The Most Investment-Critical Trend & Its Antidotes

 

By Deepcaster

 

“Check out the chart of the Continuous Commodity Index or CCI and note that it has managed to put in a weekly close above the 38.2% Fibonacci Retracement Level of the move lower from its all time recent high made last year. If the market pysche remains the same, look for this index to now make an eventual run back towards the 597-600 level.

 

“We can look at these charts as subjects of interest to us as traders/investors but what this particular stock represents is increasing pain for consumers and the hard-pressed middle class in one of the worst, if not the worst "recovery" since the Great Depression.

 

“Think of this as increased frustration at the grocery store, at the gas pump, at the hardware store, at the local restaurant, etc. While some of this rally is the result of the drought and I will of course not lay that at the feet of the Fed, it is a simple fact that the breakout on this chart today, is the DIRECT RESULT of Mr. Bernanke's insistence on implying that another round of bond buying is on the way.

 

“When you pull into the gas station and fill up your car or truck, and are sent reeling at the cost, you can lay some of the blame right at his feet and the feet of his elitists on the FOMC who insist on pacifying Wall Street instead of having concerns how their policies are destroying Main Street.”

 

“More Pain for the Middle Class courtesy of Bernanke”
Dan Norcini, traderdannorcini.com, 8/31/2012

 

It is not just the skyrocketing prices we pay for Food and Energy as reflected in the CCI, that demonstrate the Price-Inflationary effect of The Fed’s (and ECB’s) ongoing Monetary Inflation. But it is the prices for most of what we buy that have skyrocketed as a result of The Fed’s decades-long monetary inflation. Consider the following chart comparing the 1930’s cost in the U.S. for common goods and services, with today’s costs.

 

Item

1930 Cost

2012 Inflation-Adjusted Cost

2012 Actual Cost

% Increase Between Inflation-Adjusted & Actual Cost

Movie Ticket

$0.05

$0.65

$11

1,592%

Refreshments

$0.25

$3.26

$11.50

249%

Ford 4-Door

$985

$12,861

$26,333

104%

4-Bedroom Home

$3,800

$49,617

$163,278

229%

Live-in Maid

$22

$288

$2,916

912%

 

Insiders Strategic Review, 8/26/2012

 

Clearly, monetary-inflation-generated Price Inflation robs Retirees and Savers, especially, but also citizens in general via loss of the Purchasing Power of their Fiat Currencies. Indeed, in just the most recent decade 2000-2010 when Americans have suffered a nominal 7% income loss, their Purchasing Power loss has been about 40%.

 

This ongoing threshold Hyperinflation is reflected in the Real Numbers (as opposed to Bogus Official Ones) per shadowstats.com.

 

Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider

 

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

 

Annual U.S. Consumer Price Inflation reported August 15, 2012
1.41%     /     9.02%

U.S. Unemployment reported August 3, 2012
8.3%     /     22.9%

U.S. GDP Annual Growth/Decline reported July 27, 2012
2.21%        /     -2.15%

U.S. M3 reported  August 4, 2012 (Month of July, Y.O.Y.)
No Official Report     /     2.86% e

 

Fed and ECB Money Printing has allowed/encouraged U.S., U.K., and Eurozone Sovereign Nations to run up debts which are unpayable under any reasonably possible scenario. Interest on the U.S.A’s $16 Trillion Debt is already over $400 Billion/yr.

 

The U.S.’ Debt plus downstream unfunded liabilities now total $222 Trillion according to Economist Laurence Kotlikoff of Boston University. And even though there are certain Deflationary forces (recently, Housing Deflation in the U.S. and PIIGS countries of the Eurozone), the Inflationary forces are overwhelming the Deflationary ones on a net basis, if one considers the Real Numbers as opposed to the Bogus Official ones.

 

Thus The Fed and ECB (and Spendthrift Politicians) have brought the U.S. and Eurozone to the point when Debts cannot be expanded much now without creating Hyperinflation, but Budgets cannot be cut dramatically without throwing Economies into Deeper Recession and even Depression.

 

And perhaps the worst aspect is that Q.E. has been provided and Sovereign Debt has been increased mainly to bail out the Mega-Banks some of which are Owners of the private for-profit Fed. The $5 Trillion added to the U.S. National Debt and $1 Trillion plus added to the Fed’s balance sheet in the last four years have not helped Main Street. The Mega-Banks are still not lending much to Small Business, but prefer to keep Reserves deposited at the Fed which pays them interest. (If The Fed were really serious about helping Main Street it would stop these “Interest” payments, in order to encourage more lending!)

