Hard Realities

by Deepcaster

To identify Profit Opportunities in 2009 one must first seriously consider a variety of “Hard Realities” and daunting Forecasts in the linked Economic and Financial Arenas, and explore their Consequences.

Unemployment to keep Rising and Banks to be de facto Nationalized

“They have to do a bad bank”, Harvard Economics Professor Ken Rogoff said. But “if that’s all they do then it’s idiotic.”

“Institutions like Citi (NYSE: c) and Bank of America (NYSE: bac) will have to go, boards will have to be fired and equity stakeholders will be wiped out”, Rogoff said.

Looking to the overall economy, it is unlikely the job market will improve this year, Rogoff told CNBC.

“I’m afraid unemployment is going to keep rising until at least 2010. The US is in ‘a very deep financial recession’ and in those situations unemployment rises for almost five years”, he added.

Harvard Economics Professor Ken Rogoff
CNBC/January 30, 2009

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Pension Funds Suffer likely Irretrievable Losses

After years of gambling in real estate investments, the (California) state workers pension fund has lost more than 41 percent of its value.

California Treasurer Bill Lockyer said, “You either cut some other program expenditures or you tax something.” In other words, the pension deficit will be placed on the backs of working people who had no control over the investment decisions made by the government, let alone the recklessness and avarice of the banking executives and Wall Street speculators who are responsible for the crisis.

California’s pension and budget defaults are not isolated phenomena. All across the US state pension funds have been collapsing due to the broader economic crisis. According to the Center for Retirement Research at Boston College, state governments have run up pension fund losses totaling $865.1 billion. Assets for 109 pension funds dropped 37 percent to $1.46 trillion in the 14-month period ending December 16. By comparison, the S&P 500 fell 41 percent in the same period.

“California Pension Funds Close to Bankruptcy”
Kevin Martinez/January 30, 2009

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Pension Funds will likely Collapse - - Social Unrest to Follow

Of all the problems delivered to the doorstep of middle America by OTC derivative manufacturers and distributors, nothing will exceed the bankruptcy of retirement and benefit programs for the American worker…

More and more people who make and deliver real goods are getting letters from their paid-in retirement fund informing them of the curtailment of benefits that have up to now been taken for granted, due to what the fund calls Critical Status.

It is assumed in presentations by the funds that this “Critical Status” will (be) overcome. It will NOT because SIVs are not coming back… Simply said, the OTC derivative cannot recover simply because they have been fraudulent since their inception…

Social unrest will not be avoided as there is no practical solution to the core problem that is yet even to be admitted to, let alone faced. The problem is that all OTC derivatives have been frauds since the beginning of their creation. (Emphasis Added)

“The Greatest Destabilization Is Yet To Come”
Jim Sinclair, February 2, 2009

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The Bailouts and Stimulus Bill will not Work

“BROKEN BANKS - - The Bailout is a Bust (And the Sooner We Realize it the Better)”.

Business Week Headline, February 9, 2009

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Cartel* Overt and Covert Interventions and Data Manipulations will likely accelerate.

“With the systemic crisis remaining a threat to national security, almost anything remains possible in the arena of data and market manipulations. Data and market manipulations remain extremely inexpensive and effective policy tools, but their use presumably depends to a certain degree on perceived financial-market vulnerability.”

www.shadowstats.com, Flash Update, February 3, 2009

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*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 Overt and Covert Intervention entitled “A Strategy for Profiting from the Cartel’s Dark Interventions & Evolving Techniques” and Deepcaster’s July, 2008 Letter entitled “Market Intervention, Data Manipulation - - Increasing Risks, The Cartel End Game, and Latest Forecast” 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.”

News Blackouts, News Manufacturing and News Distortion will likely Accelerate, and Denial of Ongoing Worsening Trends will likely Continue to be Widespread

Forecasts reflecting likely increasingly Negative Future Realities will likely be ignored by all but the Most Savvy and Courageous.

