Burgeoning Bubbles and Popping Protection
Stock-Markets / Financial Markets 2011 Apr 08, 2011 - 11:54 AM GMTBy: DeepCaster_LLC
“Last week I was both surprised and pleased when the Supreme Court upheld lower court decisions requiring the Federal Reserve Bank to comply with requests for information made by Bloomberg under the Freedom of Information Act ("FOIA"). Bloomberg simply wanted to know who received loans from the Fed's discount window in the aftermath of the 2008 financial market crisis, and how much each entity received. Surely this is basic information that should be available to every American taxpayer. But the Fed fought tooth and nail all the way to the Supreme Court to preserve their privileged secrecy…
The Fed lent huge sums of our money to foreign banks. This in itself was not surprising, but the actual amount is staggering! In one week at the height of the crisis, about 70% of the money doled out went to foreign banks. We were told that bailing out banks was going to stave off a massive depression. Depression for whom? We now know that the Fed's bailout had nothing to do with helping the American people, who have gotten their depression anyway with continued job losses and foreclosures…
…perhaps the most staggering revelation is that quite a bit of money went to the Arab Banking Corp., in which the Libyan Central Bank owned about a third of its stock. This occurred while Libya, a declared state sponsor of terrorism, was under strict economic sanctions! How erratic the US must appear when we shower a dictator alternately with dollars and bombs!... This would not be the first time the covert activities of the Fed have undermined not only our economy and the value of the dollar, but our foreign policy as well…
As the world economy continues to falter in spite of - or rather because of - cheap money doled out by the Federal Reserve, its ability to deceive financial markets and American taxpayers is coming to an end. People are beginning to realize that when the fed in effect doubles the worldwide supply of US dollars in a relatively short time, it has the effect of stealing half your money through reduced purchasing power. Rapid inflation will continue as trillions in new money and credit recently created by the Fed flood into the commodity markets.
It is becoming more and more obvious that the Fed operates for the benefit of a few privileged banks, banks that never suffer for bad decisions they make.”
Rep. Ron Paul (R-TX): "At The Height Of The Crisis 70% Of Fed Loans Went To Foreign Banks, While Americans Were Suffering"
The Daily Bail, 4/4/11
“We now have an economy in which five banks control over 50 percent of the entire banking industry, four or five corporations own most of the mainstream media, and the top one percent of families hold a greater share of the nation’s wealth than any time since 1930. This sort of concentration of wealth and power is a classic setup for the failure of a democratic republic and the stifling of organic economic growth.” (emphasis added) Jesse - http://jessescrossroadscafe.blogspot.com/
- In April 2009 the FASB caved in to pressure from the Federal Reserve, Treasury, and Wall Street to suspend mark to market rules, allowing the Wall Street banks to value their loans and derivatives as if they were worth 100% of their book value.
- The Federal Reserve balance sheet consistently totaled about $900 billion until September 2008. By December 2008, the balance sheet had swollen to $2.2 trillion as the Federal Reserve bought $1.3 trillion of toxic assets from the Wall Street banks, paying 100 cents on the dollar for assets worth 50% of that value.
- By December 2008 the Federal Reserve had moved their discount rate to 0%. For the last two years, the Wall Street banks have been able to borrow from the Federal Reserve for free and earn a risk free return of 2%. The Federal Reserve has essentially handed billions of dollars to Wall Street.
- When it became clear in October 2010 that after almost two years of unlimited liquidity being injected into the veins of zombie banks was failing, Ben Bernanke announced QE2. He has expanded the Fed balance sheet to $2.6 trillion by injecting $3.5 billion per day into the stock market by buying US Treasury bonds. Bernanke’s stated goal has been to pump up the stock market. While taking credit for driving stock prices higher, he denies any responsibility for the energy and food inflation that is spurring unrest around the world.
- The Federal Reserve has increased the monetary base by $500 billion in the last three months in a desperate attempt to give the appearance of recovery to a floundering economy…
It should warm your heart to know that Financial Profits have amazingly reached their pre-crash highs. All it took was the Federal Reserve taking $1.3 trillion of bad loans off their books, overstating the value of their remaining loans by 40%, borrowing money from the Fed at 0%, relying on the Bernanke Put so their trading operations could gamble without fear of losses, and lastly by pretending their future losses will be lower and relieving their loan loss reserves. The banking industry didn’t need to do any of that stodgy old school stuff like make loans to small businesses. Extending and pretending is much more profitable.”
“Extend and Pretend Is Wall Street's Friend” Jim Quinn, The BurningPlatform.com, 3/30/11
“Stocks are levitating on a near-ocean of Liquidity.” Richard Russell, Dow Theory Letters, 4/1/11
The Bubbles in the Markets and Economy are No Secret.
But it is important to clearly identify them and to indicate how to protect against, and profit from, their Popping, and, in two Non-Bubble cases, to profit from their continuing Burgeoning.
First, consider the Bubbles:
- Recent Estimates indicate that the Fed itself is buying over 70% of all long-dated U.S. Treasury Securities. We think the percentage is higher.
Whatever the percentage, the effect of this buying is to keep Treasury Prices artificially High and thus Treasury Yields artificially Low – a Bubble for sure.
We expect this condition will persist through the next Equities Takedown leg (because U.S. Treasuries are ostensibly a Safe Haven) and have given specific forecasts regarding Timing in our recent Alerts.
This Bubble is caused primarily by the Fed’s Destructive (of the Purchasing Power of the US Dollar) Policies of Excessive Q.E. which have also fueled the dramatic Food and Energy Price Inflation we have seen recently.