 

Indeed, the Mega-Banks’ Money Printing has not only not helped Main Street, but has also encouraged reckless and ultimately self-destructive lending and trading by the Mega-banks. (Case in Point: J.P. Morgan Chase recent $5 billion Trading Loss.)

 

Consider:

 

“[The] central bank offers the equivalent of gambling insurance to the banking industry.

 

“Imagine if an insurance company made the following deal with all patrons of a casino: In exchange for a patron’s promise to gamble prudently, the insurance company promises to come to the patron’s aid if he finds himself short of money. Knowing that the insurance company was essentially acting as a financial backstop, at least a few gamblers would take more risk than they would otherwise.

 

“In a similar vein, knowing that the central bank will be ready, willing and able to provide support via emergence liquidity injections if things go wrong, some private banks will take more risks. Furthermore, due to the higher profits that tend to temporarily accrue to the banks that take more risk, most banks will eventually be drawn toward riskier business practices. This is why a mechanism supposedly (according to the propaganda) put in place to prevent banking crises ends up increasing the severity and frequency of banking crises.”

 

Steve Saville, The Speculative Investor, 8/31/2012

 

Unfortunately, even though more Central Bank Money Printing and Bond Buying benefits mainly the Mega-Banks (and the Equities Markets for a few weeks), print they will to protect (they claim) for a while more, against a Depression. The ECB’s decision Sept. 6, 2012 to buy “Unlimited” amounts of Sovereign Bonds is but one more example of ongoing Monetary Inflation, which inevitably becomes Price Inflation as we see in Food and Energy (and notwithstanding the ECB’s fallacious claim the Bond Buying will be “sanitized” to prevent Inflation).

 

Thus the Most Investment-Critical Trend going forward is Accelerating Price Inflation (see Note 2) though it is often masked by Bogus Official Numbers.

 

Therefore the Antidotes for investors are:

  • Gold and Silver, the Monetary Metals with buying timed to occur near the bottom of Cartel generated Takedowns. Physical Gold and Silver, held in one’s own possession are the preferred forms.
  • High Dividend Securities whose Total Return (Gain plus Yield) exceeds Real Inflation (see Note 1 regarding Deepcaster’s High Yield Portfolio aimed at that goal).
  • Long Positions in Inflation Sensitive Real Assets-that-get-used-up (and thus whose prices are hard to manipulate) such as Food and Energy, but with Good Timing on entry and short positions timely entered as well (which timing we regularly forecast in recent letters and Alerts).
  • Real Estate which produces the foregoing Real Assets.

And one should be prepared to short at the right time:

  • Equities-in-General (for many reasons including that Inflation dampens Consumption which slows the Economy which diminishes Corporate Earnings)
  • U.S. and Eurozone Sovereign Debt Securities (long-dated U.S. Treasuries are arguably the largest Financial Bubble in world history)
  • Defense Industry Stocks
  • Banking Stocks

Of course, when investing in aforementioned Assets, the Key to Success is Timing, Timing, and Timing, and being increasingly Wary of Counterparty Risk.

 

And just in case any reader still has illusions that Official Forecasts are usually correct, consider the Congressional Budget Office’s Record:

 

Category

2002 Estimate for 2012

2012 Actual

Variance from Forecast

GDP

17.358

15.687

-11%

2012 Deficit/Surplus

+0.532

-1.128

A Country Mile

Debt to Public

2.658

11.3

-425%

Debt to Public (% of GDP)

15.5%

72.8%

-470%

Discretionary Spending

0.983

1.289

+31%

Mandatory Spending

1.853

2.053

+11%

Military Spending

0.361

0.670

+85%

Unemployment Rate

5.0%

8.3%

-65%

Individual Tax Revenue

1.845

1.123

-65%

Corporate Tax Revenue

0.306

0.235

-30%

SS Tax Revenue

1.153

0.851

-35%

Total Tax Revenue

3.3Tn

2.2Tn

-50%

 

Insiders Strategic Review, 9/4/2012

 

Accelerating Price Inflation is the Most Investment-Critical Trend going forward, and Investors must deploy the Antidotes wisely to Profit and Protect.

 

 

Best regards,

 

Deepcaster

September 6, 2012

 

 

 

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