Submitted by Deepcaster:

The Bond Vigilantes will begin to ride again soon. And notwithstanding The Fed’s ongoing open-ended commitment to be buying (now over 70% of) U.S. Debt, which has temporarily suppressed rates, but cannot do so forever.  Central Banks have added $5 Trillion! to the monetary base since 2007. This cannot continue without dire consequences.  Consumer Prices would have to double from here (i.e. increase 10%/yr for 7 years) to keep up with monetary base increases.

Going forward we are likely to see an intensification of trends already developing, i.e. increasing stagflation. That is, we are seeing an increasing economic contraction coupled with increasing inflation.


Key Markets Guideposts & Wealth Shelters (Faux & Real) into 2013


“Now, with the “fiscal cliff” looming at year-end, at least partially as a result of last-year’s failed deficit negotiations; and with the U.S. Treasury indicating that the next increase in the U.S. debt ceiling will be needed around year-end; deficit reduction issues (taxation and spending) will be coming to a head quickly, along with questions of renewed economic stimulus.


There is no reason to expect that renewed efforts at federal budget deficit reduction will result in anything more than the usual smoke and mirrors, further increasing, not reducing, long-term U.S. sovereign-solvency risk.  In reality, the U.S. economy has not recovered, and no recovery is pending.  Consumer liquidity remains severely impaired, and broad business activity continues to falter anew.  As a result. the actual federal budget deficit going forward will be much worse than the relatively rosy numbers being used as the basis for government negotiations.


Accordingly, global market reaction—to a severely deteriorating outlook for U.S. fiscal conditions—increasingly should reflect massive flight from the U.S. dollar and movement into gold and the stronger Western currencies.”


“September Trade Balance, Presidential Election”
John Williams,, 11/08/2012



Insightful John Williams’ Key Insight is that, going forward we are likely to see an intensification of trends already developing, i.e. increasing stagflation. That is, we are seeing an increasing economic contraction coupled with increasing inflation (already at 9.6% in the U.S. e.g. per shadowstats). This inflation is now hidden from us in Bogus Official figures.


But the Prices for Essential Assets, such as Food, are harder to manipulate. Increasing Prices of Essential Food Commodities are now close to those which ignited Food Price Riots in 2008, which continued through the “Arab Spring” and are continuing today.


But key food stuff production is expected to fall from 2011 levels, by 5% for wheat for example. Yet 870 Million are malnourished worldwide, according to the UN FAO and world population is increasing by 80 Million per Year.


And Crude Oil Prices remain stubbornly above $85/bbl for WTI and over $100 for Brent; with the consequent Economic Dampening Effect.


No wonder that fewer than half the companies reporting earnings for Q3 beat their revenue estimates. The economic contraction is starting to bite. Yet understandably, the demands of the sorely pressed citizenry, especially via the Eurozone and the U.S., for Safety Net Subsidies is growing and is a growing Tax on Budgets.


“Everybody’s worried about the fiscal cliff. But there’s a much bigger cliff coming up, and it’s the “Entitlement Cliff.” In the four years since Obama took office, entitlement participants have grown exponentially.


“Medicaid has grown from 46 million to 56 million people.


“Disability beneficiaries have grown from 7.5 million to 8.8 million people.


“Food stamp recipients have grown from 32 million to 47 million.


“On top of the above, about 40 million Americans aged 65 or older on Social Security and Medicare are receiving benefits. Add the numerous smaller entitlement programs to the total and the expenses are mind-boggling. All together, half of the nation now receives entitlements. On top of the massive entitlements programs, we have the interest on the Federal debt, which is currently $220 billion.


“One danger will come from the “bond vigilantes.” As they survey the nation’s entitlement situation, they are going to want higher interest payments on Treasuries. This will skyrocket the interest cost on the Federal debt, and push Uncle Sam into a compounding pressure cooker. This, in turn, will put further pressure on the US’s credit rating.


“The implications of these statistics are frightening. Expenses of $2.2 trillion for 120 million entitlement receivers comes down to $18,000 per recipient! Talk about mind-boggling problems.”


“Richard’s Remarks”

Richard Russell,, 11/16/2012



Russell is right. The Bond Vigilantes will begin to ride again soon. And notwithstanding The Fed’s ongoing open-ended commitment to be buying (now over 70% of) U.S. Debt, which has temporarily suppressed rates, but cannot do so forever.


