It is pretty clear that The Fed has created both a colossal asset bubble as well as a debt bubble and that they have boxed themselves (and most of us) into a corner.
Continue QE and you get Hyperinflation (the U.S. is already on the threshold at 9.17% CPI). Halt, or even Taper, QE and the Markets Crash.
But there are Antidotes – Opportunities for Investors to Profit and Protect.
And one such Opportunity arises in the Precious Metals Market.
Submitted by Deepcaster:
“The question is not tapering. The question is at what point will they increase the asset purchases to say $150 [billion], $200 [billion], a trillion dollars a month…
“The Fed has boxed itself into a position where there is no exit strategy (and created) a colossal asset bubble…”
Marc Faber: Fed Might Hike QE to $1 Trillion a Month
“…On Friday, October 11, when there was no sign of any deal between US Congress members and the Obama White House that would end the government shutdown, the Chicago CME Group, which operates Comex – the Chicago Commodity Exchange, where contracts in gold derivatives are traded – announced that at 8:42am Eastern time the trading was halted for 10 seconds after a safety mechanism was triggered because a 2-million-ounce (56.7 million grams) gold futures sell order was executed.
“Something rotten in gold market
“The result of that huge paper gold sale was that at just the time when a possible US government debt default would send investors in a panic rush to the safety of buying gold, instead, the price plunged $30 an ounce to a three-month low of $1,259.60 an ounce. Market insiders believe the reason was direct market manipulation. …
“China, gold prices & US default threats,” William Engdahl
William Engdahl is an award-winning geopolitical analyst and strategic risk consultant whose internationally best-selling books have been translated into thirteen foreign languages.
But these Cartel (Note 2) Takedowns provide an Extraordinary Buying Opportunity . But when can we expect a sustainable Upside Launch? Has one already begun?
Since we last reported, certain Key Sectors have moved into Sustainable (for a while) Bullish Trends..
Others have signaled launching into Bullish Uptrends, but these are likely not sustainable.
In our November Letter, we identify which are likely sustainable and forecast the likely Fate and timing of these recent Launches which are likely not sustainable.
Most Important however is identifying the Forces which Impel these Market Moves.
One such Congeries of Forces is Economic. Therefore Consider this comment on the Real Numbers from Shadowstats.com
“The U.S. Economy Continues to Weaken. The first major economic reporting since the reopening of the federal government has confirmed a deteriorating outlook for U.S. business activity. As shown in the accompanying graph of private payrolls, the pre-government-shutdown employment trends through September were downright negative. On a three-month, moving-average basis, payrolls have been slowing since the beginning of 2013, through September. Private payrolls are shown here, in that they were not distorted by 2010 Census hiring and firing. Although these payrolls will not be hit directly by the October government furloughs, they certainly will reflect secondary impact.”
“COMMENTARY NUMBER 566,” John Williams,
The question is not “‘if” but “when” will the Equities Markets begin to reflect the Fact the Economy is not recovering.
Indeed, these Extraordinarily Powerful Forces will generate Mega-Moves in Key Markets in the next few weeks or very few months.
So it is essential to focus on Key ones.
Perhaps the Predominant Major Force is The Fed. Years-long Fed Money “Printing” and Easy Credit Policies have not only created Harmful Asset Bubbles (witness the Housing Bubble Burst which caused much suffering) and more Wealth for the Wealthy Mega-Bankers but not the Middle Class.
But Fed Policy has also put the $US as the World’s Reserve Currency increasingly at Risk, and thus threatened the Wealth, and indeed, Safety, of all who have predominately $US denominated Assets.
Worse, such Fed Policy of debasing the currency appears to have encouraged the Chinese to accelerate their War to replace the $US with a Gold-Backed Chinese Yuan as the World’s Reserve Currency.
Not only are Chinese pronouncements calling for a “de-Americanized World” and, via their Dagong Credit Rating Agency “downgrading the U.S. Credit from A to A-, and publically threatening to stop buying U.S. Treasuries, of Great Concern, but their actions speak even louder than their words.
The Chinese have:
–entered into bilateral Currency Swap Agreements with the European Central Bank and the U.K. and several others.
–been importing record tonnage of Gold, even though China is the World’s largest producer.
–intensified diversifying away from the $US by buying Agricultural Properties and Producers and Real Estate generally, all over the World.
Michael Snyder of “The Economic Collapse Blog” sums it up:
If China does decide to back the yuan with gold and no longer use the U.S. dollar in international trade, it will have devastating effects on the U.S. economy. Demand for the U.S. dollar and U.S. debt would drop like a rock, and prices on the things that we buy every day would soar. At that point you could forget about cheap gasoline or cheap Chinese imports. Our entire way of life depends on the U.S. dollar being the primary reserve currency of the world and being able to import things very inexpensively. If the rest of the world (led by China) starts to reject the U.S. dollar, it would result in a massive tsunami of currency coming back to our shores and a very painful adjustment in our standard of living. Today, most U.S. currency is actually used outside of the United States. If someday that changes and we are no longer able to export our inflation that is going to mean big trouble for us.
“9 Signs That China Is Making A Move Against The U.S. Dollar,” Michael Snyder, theeconomiccollapseblog.com, 10/17/2013
Clearly, an Antidote and Opportunity is to either move one’s Assets outside of the $US and/or to hedge against its Fall.
A related Critical Problem is that U.S. Dollar- denominated debt is growing far faster, courtesy of the Obama Administration, than U.S. GDP and is thus Unsustainable.