After all, Deepcaster, and a very few others repeatedly, over many months, Warned the Investing World that many of these adverse Developments Were Coming. Consider the Following Deepcaster Articles’ Titles and, especially, the dates they were published:

“Protection and Profit from Bailouts Doomed to Fail”, September 26, 2008
“Opportunities in the Impending Perfect Storm”, September 5, 2008
“A Nasty Twist to the Cartel ‘End Game’?!”, August 29, 2008
“Opportunities & Threats from the ‘Paper Money’ Regime”, August 1, 2008
“Profit from the Jaws of Death”, July 25, 2008
“Crisis Opportunities As We Move Into the Abyss”, July 11, 2008
“Profit From Fed-Catalyzed Crises”, July 3, 2008
“Market Intervention, Data Manipulation Still Accelerating”, June 27, 2008
“Systemic Meltdown Risk Increases”, June 13, 2008
“A Profitable Refuge From Market Intervention & Data Manipulation”,
May 9, 2008
“Defeating the Cartel…With Profits”, March 28, 2008
“Increasing Systemic Risk Portends Cartel ‘End Game’ Attempt”, March 7, 2008
“Profiting & Protecting from Collapsing Paper”, February 15, 2008
“Private Ownership of U.S. Fed Unsustainable”, January 4, 2008
“Protecting Profits From The ‘Burning Platform’”, December 28, 2007
“Profiting From the Push to Denationalize Currencies and Deconstruct Nations”, June 6, 2007
“Protecting Profits from ‘Dark Liquidity’ & Other Systemic Risks”, April 6, 2007
“Massive Financial-Geopolitical Scheme Not Reported By Media”, August 11, 2006
“Profiting from Cartel Interventions”, July 2, 2006

Indeed, entering into September, 2008 Deepcaster had recommended five short positions to profit from his Forecast Market Crash. All of these have subsequently been liquidated profitably. The key to making such recommendations is Real Trend identification plus Tracking the Interventionals as well as the Fundamentals and Technicals, and last but not least, relying on Real News and Real Statistics, not gimmicked or manufactured ones. So how can one identify profit opportunities? By taking all these into consideration and acknowledging certain basic strategic Considerations - - an exercise in Econo-Reality Therapy, to coin a phrase.

Strategic Considerations for Identifying Profit Opportunities

The Basic Reality: Hyper Stagflation. We are in an Apparent Deflationary Environment (e.g. energy prices have dropped dramatically and the Equities Markets and other “Assets” have lost Trillions in Value). This Apparent Deflationary Environment masks an underlying Hyperinflationary Reality - - the Trillions in Fiat Currencies which are being printed in a futile (in the long term) Attempt to stimulate the Economy are greater than the Trillions lost in Equities Markets Takedowns and other Asset Devaluations. Thus The Basic Long Term Trend is Hyperinflationary Economic Decline - - the worst of both Worlds. We expect $20 hamburgers in three or four years.

Raise Cash - - Cash is King in this Credit Squeezed Environment. What Cash? So long as the deleveraging continues the U.S. Dollar should remain relatively strong. When the deleveraging is perceived to be beginning to end, the U.S. Dollar will begin its collapse. In such an environment the Swiss Franc is the currency of choice. Of course, the ultimate Money are the Precious Monetary Metals, Gold and Silver but, given Cartel* intervention we advocate acquiring them using the Strategy described in our Article “Defeating The Cartel…with Profit” in the Articles by Deepcaster cache at www.deepcaster.com.

Liquidate Debt - - Debt is the Enemy of Cash in this Cash is King Environment. Debt demands Repayment, with Cash that is ever harder to obtain.

Credit: Use it or Lose It: But only if you Must for Safety’s Sake. Lenders are Cutting Back or Eliminating Credit lines. So if you do not have a sufficient cash cushion and can foreseeably make the payments, consider borrowing from that credit line. If you do not it may be eliminated.

