Financial Market Storm Signals & Investor Opportunities
Stock-Markets / Financial Markets 2013 Dec 21, 2013 - 11:14 AM GMTBy: DeepCaster_LLC
“Volatile oil and gasoline prices continued to dominate the monthly and annual swings in consumer inflation. Going forward, risks generally favor higher energy inflation driving the headline consumer inflation indices higher. Energy prices generally have an inverse relationship to U.S. dollar strength. For example, a weak U.S. dollar against other currencies tends to put upside pressure on oil and gasoline prices. Post-2008 bouts of dollar weakness generally have been triggered by the ongoing quantitative-easing (also known as dollar-debasement) policies of the Federal Reserve. …
“The U.S. dollar recently has seen some minimal selling pressure. That pressure likely will intensify sharply in the near future, with “tapering” (if any) by the Fed not likely to be of substance. Underlying systemic-liquidity and economic circumstances actually favor intensified quantitative easing. Combine that with the lack of a meaningful effort by the federal government to address fiscal imbalances and the long-term sovereign solvency issues of the United States; with shifting sentiments on the deteriorating political environment in Washington; and with a still-weakening economy; and circumstances are set for a rapidly intensifying sell-off of the U.S. dollar. Again, as the U.S. dollar comes under heavy selling pressure, the weakening U.S. currency rapidly should be translated into rising oil-price-related inflation. …”
Commentary No. 583, Shadow Government Statistics,
Shadowstats.com, 12/17/2013
U.S. Debt continues to increase, and is now 105% of GDP, and the recent “Budget Deal” does nothing to solve the U.S. Solvency issues. At some point, sooner rather than later, taper will have to stop and QE be reinstituted. Thus more Money Printing. Thus rising Hyperinflation is a threat and an the Opportunity! Nota Bene that the U.S. is already Threshold Hyperinflationary 8.8% CPI.
“Alternate Consumer Inflation Measures. The ShadowStats-Alternate Consumer Inflation Measure (1990-Base) annual CPI inflation was roughly 4.7% in November, versus 4.4% in October. The ShadowStats-Alternate Consumer Inflation Measure (1980-Base), which reverses gimmicked changes to official CPI reporting methodologies back to 1980, rose to about 8.8% in November 2013, versus 8.5% in October. …”
Ibid.
And other Official Numbers are Bogus, as well, and not jst for the U.S., but also for China and certain other Major Nations.
“The false recoveries in the real retail sales series, industrial production and GDP all are due to the understatement of the rate of inflation used in deflating those series. Deflation by too-low an inflation number (such as the CPI-U) results in the deflated series overstating inflation-adjusted economic growth (see Hyperinflation 2012 and Special Commentary (No. 485). The “recovery” patterns do not hold, however, if the series are corrected for understated inflation. …
“With the higher inflation of the ShadowStats measure, the revamped numbers show a pattern of plunge and stagnation, consistent with patterns seen in real median household income, consumer confidence measures, unemployment and housing statistics. …
“Official real earnings today still have not recovered their inflation-adjusted levels of the early-1970s, and, at best, have been flat for the last decade. …
“The hyperinflation forecast for 2014 remains in place, with 90% odds estimated in favor of its occurrence….”
Ibid.
And this Taper must at some point be stopped, and indeed, reversed.
“Due to ongoing solvency issues within the U.S. banking system, that Federal Reserve is locked into a liquidity trap of flooding the system with liquidity, with no resulting surge in the money supply (see Commentary No. 580). Yet, the Fed’s quantitative easings have damaged the dollar, which in turn has triggered sporadic inflation from the related boosting of oil prices. The overhang of dollars in the global markets—outside the formal U.S. money supply estimates—is well in excess of $10 trillion. As those funds are dumped in the global markets, the weakening dollar will trigger dumping of U.S. Treasury securities and general flight from the U.S. currency. As the Fed moves to stabilize the domestic financial system, the early stages of a currency-driven inflation will be overwhelmed by general flight from the dollar, and a resulting surge the domestic money supply. Intensifying the crisis, and likely coincident with heavy flight from the dollar, odds also are high of the loss of the dollar’s global-reserve-currency status….”
Ibid.
Reviewing Signals which Portend Major Economic or Financial Developments and thus Major Market Moves provides both useful Warnings and Profit Opportunities.
The aforementioned Realities are already beginning to be reflected in other Indicators.
- Regarding Technicals, long term Equities Charts are, given their Expanding multi-year “Jaws of Death” Wedge, quite Bearish. And it is this Mid to Long-term likely Bearish Reality that has influenced Equities recent Bearish Moves. They are a harbinger of what is coming. Indeed we have had Multiple Hindenberg Omen Observations in the past 30 days.
