying only to later massively Sell to launch the Takedown Attempt which could arrive soon.)
On the other hand, since the Revelations early this year that Major Gold (and Silver) Repositories may not have the actual Metal they say they do, every Takedown Attempt since then has been met with heavy buying, and big demands for delivery and possession. Prices, therefore, have hit record highs, The Cartel Notwithstanding.
- Nonetheless, The Cartel Takedown Attempt we have been forecasting will likely begin soon.
Indeed, key HUI Technicals signaled “Sell” Gold Shares on Tuesday, October 19.
If it succeeds, we will happily see it as an excellent Buying Opportunity and will have recommendations with extraordinary profit potential ready.
Indeed, Gold and Silver Bullion and Shares are the Ultimate Defense against the Wealth Confiscation caused by Q.E., as well as the Sector with the Greatest Profit Potential – an excellent Detour away from the Trip to Q.E. Hades.
In sum, whether or not this next Cartel Takedown attempt succeeds, Superb Opportunities will continue to exist in Gold and Silver and we urge Gold and Silver Bullion and Mining Shares Purchases. However, unfortunately, Protection and Profit in the Precious Metals does not reliably lie in Straight-out Precious Metals Purchases or Mining Shares Purchases (i.e. without regard to Timing or Asset Form). Indeed maximizing Profit and Protection via Precious Metals purchases, or indeed in the general Equities Markets in a manner sufficient to avoid the trip to Q.E. Hades, requires a Strategy like the following:
- Invest in Gold and Silver (and key Strategic Commodities), BUT, according to a Strategy designed to minimize the Effects of periodic Cartel Price Suppressions of Gold and Silver (and key Equities Sectors and Commodities), and, indeed, to Profit. Deepcaster has designed such a Strategy described in the following articles: “Defeating the Cartel... With Profit, Part 2” (6/19/2009) and “Defeating the Cartel... With Profit, Part 1” (3/28/2008) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com. And Deepcaster recently recommended two Precious Metals investments, both of which are resistant to Cartel Price Takedowns.
- Take Account of overt and covert Cartel* Interventions; that is, take account of The Interventionals as well as the Fundamentals and Technicals.
See Summers Article noted above, as well as Deepcaster's articles: “Profit & Protection from Cartel Intervention” (12/25/2009) and “Gain from the Cartel Game Plan” (9/04/2009) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.
IMPORTANT NOTE: As indicated in the referenced Articles, much of the post-March 9, 2009 Equities Rally has been Cartel-generated.
- Make decisions based on Real Data, such as that provided by shadowstats.com, gata.org and deepcaster.com, not on bogus Official Statistics. See above and see Deepcaster's articles: "Opportunities to Profitably Escape Paper "Wealth" in 2010" (3/12/10) and “Surmounting Deception, Distortion & Intervention” (7/17/2009) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.
- Implement an Investment and Personal Protection Strategy designed to cope with, surmount, and profit from The Cartel’s ‘End Game’. See Deepcaster's articles: “Surmounting The Armageddon Scenario & Cartel ‘End Game’” (2/26/2010), “Crunch Time for the Cartel“ (11/25/2009), “Surmounting the Cartels' 'End Game' Juggernaut“ (9/25/2009), and “Coping with Power Moves in the Cartel's 'End Game'” (4/24/2009) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.
- Implement a Strategy Designed to Profitably Escape Paper ‘Wealth’. Deepcaster’s Strategy is described in “Opportunities to Profitably Escape Paper "Wealth" in 2010” (3/12/2010) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com. Paper Wealth is more susceptible to confiscation via Q.E.
In sum, 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.
Best Regards,
By DEEPCASTER LLC
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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