As the Dollar Weakens not only will Price Inflation increasingly Visibly Rear its Ugly Head (the U.S. is already suffering from 9.17% CPI increase per year per Shadowstats.com but it is hidden by Bogus Statistics – Note 1) but Interest Rates must eventually rise to keep Investors interested in purchasing U.S. Paper, and to accommodate Inflation.
But substantially rising Interest Rates will Crash the Housing Market and Economy as a whole.
Indeed, rising Interest Rates already began several months ago in the U.S. – Witness the 10 year Note Yields Spike Up to nearly 3%. (Even so, the recent No-Taper decision reduced rates near term, but that also hurts the $US.)
Of course, the Prospect of Rising Interest Rates and Reality of Intensifying Monetary Inflation should have impelled Gold and Silver, the Ultimate Safe Havens/Assets to new heights in recent months.
But it did not, and all Studious and Savvy Investors know this is Mainly a Result of The Cartel’s (Note 2) Manipulating Precious Metal Prices down, as Engdahl notes.
In our view, this Precious Metal Downtrend is bound to end despite ongoing Cartel Manipulation attempts. But why and when??
A large part of the Answer lies in the increasing demand for Physical and Prospects for the $US and other Fiat Currencies.
The $US 75 basis point Crash on October 17, the Day after the Debt Ceiling was lifted, is a mid to long- term harbinger of the $US’ future.
Short-term, the $US basis USDX is still trading in the 79 to 80 range (but is down to just above Major Support at the top of the 78 to 79 range) as we write. This is the U.S. Government’s self-inflicted “punishment” for allowing the Obama Administration to successfully push for more Debt and More Spending. One short-term consequence is that the $US is down yet another 50 basis points from its October 17 close, as we write.
Going forward, we forecast that The Debt Ceiling will be raised again in February, 2014, as the Political will does not now exist in the US to cut spending. At that time, the $US will likely make another run down to threaten closing below 78. If such a close is confirmed, that would signal the beginning of the Major $US Crash which we earlier forecast for 2014.
If (when) such a Crash appears close it will have been prudent to have already exited the $US and have already acquired physical Gold and Silver.
Until then, expect the $US to trade in the 78-81 range and the Euro to bounce correspondingly in the mid 1.30s.
Re Treasuries, we fully expect the ‘No- Tapering’ policy to continue ad infinitum, as its cessation would cause a crash. Indeed, we expect monthly QE to be increased beginning some time in 2014. That will be another spur to launch Gold to the Upside.
And in the highly unlikely event The Fed does start to taper in 2014 it will surely have to reverse course quickly to liquefy again as the Markets are floating on Fed-provided liquidity.
In sum, Short-term, U.S. Treasuries are “Hot”, that is they should remain strong enough to keep the 10 year yield below 3% (and, short term, push the yield into the 2.3 to 2.6% range), until the $US Crash seriously begins.
Mid and Long-term, U.S. Treasuries are quite vulnerable (due to ongoing QE) and will likely crash.
But, once again, a Superb Safe Haven with Profit Potential can be found in Gold and Silver.
As earlier noted, Cartel Price Suppression attacks have thus far succeeded in keeping Gold trading in the $1280 to $1350 range, and Silver in the $21 to $23 range.
As trader Dan Norcini Notes, Gold has not shown the capacity to break out to the upside out of its trading range yet, though it is increasingly threatening to do so.
However, the intensifying demand for Physical (which we and other independent commentators have documented on various occasions) makes it ever more difficult for The Cartel to sustain any Takedown. (Indian ex-duty Premiums for Physical have shot above $145 per ounce recently!)
But as year-end approaches the probability of that Great Precious Metal Launch up beginning and being sustained, increases dramatically. Indeed, Gold and Silver could break out and up out of their Trading Range at any time.
As the aforementioned Bubbles Burst, Gold and Silver will be Investors’ Salvation.
Regarding Equities, Fundamentally, because it is highly unlikely the Fed will begin to Taper in October or December. The Hot Fiat Money (indirectly created as explained last week) will continue to flow and continue to support Equities Prices.
And the Debt Ceiling Can Kick has given the Markets a temporary respite from uncertainty, as well as providing continuing liquidity via lower debt servicing costs via QE.
Though the underlying economy is not recovering, Corporate Earnings are, in the Aggregate, moderately positive and QE will likely keep their stock prices pumped up for a few or very few months more. Indeed fully 60% of American Corporation’s operating Earnings since 2009 result from QE-created lowered debt service.
The Disturbing Reality for the Mid and Long Term is that Corporate Revenues are not increasing, which is understandable because the financially challenged Middle Class can not increase spending, and will likely not be able to going forward.
Therefore, we have forecast that beginning sometime in 2014 (stay tuned), Equities will no longer be “Hot” and will likely Crash.
Once again, Physical Gold and Silver will spell Salvation.
October 25, 2013
Note 1: *Shadowstats.com calculates Key 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 September 17, 2013
1.52% / 9.17%
U.S. Unemployment reported October 22, 2013
7.2% / 23.3%
U.S. GDP Annual Growth/Decline reported September 26, 2013
1.62% / -1.75%
U.S. M3 reported October 24, 2013 (Month of September, Y.O.Y.)
No Official Report / 4.12% (i.e, total M3 Now at $15.392 Trillion!)
Note 2: 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.