Investors Positioning for Five Impending Investment Critical Events
Stock-Markets / Financial Markets 2011 Oct 29, 2011 - 02:00 AM GMTBy: DeepCaster_LLC
“The end crisis will be postponed until the sovereigns go bankrupt.” Marc Faber, 10/27/11
Eurozone issues are critical for many reasons including the fact that they are a harbinger of those facing the World’s largest Economy and Reserve Currency. Issuer, the USA, in the not too distant future.
Marc Faber has it right. Debt Transfers from Private Creditors to Sovereigns (i.e. Taxpayers) will eventually bankrupt the Sovereigns.
The key point is that the Resolution at the Euro Summit earlier this week will provide only a temporary and Insufficient “Solution” because:
- The Trillion plus Euro leveraged EFSF Euro Fund is not large enough if there are any further (quite likely) downgrades of sovereign credit (for, e.g. both France and Italy).
- The Plan still piles more debt on unpayable debt
- Greece still has $250 Billion Euros of Sovereign Debt, after being allowed to write down only $100 Billion. The write-down is insufficient to get the Greek economy rolling again because, even after this Write-down. Greek Debt remains at about 120% of GDP.
- And for the not-much-discussed-lately Elephant in the room, the USA, Debt to GDP just passed 100% officially (and it is worse when one considers Real U.S. GDP is a negative 2.89%). See Note 2** below.
“It's possible that we could do another round of quantitative easing…”
William Dudley, New York Federal Reserve President, 10/24/11
Therefore, because the Euro Summit did not solve anything for the long run, the following Impending Investment-Critical “Events” take on added significance.
We briefly analyze these “Events” and offer suggestions on profitably addressing them:
- The first in the U.S. Federal Reserve meeting slated for Nov. 1 and 2, 2011. In addition to Fed Governor Dudley’s hint of more possible Q.E., Fed Vice Chairman Janet Yellen has also hinted at such. Perhaps the most likely is a Fed purchase of Toxic Mortgage Backed Securities, to get them off the Bank’s books – another Big Chunk of Monetary Candy to help the Mega-Banks (Again!).
This suggestion comes from Fed Governor Daniel Tarullo and it would likely be promoted as a way to lower interest rates and help the still-weakening (see recent Case-Shiller report) housing Market.
Such a MBS purchase, or similar plan would, again, be most inflationary (and thus harmful to the middle class and working poor), but would temporarily boost the Equities Markets with another Sugar High, just as news of the Eurozone Deal has temporarily done for the Equities Markets.
Of course, all those excess (over any GDP growth) Dollars would eventually create more Food and Energy Price Inflation. On the other hand, a failure to enact any such Q.E. would likely result in a termination of the relaunched Equities Rally. In any event, in the middle and long term the Equities Rally is likely doomed anyway.
“…we have an Exchange STABILIZATION Fund here in the US and they have a STABILITY mechanism over there. Call me a purist but since when did the damn government have the right to interfere in any markets to make them more "stable". My view is that ALL of the instability currently in these markets is being caused by the government. If they got the hell out of the way we would actually have a TREND and it would be a STABLE one. The only problem for them is that the trend would be DOWN. That is something that these meddling clowns cannot tolerate. That is where the instability is coming from (traders trying to guess what these fools are going to do next).”
Dan Norcini, traderdannorcini.blogspot.com, 10/5/11
- The G-20 Meeting of November 3 and 4, 2011 will, at the least, provide more Hot Air about how the developed worlds’ Economic Problems are being successfully addressed. (But, so far, not being addressed with the Solutions of Capitalism. Rather, Mega-Banks losses are being commonized via bailouts, while Profits are still privatized.)
If the Markets are “Believers” in the G20 Hot Air (and with a lot of market boosting from the U.S. Working Group on Financial Markets), such would likely touch off another leg of the fitful Year End Equities Rally.
A key point is that either a U.S. Fed MBS Purchase Plan and/or a Eurozone and/or G-20 Rescue Plan is likely to be most Inflationary which would give quite a boost to Precious Metals and essential Commodities Prices (e.g. Food). Of course, any such boost in Precious Metal Prices will likely be vigorously opposed by The Cartel* which can be expected to intensify their price capping operations.
“The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold.”
Shijie Xinwenbao, China
- Eurozone Finance Ministers meet November 7 and 8, 2011 with the prospect of providing additional details regarding the ostensible Resolution of the Eurozone Crises. The Market’s Reaction will depend on the perception of how credibly effective or ineffective the Plans will be.
- But the Real Market Rubber will meet the Road with the release of the U.S. Treasury International Capital (TIC) data from September 2011, scheduled for November 16, 2011.
TIC Figures reflect the Purchases and Sales of U.S. Securities by Foreign Investors, including Foreign Institutions. Significantly, Foreign Institutional Net Purchases decreased by over $8.7 billion in August per the October Report. Were this phenomenon to continue, it would be Very Bad News for the U.S. Bond Markets resulting inter alia in a spike in Interest Rates.
Watch carefully for the next TIC report scheduled for release November 16, 2011. It will report on the TIC Transactions and status for September 2011.
If the Figures show a Net Outflow substantially in excess of the $8.7 billion August Figure, it will be an ominous sign that Investors are fleeing the U.S. Treasury Market, a likely precursor to much higher Interest rates and increasing Financial System Stresses, or Collapse.
Caveat: While we have no evidence that TIC figures are anything other than accurate, there is considerable evidence that other Official Numbers are Bogus. See Note 2** below regarding Shadowstats.com.
- Finally, the U.S. Congressional “Super Committee’s” Deadline for making $1.5 Trillion in spending cuts looms large on November 23, 2011. Implementation of cuts of that magnitude would not only dampen Economic Growth but will clearly also cause considerable Social and Political Conflict.
And to the extent that the Fed, the U.S., and Eurozone administration resort to further stimulus (as in Q.E. 3, Q.E. 4, etc), which we think they almost surely eventually will, it will be highly inflationary, eventually resulting in Hyperstagflation. But a failure to make credible cuts would likely cause a further erosion of confidence and resulting Market Crash.
But the consequence of such additional stimulus will be more Energy and Food Price Inflation. And, of course, dramatically higher Gold and Silver prices will result also in spite of (temporarily effective) Cartel Price Takedowns.
In sum, a major investment focus should be Tangible Assets in relatively inelastic demand with as Food and Food Producers. Another focus should be High Yield relatively low risk Securities, some of which should be domiciled in Asia or Latin America (See Note 3). Of course, Gold and Silver purchased near the bottom of Cartel-generated Takedowns should be a Top Priority too.
Finally, we expect a considerable amount of money will be made in leveraged short funds, as our subscribers learned in the Fall, 2008 when 5 leveraged short funds which we recommended became nicely profitable. Thus we expect to recommend then for our Speculative Portfolio in the next few weeks when the timing appears to be propitious.
By DEEPCASTER LLC
www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation Wealth Enhancement
© 2011 Copyright DeepCaster LLC - All Rights Reserved
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.
DEEPCASTER LLC Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
