One of the Crucially Important Lessons of the Housing Bubble Burst of 2008, the Internet Bubble Burst of 2002, the Market Crash of 2008-2009, and Most Crashes and Bursts before these, is that Certain Assets which were widely believed to be Safe, were not.
And given today’s Uncertainty and Impending Crises, that Truth remains – Many ostensibly “Safe” Assets are Not.
Submitted by Deepcaster:
“Collective belief can create its own reality, and at least for the past few years, collective belief is that Fed actions simply make stocks go up, and so they have. The problem is that this outcome is based almost wholly on perception and confidence bordering on superstition – not on any analytical or mechanistic link that closely relates the quantity of monetary base created by the Fed to the equity prices (despite the correlation-presumed-to-be-causation between the two when one measures precisely from the 2009 market low). Some of the deepest market losses in history have occurred in environments of aggressive Fed easing.”
John Hussman, Hussman Funds, September 2013
Thus, here we identify certain of these Risky “Safe” Asset classes (and those not so Risky), and indicate how one can best Profit and Protect through Self-Reliance Investing. Deepcaster identifies specific Investments which actually provide Opportunities for Profit and Wealth Protection in his recent Letter and Alerts.
Also here, we identify Major Risks to these Ostensibly Safe Assets.
Identifying Major Risks to Ostensibly Safe Assets is the First Essential step to Effective Self-Reliance Investing.
As the Geopolitical, Economic, and Financial Risks Mount, so too do the Risks of Major Counter-Party Failure.
The Housing Collapse, Financial Collapse as manifested in the AIG Collapse, and MF Global Debacle are but three recent examples of three Asset classes thought by many to be Safe (respectively, Mortgage-backed Securities, Insurance “products” provided via AIG, and Investments in MF Global) which were not. All three are examples of Counter-Party Risks which were realized.
And there are Counter-Party Risks Aplenty in today’s International Financial System. And many of them are in the same Sectors in which Counter-Party Failure occurred in the last Crash!
The Primary (but not sole) Cause is over-leverage. One need only consider that there are nearly $700 Trillion in OTC Derivatives currently Outstanding, but annual Global GDP is only approximately $70 Trillion. (www.bis.org, Path: Statistics, Derivatives, Table 19) to realize that the Systemic Risk is Arguably Greater Now than before the 2008-2009 Financial Crisis.
In sum, many of the Asset Classes and Institutions which proved risky in 2008-2009 are at least as Risky Now as they were then. It is critical that investors valuate Counter-Party risks before investing.
“Bail-ins” in which Bank Depositors’ Deposits! are confiscated by a failing or Bankrupt Bank (and often “compensated” for by Stock in the failing or Failed Banks) are not limited to Cyprus.
A Bank in Poland, for example, is implementing a Bail-in as we write.
Even more threatening are the Operative Rules under which many Banks in Europe and North America conduct Business, which also allow Bail-ins.
Conclusions: Self-Reliant Investors should take account of the fact that Deposits in such Banks are Vulnerable and thus are for Transactions not for Savings or for Assets held for the long-term.
As indicated above, the Risk reflected in the nearly $700 Trillion of OTC Derivatives is Orders of Magnitude greater than the collateral available to secure them.
Therefore, when (not if) there is another Major Market Takedown, certain Counter-Parties will be called upon to perform and will likely be unable to do so (cf. AIG in the last Market Crash) And such Failures will likely create a Ripple Effect via the OTC Derivatives Parties and Counter-Parties as they did in 2008.
Self-Reliant Investors should give priority to investments which are not encumbered by such risks.
Domestic vs Foreign Production Reliance
Reliance on Goods and Services produced abroad (regardless of where one lives) can be extremely Risky as all Crude Oil-importing Nations know.
But it is not just the Citizens of Oil importing Nations that are subject to Such Risks.
The Citizens of any countries which cannot feed themselves (e.g., Egypt and arguably, China) and which rely on Extra-territorial supplies are at Great Risk – as Participants in Nations with an Arab Spring know.