Central Banks have added $5 Trillion! to the monetary base since 2007. This cannot continue without dire consequences. And, as Bill Bonner notes, Consumer Prices would have to double from here (i.e. increase 10%/yr for 7 years) to keep up with monetary base increases.


The Fed has increased the Monetary base threefold in the last four years. But to dampen the increasing inflation it would have to sell those trillions of bonds back into the Market. But who wants to buy bonds in an inflating economy?


Daryl Robert Schoon’s brilliant analysis describes why Capitalism is suffering a Paradigm Shift.


“The bankers bet that sufficient credit can reverse an economic contract ion is no longer on the table. This does not mean central bank credit will tighten. Just the opposite will happen. Monetary easing will continue until the very end. Central bankers are trapped. The end game is now underway….


“The world has entered a paradigm shift of immense proportions; and the collapse of the bankers’ economic world is a part of that shift. The bankers’ credit fueled a 300-year global expansion which transformed the world. The bankers’ credit, however, has now become debt which increasingly cannot be repaid….


“Prior to capitalism, the underlying economic dynamic was supply and demand. However, in economies fueled by the bankers’ debt-based bank notes, the relationship between credit and debt becomes equally, if not more, important than supply and demand….


“After gold was removed from the global monetary system in 1971 and after initial inflationary concerns were addressed in 1980, embedded constraints on monetary and credit growth no longer existed. The attendant rise in debt is noteworthy – as will be the consequences.


“What central bankers did not anticipate from the explosive growth of credit was the resultant levels of massive debt. Fixated on growth, central bankers miscalculated the inevitable effects of the unrestrained increase in monetary and credit aggregates on their heretofore successful ponzi-scheme of credit and debt.


Credit is the zygote of debt; and since debts constantly compound in capitalist economies, unless controlled, credit will inevitably lead to fatal level of debt. This is not rocket science. This is common sense.”


“2012: The Tipping Point: The Results Are In: THE BANKERS LOST

Daryl Robert Schoon, via LeMetropoleCafé, 11/20/2012


Observing how Central Banks, the Mega-Banks Cartel, and their Captive Government’s cope with ‘fatal levels of debt” is arguably the Key “Factor” to consider in Markets Performance going into 2013.


Complicating and worsening the scenario are the Manipulations of Key Mega-Banks, which seek ultra-profit maximization regardless of the wider destructive consequences. Consider:


“In the summer of 2011, I wrote a four-part series entitled “Economic Rape of Europe Nearly Complete”. In that extended piece; I detailed how the combination of three malevolent forces was decimating the economies of Europe one-by-one.


“Through the relentless fraud/manipulation in Euro debt markets, sadistic “austerity”, and so-called “bail-outs” which just bury these insolvent economies even deeper in debt; the Western banking cabal is systematically looting these nations.


“The manipulation of European debt markets was (is) accomplished through the fraudulent rigging of the credit default swap markets; combined with the complicity of the Big Three ratings agencies and the West’s media Oligarchs.


“The bankers manipulate credit default swap prices higher, simply by piling-on massive bets that a particular Euro-zone nation will default. The propaganda machine immediately shrieks that “risk” has now increased for this debt market, and then the accomplices in the ratings agencies comply with a ratings downgrade – immediately driving interest rates higher.


“With the massive debts being carried by these economies, any increase in interest rates automatically makes the economy significantly less solvent, turning this tag-team of fraud into a self-fulfilling prophesy. With the banksters literally capable of manipulating Euro zone interest rates to any number they desire, as a matter of simple arithmetic it is impossible to “bail out” any of these nations – by lending them more money.


“The moment more bail-out dollars are released, the banksters immediately drive interest rates even higher. Thus all the bail-out dollars are siphoned-out of the economy in the form of higher interest payments to the Bond Parasites, meaning all that each “bail out” accomplishes is to pointlessly pile on more debt.


“Meanwhile, as more and more of every revenue-dollar is sucked out of these economies by the debt-market fraud, Austerity is literally nothing less than economic suicide. In economies already starved for capital, Austerity is the precise equivalent of a doctor putting a severely anorexic patient on a diet.


“The empirical evidence is overwhelming. In every European economy which has inflicted Austerity on its population, the rate of economic contraction has accelerated, and the size of the budget deficits has grown larger instead of smaller. Since the entire raison d’etre of Austerity is to (supposedly) shrink these deficits, it is nothing less than deliberate suicide to continue this policy, and serves no purpose except to free-up more dollars to be paid out as interest payments to the Bond Parasites.