Become more Self-Reliant. The Hard “Econo-Reality” is that in an era of increasing unemployment and decreasing economic strength - - an era which will likely persist for several years - - there will be more, much more potential for civil disturbances and reduction in, or outright cut-off of, basic public services, and essential supplies as well. Given the increasing desperation of an increasingly large number of the population there will be more personal safety risks. Public infrastructure services upon which we have come to rely such as utilities and roads are likely to be compromised periodically, and increasingly severely. Prepare for blackouts, periodic interruptions of water and food supplies, civil and very uncivil disturbances. “Be prepared” is not just a wise motto for Boy Scouts.

Track the Interventionals and the Real Statistics

Many Otherwise Astute Investors were Blindsided by the Takedowns in the Equities and Precious Metals Markets in September, October and November, 2008. But they need not have been.
If these Otherwise Astute Investors had been tracking the Interventionals and monitoring the Genuine Key Statistics rather than the Gimmicked ones issued by Official Sources they would likely have seen the Takedowns coming and would not only have taken steps for Protection, but also for Profit.
Perhaps the single most important factor in the recent performance of certain Major Market Sectors is the Interventionals - - even more important than the Fundamentals or the Technicals. In order to understand why the Interventionals are the most important, it is essential first to examine how it is that investors typically do not get accurate Key Statistics from Official Sources.
Consider, for example, U.S. Consumer Price Inflation Data: the sky-high energy and food costs of 2007 and 2008 tend to belie what we were told by Official Sources about the CPI. According to Official Sources, from 1992 through the beginning of 2008 the CPI never went much above 4% but only bumped up to about 6% late in 2008. But these figures simply do not square with our own experience of the inflation of prices of practically everything during that period. Nor do they square with certain objective measures.
Fortunately, there is a service (shadowstats.com), which calculates CPI (and other important measures such as GDP, M3 and Unemployment) the old-fashioned way (i.e. the way they were calculated in the 1980’s and early 1990’s). Shadowstats.com’s most recent calculations of Consumer Price Inflation show that it was spiked up over 13% as of mid-October, 2008, and was still about 8% in January 2009.
Even more shocking is a comparison of the Official U.S. Unemployment Rate with the Real Unemployment Rate. According to Official Sources, from 2002 to late 2008 Unemployment never rose above 6% and only popped up to about 7% at the beginning of 2009. But shadowstats.com calculates the Unemployment Rate including accounting for “discouraged workers” as well as making an adjustment for the Official Absurdity of the “net jobs birth/death ratio.” Calculated in this Realistic manner, we see that U.S. Unemployment has been above 12% since 2002 and has recently spiked to nearly 18% as of January 11, 2009 according to shadowstats. That shocking rate means that 18 out of every 100 American workers are unemployed.
And, regarding U.S. Gross Domestic Product, the Official Numbers show GDP increases ranging between 1% and 2% annualized from the beginning of 2002 and lowering to 0% as of the end of 2008. In fact, the Real Numbers show that Real GDP has ranged from 0 to a negative 2% since 2002, and as recently as late 2008 has spiked down to a negative 3%, as calculated by shadowstats.com.
Similarly, the Money Supply increase figures (M3) (which as of March, 2006 are no longer released by The Fed) spiked up to nearly 17% annualized in early 2008, and are still showing an outrageously high 11% annualized Money Supply Growth figure as of January, 2009; thus our hyperinflationary Forecast.
Profit Opportunities from Money Supply Inflation
By massive loans, equity purchases and injections and expansion of the actual Money Supply by over 11%, The Fed has guaranteed massive inflation. Similarly, key Central Banks around the world that have conducted similar actions and have thus bolstered massive inflation. What this means is that, in the long run, the U.S. Dollar and many other major currencies will buy less, much less, in the future.

However, given that the financial system and key heavyweight investors are awash with printed and borrowed money, certain Key Sectors should explode upward very soon until the long-term negative Economic Fundamentals drag them down again. Of course, this will not happen in one fell swoop, it will happen in Spurts. And, indeed, we think the first Spurt from this Monetary Inflationary Juice is not far off. Indeed, we have already forecast that this should be reflected in higher prices in certain Key Sectors identified in Deepcaster’s latest Alerts and Letters posted at www.deepcaster.com.