In sum, U.S. Treasury Strength is a Bubble which surely will Pop.
That is why the Founder of the World’s largest Bond fund, Bill Gross of PIMCO, recently caused that fund to sell all of its U.S. Treasuries – a wise move.
- Unfortunately, The Fed’s Easy Credit and Ongoing Q.E. Policies have been mainly responsible for the U.S. Dollar Bubble which has already been “Popping”. Its Purchasing Power has declined by over one-third in the last decade – from 120 to 76ish on the USDX, as we write, thus confiscating the wealth of Investors, Savers and Retirees.
Eventually the U.S. Dollar Bubble will deflate even More, thus further eroding the Wealth of the U.S. Dollar denominated Asset Holders including Investors, Savers and Retirees. Short-term we have forecast a somewhat different scenario.
- Indeed, Stocks are levitating on a near ocean of liquidity, as Richard Russell correctly notes above.
And Artificial Equities Boosting is what the Cartel continues to do (and has done for two years), with the Fed regularly pumping POMO’s – a humongous $8.03 Billion on April 4, 2011 for example, and an average of over $3 billion per trading day! See Graham Summers’ excellent article “The Only Reason Stocks Have Rallied This Month” quoted in our article –
“Surmounting the Wealth Destruction Juggernaut (09/30/10)” at www.deepcaster.com.
Indeed, we just (Monday April 4, 2011) got a Dow Theory Confirmation of a Short Term Bull – The Dow hit a new year high and similarly The Transports hit a confirming high.
We address the issue of whether Cartel pumping plus generally positive Earnings will continue to push Equities to the Upside in our latest Alert.
Moreover, Fed’s Policies and the Creation of Bogus Official Numbers mislead the public regarding Economic and Financial Realities.
- Indeed there is an “Information Bubble” caused by Bogus Official Statistics. As more become aware of the Irreality of Official Numbers that Bubble too will pop.
Shadowstats.com calculates Key U.S. Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider
Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported March 17, 2011
2.11% 9.62% (annualized February, 2011 Rate)
U.S. Unemployment reported April 1, 2011
8.8% 22%
U.S. GDP Annual Growth/Decline reported March 25, 2011
2.78% - 2.21%
U.S. M3 reported April 2, 2011 (Month of March, Y.O.Y.)
No Official Report - 0.99%
The Antidotes to the foregoing Bubbles (and the consequent misallocation of Capital due to reliance on Bogus Statistics) are two Burgeoning “Bubbles” that should be Bought into.
These two Bubbles are, in fact, not Real Bubbles at all.
They are Genuine Bulls which have much higher to Fly.
Of course, I am referring to Gold and Silver.
They are on this Bull Run because they are Real Money, and, to the extent that Years of Easy Credit and Ongoing Q.E. have debased Fiat Currencies like the U.S. Dollar and, de facto the Euro and others, Gold and Silver have Skyrocketed.
But there is one Caveat regarding Investing in these Precious Metals – ongoing Cartel* Price Suppression Attempts.
*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.
However, Cartel Power has diminished in recent months. Thanks to GATA and others, dramatic Revelations that not all Precious Metals Repositories have all the actual metal they claim they have, have surfaced.
This include the Spectacular Allegation that the LBMA sold some 45 ounces of Gold for every ounce they actually hold. All this has led to a weakening of Cartel* ability to cap prices because more and more Precious Metal Investors are demanding Delivery and Personal Possession (no Bank Vaults please!) – it is likely there is some “Fractional Reserve” Gold “Storage” going on of the Physical Metal.
But The Cartel is still Potent. Thus properly timed Precious Metal purchases can enhance Profits. (See Deepcaster’s Alert for the week April 16, 2010: “Cartel Failing? Precious Metal Buy Reco! Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & Bonds" and subsequent Alerts in the ‘Alerts Cache’ at www.deepcaster.com)
But there is another Burgeoning “Bubble” which should be bought into.
And it too is not a Real Bubble, but rather a Genuine Bull.
Already Q.E. has been reflected in skyrocketing Food and Energy Prices i.e. reflecting a dramatic reduction in the Purchasing Power of the U.S. Dollar, and many other Fiat Currencies.
More than Energy or Even Precious Metals, Food and Potable Water must be at the top of Consumer Shopping lists everywhere around the world. With demand increasing from the 80 million plus annual world population increase, and increased resources of a growing Middle Class, especially in BRIC countries, to buy more and better Food, Food Producers are in the Catbird Seat. The Problem is exacerbated by the fact that most of the World’s best arable land is already under cultivation.
Thus, Deepcaster recently recommended two such Food Producers and one Water Producer and Management Company, all of which we believe to be deeply undervalued (one is trading at under $6/share and the other two under $2/share), in our latest Letter and Alerts.
One is China’s largest producer and Seller of Fresh Fruits and Vegetables. It also grows Rice and breeds and sells livestock and has over 20,000 employees.
It recently had a P/E Ratio under 4 and profits have grown over 20%/yr.
As we write it is trading at around 65 cents per share U.S. or just below $5 HK, near its 52 week low.
Given that P/E Ratio, profit Growth and share price, you can see why we have called “Food” a “Sleeper” Subsector.
In sum, well timed Investments in Burgeoning non-Bubbles in Gold, Silver, and Food and Potable Water Production provide the best Profit Opportunities and the best “Popping Protection” against the aforementioned Genuine Bubbles.
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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