Avoiding the fatal barriers to profit

by Deepcaster

- - A Golden Strategy to Surmount the Barriers - -


2008 has provided many Profit Destroying Pitfalls, and 2009 will likely provide more.

But no Pitfalls must be more assiduously avoided in 2009, and several years beyond, than certain Naïve and False Assumptions which are the product of Financial and Market Conditions Which No Longer Exist.

In other words, increasingly Adverse Economic and Market Conditions in 2008 have transformed what were (in 2007 and many prior years) certain Reasonable Assumptions employed by Successful Investors into Naïve and False Assumptions which, if utilized in 2009 and after, will likely result in investment calamity.

To fully understand these Naïve and False Assumptions, one must consider certain Significant Realities which helped create the Investment Hell that was 2008.

1) Increasing numbers of defaulting mortgages were the apparent initiating cause of the 2008 Financial and Markets Meltdown. But the Primary Underlying Cause was the private-for-profit U.S. Fed’s easy credit, anti-regulatory, and profligate monetary creation policies of the preceding years.

This led, in the U.S. and elsewhere, to the destruction of Incentives for Saving and Prudence, and instead enhanced Incentives for over-borrowing by businesses, governments and individuals, and even for fraud.

Several years of Fed-facilitated easy credit, coupled with excessive monetary creation (in the double-digits) for M3 as measured by shadowstats.com) created a Witches Brew spelled “Catastrophe” for the markets and economy.

Of course, the private-for-profit Fed’s profits are directly proportional to the aggregate amount of its lending to the U.S. government (Taxpayers) of the money which it creates out of thin air.

Thus it is not surprising that the Fed’s policies facilitated development of financial and economic crises which led to demands for U.S. Taxpayer-guarantees, loans, authorizations and bailouts, all of which required dramatically increased “lending” by the U.S. Fed to the U.S Treasury (i.e. U.S. Taxpayers).

Indeed, there is credible evidence that The Fed created the Economic and Financial Crises to increase its Profits and Power. Consider the YouTube video “The Federal Reserve is Engineering the Economic Collapse” at http://www.youtube.com/watch?v=LcOUML5f7Z8 and Deepcaster’s 4/4/08 Article “The Fox Wants More of Our Chickens” in the Articles Cache at www.deepcaster.com.

Primarily as a result of Fed policies, government, business, and individual debt burgeoned, and is still burgeoning if one counts the borrowing required to fund the government (Taxpayer) Bailouts, Guarantees, Loans and Authorizations.

2) The Key Point: So far as the U.S. Government is concerned, its Debt Burden has grown far beyond its capacity ever to repay without a dramatic degradation in the purchasing power of the World’s Reserve Currency, the U.S. Dollar. That is because trillions more U.S. Dollars must be printed and borrowed from the U.S. Fed to meet ongoing obligations. Only those who harbor Naïve and False Assumptions believe that the debt can somehow be repaid.

Indeed, given that the present value of all the downstream-unfunded U.S. Government liabilities is (at the end of 2008) well in excess of $60 trillion, a further dramatic destruction of the purchasing power of the U.S. Dollar is “baked into the cake.” One of the several negative consequences of this crises will be the further impoverishment of those reliant on U.S. Dollar income - - mainly the U.S. Taxpayer/Consumer.

Thus one consequence of these Fed-facilitated credit and monetary excesses is that the economic and investment landscape has now been irretrievably damaged for many years to come.

3) Thus, any Assumption that Markets and the Economy will soon bounce back to healthy growth is simply a Naïve and False Assumption. The Economy and Markets will likely be in the doldrums for years to come, and the only question is whether we are entering into a 1930s-style Depression or “only” a deep and long Recession.

4) Another consequence of the ongoing destruction of the U.S. Dollar is that Investors who invest today with that depreciating Fiat Currency will receive future returns, if any, in an even more depreciated currency when viewed in “purchasing power” terms. It is thus a Naïve and False Assumption to view future apparent “growth” in earnings or sales as measured in depreciating U. S. Dollars (or other key Fiat Currencies) as a genuine and full increase in value.