Thus, these considerations provide speculative investment opportunities, which have high profit potential as well as high risk. The Rampant Monetary Inflation reflected in M3 and in the various bailouts and loans will provide several trillion dollars for equity investment. And this tremendously increased monetary base is available to inflate the paper value of the Equities and other Markets, when money managers first think the markets have a chance for a sustained (for a few months, or even weeks) rally, and, when The Cartel Interventional Regime “agrees” with them.
Ascertain the Facts; Eschew Big Media Fictions
Other key figures are gimmicked or “spun” as well with the complicity of the Mainstream Media. Consider the cost of “The Bailout.” We were told that the cost of “The Bailout” alone would be $700 billion. But the true cost of The Bailout to American Taxpayers (and, indirectly to investors around the world) will be much higher. One November, 2008 estimate put it at $3.5 trillion and growing, and this did not (and could not) include any Stimulus Bill or other Obama Administration authorizations. Consider:
…The bailout bonanza has gotten so big and happened so fast it’s the true cost often gets lost in the discussion. Maybe Hank Paulson and Ben Bernanke prefer it that way because the tally so far is nearly $3.5 trillion, and that’s before a likely handout for the auto industry.
Yes, $3.45 trillion has already been spent, as Bailoutsleuth.com details:
1. $2T Emergency Fed Loans (the ones the Fed won’t discuss, as detailed here)
2. $700B TARP (designed to buy bad debt, the fund is rapidly transforming as we’ll discuss in an upcoming segment)
3. $300B Hope Now (the government’s year-old attempt at mortgage workouts)
4. $200B Fannie/Freddie
5. $140B Tax Breaks for Banks (WaPo has the details)
6. $110B: AIG (with its new deal this week, the big insurer got $40B of TARP money, plus $110B in other relief)
Tallying up the “true” cost of the bailout is difficult, and won’t be known for months if not years. But considering $3.5 trillion is about 25% of the U.S. economy ($13.8 trillion in 2007) and the U.S. deficit may hit $1 trillion in fiscal 2009, hyperinflation and/or sharply higher interest rates seem likely outcomes down the road.
At the very least, the possibility of the U.S. losing its vaunted Aaa credit rating – which determines the Treasury’s borrowing costs – cannot be discounted.
Moody’s has already said it’s not in jeopardy of being lowered. But we really can’t put much stock in what Moody’s – or S&P or Fitch – say after the subprime debacle, can we? More importantly, the price of credit default swaps on U.S. government debt has been on the rise since the bailout train got rolling, as Barron’s reports….”
“Bailout Price Tag: $3.5T So Far, But ‘Real’ Cost May Be Much Higher”
by Aaron Task in Newsmakers, Recession, Banking
Yahoo Finance, November 12, 2008
An important observation here, not only are the Official Data gimmicked, but the Official “Spin” of the private-for-profit U.S. Federal Reserve and certain Government Agencies like the U.S. Treasury is often more Distortion than Reality.
Recall, for example, the case that The private-for-profit U.S. Federal Reserve and the Bush Administration made just last Fall that the U.S. Taxpayer-funded $700 billion bailout was essential “to save the financial system” and, further, that the centerpiece of that plan - - buying toxic bank assets, especially defaulted mortgages - - was essential for the plan’s success. Deepcaster and a few others identified those claims as nonsense at that time and indicated that the plan would not work to solve the very real Systemic Crisis.
In any event, as of November 12, 2008, the Treasury reversed itself indicating it would not buy any bad bank mortgage assets.
But buying bad mortgage assets was the main point used to sell The Plan to a clueless Congress to begin with!
The financial system is at increasing risk for sure, but it is mainly because of the actions of The private-for-profit Fed and its Allies.
