Submitted by Deepcaster:

Money printing creates illusory wealth and buys time, but if it was truly the answer to a deleveraging cycle, Zimbabwe would be a member of the G10.

The recent Equities Rally and Glimmers of Economic Recovery are Artificial because they have been bolstered up on a Tide of Central Bank created liquidity (via QE etc.).
They have not been generated in the healthy sustainable way by savings and Investment.   Therefore, it is highly likely they are Transitory.

Given the Daunting Challenges facing the U.S., Eurozone, China, Japan, and other economies, and the understandable Investor uncertainty about how these challenges will be met, it is essential to review Key Baseline realities Critical to Profitable Investing.
As repeated Doses of QE become less effective, the Central Banks, specifically The Fed and BOJ, resort to a related Baseline Reality: Money-Printing-to-a-greater Degree than other Central Banks, i.e., to Currency Devaluation.

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“Money printing creates illusory wealth and buys time, but if it was truly the answer to a deleveraging cycle, Zimbabwe would be a member of the G10.”

 

David Rosenberg, Gluskin Sheff, 1/29/2013

 

 

Cleansing all the Recovery Hype off one’s Boots, it is well to remember the Key and Threatening Baseline Reality which David Rosenberg notes.

 

The recent Equities Rally and Glimmers of Economic Recovery are Artificial because they have been bolstered up on a Tide of Central Bank created liquidity (via QE etc.).

 

They have not been generated in the healthy sustainable way by savings and Investment.

 

Therefore, it is highly likely they are Transitory.

 

Given the Daunting Challenges facing the U.S., Eurozone, China, Japan, and other economies, and the understandable Investor uncertainty about how these challenges will be met, it is essential to review Key Baseline realities Critical to Profitable Investing.

 

As repeated Doses of QE become less effective, the Central Banks, specifically The Fed and BOJ, resort to a related Baseline Reality: Money-Printing-to-a-greater Degree than other Central Banks, i.e., to Currency Devaluation.

 

This functions to make Exports Cheaper thus boasting local Economies.

 

This facilitates two other Baseline Realities, Impending Hyperinflation (see below) and Debt Saturation.

 

The Debt of Major Sovereigns such as the U.S., U.K., Japan and France, simply can not be paid under any reasonable Economic Growth scenario.

 

Therefore, Central Banks resort to more and more Debt Monetization/lending so that interest, at least, can be paid.

 

Of course, this ever-growing Debt Burden stifles Economic Growth as Japan has for two decades seen and the U.S. and Eurozone are now seeing.

 

Of course, any honest observer will admit that the resulting ‘Credit Supernova’ as Bill Gross, Founder and chairman of PIMCO (with $2 Trillion under management) notes, is not sustainable, and thus is quite threatening.

 

“Today, at $56 trillion and counting, it is a monster that requires perpetually increasing amounts of fuel, a supernova star that expands and expands, yet, in the process begins to consume itself. Each additional dollar of credit seems to create less and less heat. In the 1980s, it took four dollars of new credit to generate $1 of real GDP. Over the last decade, it has taken $10, and since 2006, $20 to produce the same result. Minsky’s Ponzi finance at the 2013 stage goes more and more to creditors and market speculators and less and less to the real economy. This “Credit New Normal” is entropic much like the physical universe and the “heat” or real growth that new credit now generates becomes less and less each year.

 

Not only is more and more anemic credit created by lenders as its “sixteen tons” becomes “thirty-two,” then “sixty-four,” but in the process, today’s near zero bound interest rates cripple savers and business models previously constructed on the basis of positive real yields and wider margins for loans. Net interest margins at banks compress; liabilities at insurance companies threaten their levered equity; and underfunded pension plans require greater contributions from their corporate funders unless regulatory agencies intervene. What has followed has been a gradual erosion of real growth as layoffs, bank branch closings and business consolidations create less of a need for labor and physical plant expansion. In effect, the initial magic of credit creation turns less magical, in some cases even destructive and begins to consume credit markets at the margin as well as portions of the real economy it has created. For readers demanding a more model-driven, historical example of the negative impact of zero based interest rates, they have only to witness the modern day example of Japan.