And there are four other indicators that, Mid and Long Term, signal Equities are set to Crash in the next few months.
- Interest Rates are Rising: Consider a U.S. 10Yr Interest Rate Chart for 2013. Then consider what already rising rates are likely do to your preferred Investment Sectors and
- Excessive Leverage - Margin Debt is at record Highs, over $400 Billion as of October 31. We saw what excessive leverage did in 2007-2009. It will soon be time to go short. Stay tuned to Deepcaster regarding timing.
- The Russell 2000 is Trading at 75 times reported Trailing Earnings – Quite Unsustainable.
- Distribution Days are increasing
There is still one Reason among several we think the Fed will NOT be able to continue Tapering for more than a few months more, at most. A Significant Taper would cause interest rates to shoot UP – to over the critical 3% level on the U.S. Ten Year – thus creating Serious Problems Elsewhere, like an Equities Market Crash.
In sum, lessening, but still continuing, Fed Bond Buying will likely keep rates on the U.S. 10 year Note below 3% for a very few months more, but cannot keep them from rising indefinitely.
Indeed, they are already rising. There is simply too much Fed-created Hot Money in the System. This occurs because Fed QE suppresses interest rates, which lowers borrowing costs, which artificially elevates corporate Earnings. These earnings are thus Hot, i.e., artificially created, money. Carl Icahn is therefore correct to recently call corporate earnings “a mirage.” Perforce, Equities are poised to Fall.
Even so, the Fundamental Pressure for higher rates will eventually overwhelm Fed action therefore, short- to mid- term, we expect rates to continue to trend slowly up toward 3% on the 10 year; after that they will begin to accelerate.
By “Fundamental Pressure,” we mean Price Increases (Purchasing Power Decreases) coming from the Real Economy, e.g., from rising Oil Prices.
Re Gold and Silver, these Precious Metals were in the Doldrums last week, and The Cartel (Note 1) took the opportunity to take them down further that week and ostensibly better Economic Numbers. And this week The Cartel struck again with another massive Takedown.
Gold and Silver Paper Price Performance is playing out as we earlier forecast. However, we reiterate that Gold and Silver are completing creating a Great Bottom, a Launching Pad for the inevitable next Great Move up. Stay tuned for timing.
Since Equities are likely to Rally through the End of 2013 and into January (see our Forecasts), we expect that the attraction of Gold and Silver as Safe Havens will be somewhat muted for a very few weeks more. But The Great Launch up is likely to begin soon.
Looking ahead, the Prospects for The Great Launch Up to all time record highs beginning by 2014 are increasingly bolstered by the fact that Physical Bullion Supplies available for Delivery continue to Deplete – A recent report from the Comex shows the Registered (Available for Delivery) has shrunk to about 630,000 ounces.
Finally, the Great Impending Storm (and the Opportunity) is the bursting of the Bond Bubble.
“Today the US debt is $16.7 trillion. The entire Gross Domestic Product of the US is $15.68 trillion. This means that the debt to GDP ratio is over 105%. History shows that a debt to GDP ratio of over 100% is dangerous. With the debt growing exponentially, we face a situation of inflation, hyperinflation or bankruptcy…
“As I see it, we are in the latter phase of perhaps the greatest debt bubble in history. A bubble can inflate just so far, and then it pops. When the current debt bubble bursts, it will prove to be an unmitigated disaster.”
Richard Russell, DTL, 12/14/13
Deepcaster has been writing for a while about our mid to long term forecast that the increasing Debt/Bond Bubble is bound to burst, a view which other Independent Financial Commentators such as Richard Russell, share with us.
But how and when we get to the mid-term, and especially what we invest in, in the short term, is most important, because it will help determine whether we enjoy Profit and Wealth Protection, or suffer Dramatic loss of Wealth when that Biggest Bubble Bursts. Stay tuned.
Therefore we recommend Gold as Safe Haven and Great Profit Opportunity. In this connection , Jim Rickards’s observation is most wise.
“Rickards knows that the price of Gold is down 30% from its highs but ‘on the physical side, the shelves are being stripped bare,’ he says.
“’China and Europe are just buying every ounce they can get their hands on and that actually makes sense,” Rickards explains. ‘If the price is being suppressed because weak hands are dumping it or there’s manipulation in the market, you would expect people to buy it.’
“When things turn around, says Rickards, ‘you’re going to find there’s no gold available.’”
dailyticker.com, 12/19/2013
Best regards,
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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