“This is the real impact of the new “unlimited bond-buying” announced by the European Central Bank, since (as the dust settles) we now see there are strings attached to yet more loans to these economies. Specifically, the ECB wants to strip these nations of what little economic sovereignty they still possess, and be able to mandate increasing levels of Austerity with each new round of suicidal bond-buying.”


“ECB Bond-Buying: The Rape of Europe Continues”
Jeff Nielson, via, 11/12/2012

Clearly, several Eurozone countries (and not just the PIIGS) have reached, or will reach Debt Saturation. (Indeed, the USA and Great Britain have arguably reached Debt Saturation as well.) That is, no reasonable level of economic growth will allow the Debts to be repaid, ever.


Three alternatives remain for the Debt Saturated Sovereigns – Partial or Total Debt Repudiation (a la Iceland), Voluntary Creditors’ Debt “Haircuts,” or Currency Debasement through Monetary Inflation, or some combination thereof.


Clearly the Central Banks have chosen the third alternative, but as we have demonstrated here and elsewhere, that inevitably leads to Price Inflation, which the Real Numbers (as opposed to Bogus Official Ones in China, the USA, and elsewhere) show is already occurring.


Rising Food, Energy, and Precious Metals Prices in recent years demonstrate this effect. This is why Deepcaster continues to recommend Investments in these Sectors – see Notes 1, 2, and 3 below – since these are Assets which serve both as Wealth Shelters and Profit Sources.


In conclusion, the long-term uptrend in these Sectors will continue. [But the Energy Sector will be especially volatile with month-long downtrends and uptrends. Yet over the long-term the Uptrends will dominate.] In sum, these three provide the best Wealth Protection and Profit Potential given that Price Inflation will surely continue.


Continue, that is, if and until the Central Banks’ Money Printing stops. Then … Massive Deflation.


And, by the way, one closing observation regarding Wealth Protection. There is increasing evidence that the Obama Administration will soon begin a push to de facto confiscate 401K’s and IRA’s by forcing their owners to buy U.S. Treasury Bonds and/or Government sponsored annuities. Whether or not this is true, we do think it advisable to consider the pros and cons of shifting assets from such “paper” stock accounts to physical Gold and Silver, as well as agriculture investments.



Best regards,



November 20, 2012


Note 1: The world’s population increases by over 200,000/day. That’s net births over deaths. That’s one heck of a large potential market increase for Goods and Services, provided that the increasing population has the Purchasing Power to acquire the goods and services they need and want.


Since not all desired goods and services can be acquired, people have to prioritize. Thus some goods and services get bought and others not.


Our High Yield stock recommendation last week makes a product essential to a Sector which is the very top priority when it comes to purchasing decisions. And its recent yield is 8.8% to boot.


And perhaps best of all it is very well situated to be profitable regardless of general economic and financial conditions.


[And for those very sophisticated Investors who like to sell covered calls or naked puts, the high option premiums on this High Yield Recommendation could make that very lucrative.]


And we issue a Markets Warning last week regarding a substantial impending Market Risk for Traders and Investors.


To see our High Yield Recommendation and Market warning read our recent Alert “8.8% Yield in Top Sector Reco; & Markets Warning! & Forecasts: U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates, Gold, Silver, Crude Oil, & Equities” posted in ‘Alerts Cache’ at


Note 2: The recent Markets sell off resulting from “Disappointment with the post-Election Stalemate” and more Negative Eurozone Developments is a realization of our oft-repeated Caveat: we are in a primary Bear Market, and therefore subject, at any time, to Events causing Market Takedowns. This is primarily because the Real Economy is still quite unhealthy in the US, Eurozone, and yes, in China. It is bottom bouncing. We have repeatedly documented there is no Real Sustainable Recovery. Any and All Markets are subject to Takedowns at any time.


Moreover, a recent confirmed and reconfirmed Hindenburg Omen – reflected in an Ominous Jaws of Death Pattern on the Charts — indicates the probability of a Major Market Crash in the next few months is substantial – at least one in four.


However, some technicals are still on a “Buy” and Equities Markets are oversold short-term.


What next?