 

So our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic – it is running out of energy and time. When does money run out of time? The countdown begins when investable assets pose too much risk for too little return.

 

The element of time is critical because investors and speculators that support the system may not necessarily fully participate in it for perpetuity.”

 

“Credit Supernova!”

William H. Gross, Founder and Chairman, PIMCO, 1/31/2013

 

 

But this Orgiastic Expansion of the Money Supply and Credit (i.e., DEBT!) has already driven us to the Threshold Hyperinflationary level, while at the same time the DEBT has generated an Economic Stall, — a condition known as Stagflation, or, more accurately, Hyperstagflation, as we call it. For example, The Real (Hyperstagflation) Numbers for the USA are reported by Shadowstats.com.

 

 

 

“Although Recovery Never Took Place, Official Double-Dip Recession

Likely Will Be Clocked from Second- or Third-Quarter 2012

 

Reported Contraction in Real GDP Designed to Discourage Fiscal Reform?

 

Fourth-Quarter Nominal GDP Growth Collapsed to 0.46% from 5.91%

 

Real Durable Goods Orders Contracted Year-to-Year,

Despite Temporary Orders Boost from Year-End Defense Spending

 

The economic and systemic-solvency crises of the last seven years continue.  There never was a post-2009 recovery in business, just a protracted period of economic stagnation, which began to turn down anew in second- and third-quarter 2012.  Prospects for a pending economic recovery remain nil.  As discussed in Hyperinflation 2012 and No. 485: Special Commentary, consumer liquidity remains structurally impaired, which supports neither the government’s claims of economic recovery since June 2009, nor current expectations or hype of any unfolding improvement in the broad economy.

 

Although not statistically significant, the headline decline of 0.1% in real (inflation-adjusted) fourth-quarter GDP—the first quarterly contraction since the official recession—could have been produced with simple massaging of the data.  Given the level of guessing included in today’s (January 30th) GDP guesstimate (see below), the Bureau of Economic Analysis (BEA) had the ability to bring in headline growth at any level desired, certainly within a couple of tenths of an annualized-percentage point.  Decisions of at least that magnitude had to be made in order to put out the fourth-quarter guesstimate.

 

At first, deliberately producing a headline GDP contraction may appear to be counterintuitive from a political standpoint, but consider the negotiations ahead in Washington, D.C.  With a small contraction reported in the economy, it could be argued by those opposed to cutting the budget deficit, that any move towards fiscal constraint now only would drive the economy into renewed recession, the long-feared double-dip becoming a reality.

 

In reality, however, the economy already is in that double-dip, a byproduct of the unfolding crises in play since 2006 and before.  A sustainable recovery cannot and will not be forthcoming until consumers’ structural income problems are resolved, and until the nation’s extreme fiscal imbalances are addressed.

 

In other reporting, December new orders for durable goods rose by 4.6%, thanks largely to a temporary surge defense capital spending.  That circumstance, however, ran counter to the sharp decline in fourth-quarter defense spending, which helped to drag down the headline growth rate for fourth-quarter GDP.

 

In addition, as shown at the end of this Opening Comments section, consumer confidence fell sharply in January 2013, beginning to reflect a pattern of movement consistent with a renewed downturn in economic activity.”

 

“Fourth-Quarter GDP, December Durable Goods, #498”

John Williams, ShadowStats.com, 1/30/2013

 

 

ShadowStats.com therefore provides an excellent overview of the Real Economic conditions of the USA and therefore the latest Economic Data.

 

Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s before Official Data Manipulation began in earnest. Consider

Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)

 

Annual U.S. Consumer Price Inflation reported January 16, 2013

1.74%     /     9.36%

 

U.S. Unemployment reported January 4, 2013

7.8%     /     23.0%

 

U.S. GDP Annual Growth/Decline reported January 30, 2013

1.54%        /     -2.20% (i.e., a Negative 2.20%)

 

U.S. M3 reported January 24, 2013 (Month of December, Y.O.Y.)