Considering the aforementioned massive debt burdens, coupled with the deep Recession which already exists, it is clear that many businesses depending on economic growth will contract or fail in future years. And even those which reflect apparent growth in value of sales or earnings will, in many cases, only have apparent and not real growth in value as measured by the purchasing power of the Fiat Currencies in which their profits are paid. Increasingly, any growth in value as measured in U.S. Dollars is likely to be only a portion of what it appears, and not real.

5) The first eight years of the 21st Century have witnessed a dramatic growth in Dark OTC Derivatives to the latest (June, 2008) figure of $683 trillion as reported by the BIS - - The Bank for International Settlements, The Central Bankers’ Bank (Path: statistics>derivatives>Table 19 and ff.). This Fed-facilitated Derivatives growth has enabled several market and economy-lethal developments, including the following.

a) Extraordinary (and extraordinarily dangerous) leverage in the financial markets. OTC Derivatives enable “leverage.” That is, they allow the parties to them to make or lose many hundreds of percent profits on amounts originally invested. Thus, in 2008 when market declines turned nasty, counterparty failures began to multiply and the whole paper-based edifice was shaken to its hollow core.

The resulting financial crises occasioned demands for U.S. Taxpayer Bailouts, Guarantees and Loans to the financial institutions which were likely to suffer most from the defaulting counterparties in these Structured Investment Vehicles, on the pretext that the bailouts were necessary to “Save the System.”

Of course, as the ongoing Crises indicate, the claim that “the system has been saved” is another Naïve and False Assumption. In fact, the Bailouts y have done no such thing, but have mainly served to “Save the Bacon” and/or line the pockets of the Reckless and Greedy Wealthy in certain Fed-Favored Financial Institutions.

In fact, no Lasting Remedy for the Financial and Economic Crises can be achieved unless the typical U.S. Consumer/Taxpayer/Debtor (who is 70% of U.S. GDP) is restored to at least some degree of economic health and is thus able to continue paying mortgage and other credit obligations. But no bailout has been provided to the typical Consumer/Taxpayer/Debtor and his/her situation is worsening daily.

Thus, given the continuing deteriorating health of the economy and the consumer, coupled with 16% (and increasing) Unemployment (see below), more defaults are sure to come. The aforementioned will continue to cause defaults in the vast Derivatives Markets and increasing weakness in the Economy and Equities Markets.

In sum, the deterioration of Economy and Markets has only just begun and will likely take years to complete.

The aggregate effect is that we will be tortured by the threat of Systemic Collapse for years. Thus, the Naïve and False Assumption that the strategy of investing-as-usual to “Buy and Hold” for the long-term, will generate profit will, in most cases, be an utterly false and profitless fantasy.

b) Another Naïve and False Assumption - - that key Official Economic and Financial Statistics represent Reality - - has been generated by the ongoing Market Intervention and Data Manipulation by the Fed-led Cartel* of Central Bankers and their Allies and factota. These Interventions and Manipulations serve to hide Key Negative Market, Financial and Economic Realities from most Investors around the world, much to their detriment.

*We encourage those who doubt the scope and power of Intervention by a Fed-led Cartel of Key Central Bankers and favored financial institutions to read Deepcaster’s December, 2008 Letter containing a summary overview of Intervention entitled “A Strategy for Profiting from the Cartel’s Dark Interventions & Evolving Techniques” at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org 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.”



The Fed-led Cartel Interventions work to periodically take down Precious Metals prices, control the level of Equities Markets and the price of Crude Oil. The Cartel apparently employs three main Vehicles to conduct their Market Interventions:

1) The aforementioned $683 trillion in Dark OTC Derivatives positions
2) The Repurchase Agreement (Repo) Pool
3) The TLSF Pool

For details on each of these three Vehicles and on this Interventional Regime in general, see Deepcaster’s December, 2008 Letter at www.deepcaster.com.

Three (of several) key negative consequences of this Interventional Regime are that:

a) It prevents genuine market forces from operating
b) It makes the financial and economic systems reliant on, and, simultaneously, vulnerable to the Cartel’s Market Intervention Regime and on gimmicked, and quite inaccurate, Official Statistics.
c) It presents a false picture of Economic and Financial Realities and prevents the Market from purging unsuccessful businesses, lightening debt burdens, and generally making wise business and financial decisions, thus postponing any possible recovery for years.