And National-Security-Sensitive Goods and Services produced abroad are another significant Risk Category as well.
As Precious Metals Investors know all too well, Gold and Silver Investments are subject to Price Suppression by a Cartel (Note 1) of Central and Allied Mega-Banks (See Deepcaster’s Archives for Deepcaster’s Letters and Alerts for an extensive Treatment).
These Price Suppression Attacks have been primarily Responsible for the Takedowns in the Paper Gold and Silver Prices in the last two years.
But given universal and Increasing Demand for delivery of Physical metal and the High Risk Market Environments, prospects for these Metals are Bright.
Consider two recent Reports re Gold and Silver respectively:
“…overnight just before 3 am Eastern, a block of just 200 GC gold futures contracts slammed the price of gold, on no news as usual, sending it lower by $10/oz…whoever was doing the forced, manipulation selling, just happened to also break the market. Indeed: following the hit, the entire gold market was NASDARKed for 20 seconds after a circuit breaker halted trading!
“To summarize: a humble black of 2000 gold futs (GC) taking out the bid stack, and slamming the price of gold, managed to halt the gold market: one of the largest “asset” markets in the world in terms of total national, for 20 seconds.”
“Vicious Gold Slamdown Breaks Gold Market For 20 Seconds,”
John Brimelow, JBGJ, LLC
But notwithstanding ongoing Cartel Takedowns, increased demand for Physical makes the Precious Metals price prospects bright indeed.
“From its low-close on June 27 of $18.59 (Comex front-month basis) through its high-close on August 27 of $24.70, silver jumped 32.8% in just 42 trading days. Using today’s Comex close of $23.12, silver is up 24.4% from its June bottom. Many investors are wondering if this has been a dead-cat bounce off an oversold bottom or if a new bull trend has begun. Based on all of the fundamental and technical data that I monitor, it would appear to me as if silver put in a definitive bottom in late June and is poised to resume its long-term bull market trend. I would further opine that it is likely that we’ll see silver (and gold) hit a new all-time high in price before we get another big correction like the one the metals just went through.
“The inflation-adjusted all-time high for silver is $140/oz. This number is derived by compounding silver’s high of $50 in 1980 using the Government-reported CPI rate. While I don’t expect silver to reach that inflation-adjusted high on this next bull-cycle move, I would not be surprised if silver hit $100/oz before the next major price correction. I see both technical and fundamental factors which will drive this type of move in price…
“First is the sheer size of global demand for physical silver. 1 billion ounces of silver is produced annually from mine production and recycling. Of that, roughly 900 million is consumed in industrial use (Silver Institute data). That leaves roughly 100 million ounces for investors.
“But what about China and India? Because of the restrictions put on gold imports by the Indian Government for most of 2013, Indian imports of silver have soared vs. 2012. In just the 1st half of 2013 (for which I have a data source), India imported 3,000 tonnes of silver, which translates into about 103 million ounces. It’s safe to say based on the trend in India that India will import over 200 million ounces this year….
“As you can see, just counting the U.S. and Canadian mints plus India and China imports, well over 251 million ounces of silver demand are accounted for. To be sure, part of the silver imported into India and China is for industrial use. But in total, just for the those four countries, investors will likely buy significantly more than the 100 million ounces of silver produced by mines in 2013 that does not go to industrial users. …”
“Silver is Getting Ready to Make a Big Move Higher,” Dave Kranzler
Caveat: one should expect continued Cartel Takedown attempts.
In that connection, Grant Williams, portfolio manager of the Vulpes Precious Metals Fund recently noted that at the COMEX warehouse, there are 55 paper claims for every ounce of Gold in that warehouse, and that a recent demand by shareholders of GLD ETF for Physical Gold in exchange for shares, was refused by the COMEX.
Independent Information Sources
Having accurate information about one’s Investment Interests, such as Deepcaster and other Independent Commentators aim to provide is essential for successful Self-Reliant Investing.
September 13, 2013
Note 1: 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.