No Official Report     /    4.38%

 

Yet another closely related Threatening Reality going forward is as a result of the Veritable Orgy of Fiat Currency Printing now engaged in by The Fed, ECB, BOJ, and 35 other Central Banks trying to maintain low interest rates and bolster their Bank owners.

 

This Printing Orgy generates yet another Investment-Critical Baseline Reality impending on the Horizon. Consider that

 

The US government borrows nearly 50 cents of every dollar it spends. China owns nearly $1.5 trillion of that debt. China is NOT a net new buyer of US debt; it spends its dollars buying up farmland and other natural resources worldwide, including in the US.

 

China knows that Real Assets are more valuable than Paper Assets.

 

The US government gets its borrowed dollars from accounting entries at the Federal Reserve, which creates the money out of thin air. The Fed buys over 70% of each sale of US bonds, bills and notes. Other than the Fed and its funny-money, few buyers of US debt exist.

 

Except that the US dollar is the world’s reserve currency [but will continue to be such only for so long as it is trusted to hold its value], the US is Greece, Spain, Italy or France. That is to say, bankrupt.

 

Indeed, Zhu Min, deputy managing director of the IMF recently confirmed (at a Global Economic Forum in Hong Kong) tha the Chinese Yuan/Renminbi is set to become the Global Reserve Currency.

 

To Profit and Protect, the Wise are advised to Keep these Baseline Realities in mind.

 

Regarding specific Recommendations for Profiting and Protecting, see Notes 1, 2, 3, 4 and 5 below.

 

Best regards,

 

Deepcaster

February 1, 2013

 

Note 1: Deepcaster and a few others have been warning about the Biggest One for many months!

 

The Biggest One is drawing ever nearer. It will make those who are prepared, rich. It will devastate the unprepared.

 

And one does not have to look solely at the logical consequences of The Fed’s, ECB’s, and BOJ’s destructive QE to Infinity to see that The Biggest One is coming. One has only to look at what various Market Sectors are telling us.

 

The following Market Signals communicate the same message:

 

-        The DJ Utility average is topping out… stalled around its 200 day Moving Average.

-        The Equities Markets are hitting record highs on a surge of Central Bank provided liquidity, certainly not on fundamentals.

-        The $US weakens on higher rates, not strengthens as is typical, a telling warning.

-        Certain indices are going parabolic, a probable precursor to collapse in One Sector.

 

The Biggest One is coming, and it will dramatically affect all markets.

 

To consider the prospective Effects of The Biggest One, check out our forecasts in our latest Alert, “The Biggest One Impending; Forecasts: U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates, Gold, Silver, Equities, & Crude Oil,” recently posted in ‘Alerts Cache,’ at deepcaster.com

 

Note 2: The Market Price of virtually any Asset is arguably always primarily a result of Competing Forces.

 

But 2013 is unique in that there are especially Strong Forces impelling many markets up. And there are especially Strong Forces impelling markets Down, Catastrophically Down. Regarding Forecasting Force Predominance in 2013, forecasting Timing is critical.

 

So we evaluate the prospective results of this “competition” and forecast Timing accordingly in our February Letter entitled “2013 Profit Primer; Buy Reco; Forecasts: Equities, U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates, Gold, Silver, & Crude Oil” recently posted at deepcaster.com in ‘Latest Letter and Archives.’

 

And we offer a Buy Recommendation aimed at a Substantial Profit in just the next two months in our February Letter.

 

Note 3: Just two weeks ago Deepcaster published an article “Gain from Power Elite’s Key Sector Price Inflation” in which we forecast the Price Performance of Key Market Sectors.

 

Regarding that article, legendary Investor and Newsletter Writer Harry Schultz said “Deepcaster is knee-deep in wisdom & wise advice. Congrats!”