However if one regularly tracks The Interventionals, as Deepcaster does, it gives one an edge in investment selection. Indeed, as of the beginning of September, 2008 (i.e. before the Fall Market Crash) Deepcaster had recommended five “short” Equities Positions. Those positions were all subsequently liquidated showing substantial profit. See Deepcaster’s Front Page (www.deepcaster.com) for details.

Indeed, as the Real Numbers mentioned below demonstrate, our ongoing economic and financial crisis is not merely a “normal” business cycle recession, but a system-threatening crisis. Knowing these Real Numbers facilitated Deepcaster’s recommending “Opportunities in the Impending Perfect Storm” - - the title of his early September, 2008 (pre Crash) Article warning of the impending Crash (available in the Articles Cache at www.deepcaster.com)

It is thus another Naïve and False Assumption that the Official Figures accurately reflect the state of the Economy and Markets - - for example, that the current Recession is merely a normal “business cycle” phenomenon.

Making matters worse, Investors and citizens-at-large are misled by Official Statistics which have been gimmicked, as shadowstats.com demonstrates. Consider the following: Among these are Consumer Price Inflation (CPI) which has actually averaged about 11% annualized for much of 2008, rather than the 5% to 6% figures which have been reported as Official Statistics.

U.S. Unemployment has (according to Official Numbers) been ranging 4% to 6% from 1995 to 2007, spiking “only” to about just under 7% in late 2008. In fact, Real U.S. Unemployment in 2008 now exceeds 16% and is still increasing.

As well, the Delusion of Economic Growth claimed by Official Statistics is just that - - a Delusion. Real GDP has been negative since 2004. Indeed, in 2008 GDP is a negative 3%.

As well, the 2008 U.S, Federal Deficit, rather than being $1 trillion as reported officially, is over $5 trillion. And, if downstream-unfunded U.S. obligations are included, the U.S. National Debt is about $66 trillion!

All of the above Genuine Numbers are calculated by shadowstats.com which calculates them according to traditional methods used in the 1980s and 1990s, before the political adjustments began.

In sum, key “Naïve and False Assumptions” include:

1) That the economic and financial troubles are merely a part of a normal business cycle. In fact, they are much deeper and reflect a much greater Systemic Threat, and
2) That the economy and financial markets will return to some semblance of normal growth sometime soon. This is a delusion.
3) That this presumption of “normalcy” and “growth-to-come” will suffice to make formerly reasonable assumptions of wise investors effective; such as (what is now a fiction) “Buying and Holding” can often be profitable.

Thus, since growth and normalcy in financial markets and the economy will not return any year soon, the typical “Buy and Hold” policy will likely rarely work anymore.

The bottom line is that we are entering into a Deepening Hyperinflationary Recession which, in all likelihood, will turn into a Great Depression.

Thus, Investors who wish to have a chance to stay ahead of the Deterioration, and even profit, need to track the Real Statistics and Interventionals, as well as the Fundamentals and Technicals, as a part of overall strategy. Given the Interventions and dim Financial and Economic prospects, Investors must become “long-term traders with perspective.”

Gold and Silver and selected other Investments can provide a Safe Haven and profit, even given the aforementioned analysis, provided they are purchased according to the Strategy outlined below.

The following are Key Highlights of a Strategy for Protection and Profit:

1) Track the Interventionals and the Real Numbers, as well as the Fundamentals and Technicals, and the housing, credit, and other Bubbles and the implications of their bursting. This allows one to…
2) Pick which Sectors are inflating and those which are deflating, which allows one to…
3) Ride the inflating ones up and use short positions of various kinds to ride the deflating Sectors down and…
4) Recognize that one must look at Interventionals and Real Numbers regularly as well as Fundamentals and Technicals in order to adequately forecast and time Market Moves and…
5) Recognize that Gold and Silver are authentic Safe Havens against both inflation and deflation but that their price at any given time is subject to massive distortion by the Fed-led Cartel of Central Bankers through its Interventions. Therefore…

It is important to implement such a Strategy (which is laid out in greater detail in Deepcaster’s article “Defeating the Cartel…With Profit” article in the “Articles Cache” at www.deepcaster.com). This Strategy allows one to build one’s Core Position in Gold and Silver and selected other investments near the interim bottoms of Fed-led Takedowns, but also to profit as Gold and Silver and the other investments rise, and when they are Taken Down as well.