Deepcaster addresses this question and provides forecasts through year-end and into 2013, in Deepcaster’s recent alert, “Key Asset 400% Increase Probable; Post-Election Forecasts: U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates, Gold, Silver, Crude Oil, & Equities” in ‘Alerts Cache’ at


One Forecast is for a probable price appreciation of 400% in one Key Asset in the next few months. Regarding Buy Recommendations aimed at profiting from the impending Fiscal Cliff and likely Political and Fed reactions see Note 3 below. And regarding our High Yield Portfolio please see Note 3.


Note 3: 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 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 (9.64% per year in the U.S. per

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

  1. Currency inflation and mushrooming debt are reciprocal incidents. The dramatic culmination of evicting hard money from the markets is upon the world. The global explosion of currency is only just begun and the ‘fallout’ is yet to reach the apex of its trajectory. When it begins to rain down on us all, the ‘ash layer’ will be generations deep.

    The ‘paradigm shift’ had its beginning in the mid 1960s when ALL circulation turned into paper. The exponential progression was clicked on and the Maw was born.

    • You’re right! That’s why we need to educate the others that they should buy the physical gold and silver to use them as an umbrella against this rain. The future generations especially need to know that because it will more likely happen during their time.

  2. Deepcaster  thank you for your insightful analysis of what ails the worldwide economy.  A couple of my main concerns are the bond bubble that Porter Stansberry spoke of a couple of years ago and expropriation of retirement accounts.  
     The US debt bubble of $16 plus trillion at ZIRP will collapse in ways that only be imagined when rates go to their more normal 5-6%.  If adjusted for inflation, the rates could easily hit 10%. This might take a couple of years.  This would reduce the face value of these bonds by 40-75%, destroying the investments of those holding the bonds.  This will be repeated on a world wide scale as Europes leverage is 3 times that of the US. Japan will either follow or preceed the first two bond titans.

      China is in for a rough landing and their debt in relation to GDP is well concealed and probably over 100% of their GDP.  I’m not much of an investor in sectors that might profit from these problems, gold and silver will always be a more attactive safe harbors in these turbulent times.  I think the rough patch will last much longer than even some of the more pessimistic authors.  We stackers may be some of the few that can bob and weave.  It’s likely that this country will still be a better place to live than many despite the chances of martial law, riots and civil unrest. 

  3. “The Bond Vigilantes will begin to ride again soon.”

    My questions is, “Where the hell have they been for the past 4 years?”.  In times past, the Fed set the short term interest rates and the bond market set the long term interest rates.  Additionally, when governments became spendthrifts, it was the bond market that discouraged them from doing more of that via rising long term interest rates.

    Somehow, Bernanke has found a way to handcuff the bond vigilantes, turning them into prisoners under house arrest.  I’m not sure how he did this but it looks very much as if the Fed is setting both the long and short term interest rates these days.  If they were not, how could Bernanke promise to hold rates at near zero for the next 3 years?
    Because of the incompetent monetary policy of the Fed, we can now expect a rather spectacular implosion of the US Treasury paper market.  The Fed is buying over 70% of these now because the bulk of bond market participants do not want them as these artificially low rates.  Fed manipulation is distorting the bond market (and much else besides) and experienced bond traders are well aware of it.  As in the movie War Games with Tic Tac Toe and Global Thermonuclear War, the only way to win the Fed manipulation game is not to play it.

    This also exists in Europe these days where the economically incompetent do not grasp the idea that rising sovereign bond rates are a danger signal that governments had best heed.  The fact that they are rising SHOULD be telling them that their fiscal policy is incorrect and will end badly.  Because of these things, bond buyers are demanding more money to take on the rising risk of default on those bonds.  Unfortunately, all they seem to want to do is try other means of forcing these interest rates lower so governments can continue to behave in a financially irresponsible manner.  This is the equivalent of unscrewing the Check Engine light bulb in your car to “fix” whatever problem it has.

    • I don’t see any Western countries doing well today. They all have the same problems but in some countries, the problems are worst while in the others, it is less worst. People are saying that these countries are doing well now but I don’t see any recoveries.

  4. It’s almost like a classroom of professors with their confirmation bias and normalcy bias on maximum overload trying to find a way out of their own self made messes.  The brightest people in the room with no more sense than that dim bulb in the check engine light, they don’t have the intelligence to pour piss out of a boot with the instructions printed on the heel.

  5. Even if the Federal Reserve suppresses the interest rates, it still won’t help the US dollar to maintain its value a lot. The Federal Reserve keeps printing a lot of dollars out of nothing which will devalue the currency. After that, more countries are going to reject the US dollar.

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