 

It is definitely not too late to Profit from these Sector trends certain of which are just beginning. Our article “Gain from Power Elite’s Key Sector Price Inflation” is posted in ‘Articles by Deepcaster’ at www.deepcaster.com.

 

Note 4: A little over two weeks ago we issued a “Take 83% Profit” notice on a stock we recommended just 111 days before in a “Fortress” Asset Sector.

 

Just two days after that we made another Buy Recommendation in that same Sector – a Sector whose Superb Profit Potential will remain Relatively Undiminished by Economic Conditions, whatever they may be.

 

And we expect to make several more Recommendations in that Fortress Asset Sector in the Next Few Months.

 

The Economic Forces which were temporarily displaced by the Fiscal Cliff Fight are coming to the Fore again. And those Forces telegraph the next likely Market Moves, which we Forecast in last week’s Alert.

 

To see our Fortress Asset Sector Buy Recommendation and our Forecasts for U.S. Dollar/Euro, & U.S. T-Notes, T- Bonds, & Interest Rates, Gold, Silver, Equities, & Crude Oil, go to deepcaster.com and click on ‘Alerts Cache.’

 

Note 5: There are Magnificent Opportunities in the Ongoing Crises of Debt Saturation, Rising Unemployment, Negative Real GDP growth, over 9.0% Real U.S. Inflation (per Shadowstats.com) and prospective Sovereign and other Defaults.

 

One Sector full of Opportunities is the High-Yield Sector. Deepcaster’s High Yield Portfolio is aimed at generating Total Return (Gain + Yield) well in excess of Real Consumer Price Inflation (9.41% per year in the U.S. per Shadowstats.com).

 

To consider our High-Yield Stocks Portfolio recommendations with Recent Yields of 10.6%, 18.5%, 26%, 15.6%, 8%, 6.7%, 8.6%, 10%, 14.9%, 8.8%, 10.4%, 15.4%, and 10.7% when added to the portfolio; go to www.deepcaster.com and click on ‘High Yield Portfolio.’

 

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  1. One can boil all the shadowstats down to one cooked and one real reality…
     
    Government and media…………. “WERE IN A REBOUND! THINGS ARE IMPROVING!!! IT’S ALL GOOD”
    Real sentiment……”WE’RE SO SCREWED!!”
    fortunately for us, metal holders are less screwed than the rest.

    • You bet where Screwed Silver Slicker. By the time they stop printing it will be to late and 2015 is the year off the collapse.
      Check this out, I posted it in the the right hand side forum section.
      This I believe in my heart is true.

       