Neither The private-for-profit Fed’s actions nor the Bailout Bill nor the Stimulus Bill will solve these crises in the long run, but will likely only make the international banking Cartel and certain favored financial institutions wealthier. See “Private Ownership of U.S. Fed Unsustainable” (1/04/08), “Profiting From the Push to Denationalize Currencies and Deconstruct Nations” (6/06/07) and “Strategy Beyond the Bailout Outrages for Profit and Protection” (9/12/08) in the Articles Cache and the July, 2008 Letter “Market Intervention, Data Manipulation Still Accelerating - - Increasing Risks, The Cartel End Game and Latest Forecast” in the Latest Letters Cache at www.deepcaster.com.
Increasing numbers of citizens are becoming aware that The private-for-profit Fed is the Primary Cause of U.S. Financial Systemic Problems and conducted “End The Fed” demonstrations in 22 U.S. cities on November 22, 2008, the anniversary of President Kennedy’s assassination. Kennedy was killed shortly after authorizing issuance of “U.S. Notes” which would have “competed” with Federal Reserve Notes as The Currency of the U.S.A. Representative Ron Paul of Texas (Republican) recently introduced the Federal Reserve Board Abolition Act (H.R. 833).
The Bottom Line is that, given the Fundamental Realities reflected by these Authentic Numbers and “un-spun” Official Claims, the tanking of the Equities Markets beginning in early-September through November could not only have been expected, but also seen as highly probable. But the typical investor did not have the benefit of the aforementioned figures or the perspective on Financial Realities, which they reflect.
Yet having access to Authentic Statistics is a necessary, but not sufficient, condition for accurate forecasting.
The other necessary condition is to Track the Interventionals. As an indicator regarding the importance of tracking the Interventionals, it is essential to consider the price performance of the Precious Monetary Metals.
Invest in Precious Monetary Metals Gold and Silver, but with Care and a Caveat.
For example, consider how Gold and Silver, those Safe Haven Precious Monetary Metals, performed during the Equities Market Takedowns of 2008, which were accompanied by massive Bailouts and great and increasing Financial Uncertainty.
Remarkably, during the Fall 2008 period of Market Turmoil, the Precious Metals eroded from their mid-summer highs of about $1000/oz. for Gold (and $20/oz. for Silver) to down near $700/oz. for Gold (and under $10/oz. for Silver) by early November. So what about the Safe Haven status of these metals?
Earlier in 2008, at the time of the Bear Stearns’ debacle in March, all the Chaos in the Financial Markets should have sent Gold skyrocketing well over $1000/oz. But Gold and Silver tanked in March, 2008 rather than skyrocketing. Why?
There is overwhelming evidence that Gold and Silver prices are capped and regularly taken down by a Fed-led Cartel* of Central Bankers working hand-in-glove with their favored Primary Dealers and Financial Institutions.
For sure, as the economic and financial crises worsened from the March, 2008 through the present, the Traditional Safe Haven Assets Gold and Silver should have skyrocketed. Yet they are now below their Summer, 2008 highs. No phenomenon other than Market Intervention by such a Cartel could explain these otherwise outrageously anomalous figures.
The motivation for such Takedowns is not hard to understand. The Cartel does not want to allow Gold and Silver to acquire increasing (and justifiable) legitimacy as Stores and Measures of Value vis-à-vis their paper Treasury Securities and Fiat Currencies.
Deepcaster has developed a Strategy for minimizing the adverse effect of Cartel Takedowns, and generating profits along the way. See “Defeating The Cartel…With Profits”, March 28, 2008 in the “Articles by Deepcaster” cache at www.deepcaster.com. That Strategy involves tracking The Interventionals and has facilitated in making the profitable recommendations displayed on the Front Pages of www.deepcaster.com.
In sum, tracking the Authentic Statistics and Real News as well as the Interventionals plus the Fundamentals and Technicals is Econo-Reality Therapy in action and is thus essential to making prudent and profitable investment and trading decisions.