  2. Obama and the Mooch class are quickly burning through many decades of accumulated American wealth.  The private US net worth is about $65 trillion.  Total debt against that net worth is about $60 trillion.  I’m plus or minus $5 trilliion on both numbers.
    If the national gross new debt is accumulating at $10-12 trillion according to GAAP accounting, once this debt is well in excess of private net worth, we end up being owned by the lenders. Our debt is far greater than our net worth and even total liquidation does not cover the total debt.
     We are only a few years from that point. Infinite printing won’t stop the process.
    In strict banking terms, a 1 to 1 debt to worth  ratio is not excessive, given one caveat.  The entity with this debt to worth must be liquid and solvent. 
    That means the debtor have enough current liquidity to handle the current portion of the long term liabilities. Failing that, the debtor can easily default and  assets can be seized, forcing the debtor into bankruptcy (debtor in possession).  Liquidation of assets may proceed if the debtor’s situation can’t be remedied through ongoing profitable  operations.
      If the debtor is insolvent, without sufficient short and long term income, it  fails the liquidity test.  Assets are seized and liquidated.  The debtor disappears.   We, as the citizens of this country, are in the process of deleveraging. Good for us. This is not proceeding fast enough but it is moving along. We may, as private debtors, get in front of the private debts if we can remain reasonably liquid and solvent, as difficult as that has been over the last 6 years.  Ongoing individual and collective bankruptcies and liquidations are working, as painful as they may be.
      The state and federal governments are doing exactly the opposite from the consumers and private borrowers.  They continue to borrow trillions upon trillions at ZIRP, sucking up trillions of private capital and yet   become even more illiquid and insolvent.  This is a worldwide phenomenon.  It’s like a black holeof debt effect. If our national debt continues to grow, both on a  current and long term basis, bankruptcy will take place. These governments are accumulating debt 2-3 times faster than our best efforts at personal deleveraging, thus dragging us along with them.
    The problem with a national ‘bankruptcy’ is that the government will do anything to steal private funds from domestic and foreign sources.  This strips the private net worth of the citizens, undoing any good work that we individually have accomplished in trying to get our personal houses in order. We run as fast as we can and still stay in the same place. Higher taxes, more regulations and  more monetary extractions and seizures will be the fate of the people as these dying governments do everything in their power to stay alive for another year.  In a strange way the governments can remain insolvent longer than we can remain liquid–and that really stinks.
    The national  private net worth is large, accumulated for nearly a century, but it’s being stolen at a rate of $10 trillion or more a year via taxes and increased debt. This does not look good.   A rough guess at this generational theft is about $15 trillion a year. It might take about 5 years at this rate for the government to strip most of the private net worth.
      Thus the  Reset gets harder and worse every year. 
    It is much more likely to happen, and sooner, in Japan. The Japanese have accumulated net worth for about 50 years but their debt to worth is now about 2 to 1. The government is running out of other people’s money.
    Spain, France and Italy will implode before we do. Even with centuries of net worth accumulation, the process is even faster due to the higher taxes, lower economic growth and much greater government debt overhang.
     They’re already well into that implosion in Spain. They’ve been building their net worth for only about 30 years.
     France and Italy are entering into the debt dead zone but their national private worth is centuries old and will be tough to steal in anything less than a decade or so. The implosion could happen sooner however. The theft is not going unnoticed and these two nations have 2,000 old histories of fighting governmental expropriations. Hollande and his 75% tax rate is just the tip of the iceberg. In my opinion these countries are not quite and peaceful or complacent as us.
      Watch the civil strife in these countries.  That’s the best indicator of systemic failure. Greece is way past the point of no return. They are entering the end game of a sovereinty.  Watch for those signs in the other countries but watch our  own cities for those signs as well. The inner cities are nearly devoid of wealth and income and will be the first to go up in flames.   Our larger cities have economies as large as some countries and some states are larger than big national GDPs. Those states and cities are trip wires that will tell us the game is on

    • Very good analysis, AG.  I agree.  Greece is in a depression.  It is the festering sore that the EU can’t quite seem to leave alone.  Spain is in a serious recession that is sliding out of control into depression.  Unlike Greece, neither Italy nor Spain are small enough to save via the same slight-of-hand games that surround Greece.  If the EU tries to save either of these two countries, it will bankrupt them and then all of the EU will collapse as well.  This chain reaction will the cause the UK to collapse.  THAT is our tripwire.  When the UK starts to teeter, Bernanke or whoever is in charge of the Fed then, will try to save it and that effort will work about as well for the US as for the EU trying to save Spain and / or Italy.  Yes, dear friends, financial collapse IS coming to a neighborhood near you.  Got food, water, meds, guns, ammo, seeds, tools, and silver?

  3. Our government is to worried about the next election cycle to actually fix anything anymore. Each side sits there like a kid with a toy he won’t share and stares at the other wanting that toy.
     
    China may be buying assets here but push comes to shove good luck claiming them if things fall apart. Possession will be 99% of the law at that point. Americans need t get off their asses and start buying hard assets, let Wall Street sink into its pit of derivatives until it implodes.

    • On the other hand, our new Chinese masters may not be the complete nincompoops that the current crop is.  Who knows?  Might actually be an improvement.
       

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