China announced on Sept. 6, 2012 that any country that wishes to sell Crude Oil using its currency, the Renminbi, can do so. The next day Russia announced it will sell China all the Crude it wants and will not expect to be paid in $US.
These actions struck a Mortal Blow, whose consequences are not yet fully evident, to the US Dollar as the World’s Reserve Currency, and thus to the future Economic Health of the U.S., a blow which will eventually impel it toward Third World status.
Formerly a main source of strength of the $US was the arrangement with Saudi Arabia whereby Crude would be sold only in US Dollars. Since the World had to have Saudi Crude, it had to have $US. Not so anymore.
China and Resource-rich Russia are ascending economically while the US and Western Europe are in an Economic Decline.
Couple that New Power Reality with another New Reality, the Accelerating Decline in Purchasing Power of the Main Fiat Currencies, the $US and the Euro, when measured against Key Tangible Assets.
The recent decision by The Fed and ECB to print unlimited amounts of their Fiat Paper, was ostensibly to help revive Economies, but in reality is designed to relieve the Mega-Banks of more of their Toxic paper.
Thus the Major Fiat Currency Issuers, – the U.S., Japan, and Eurozone – are engaging in a race to depreciate their Currencies. In light of this “Race to the Bottom,” two asset classes will, and already are, appreciating in Fiat Currency Terms, and will serve as Inflation Antidotes for Profit and Protection.
They are the Monetary Metals, Gold and Silver, and the Tangible Assets which get used up – Crude Oil and Essential Foods. The wise have already begun to accumulate Physical Gold and Silver, and to invest in Agricultural Production.
China, now the World’s largest Gold producer, is increasingly a Physical Gold importer. And they are increasingly buying Food and Energy properties and producers around the World. And Central Banks around the World are increasing Gold Holdings. The Korean CB increased its Gold Holdings by 20% and Paraguayan CB by over 90%, both in July alone! (See Notes 1 and 2 below regarding Deepcaster’s specific recommendations.)
Similarly, Silver demand is skyrocketing due to increasing use in electronics, medical, and solar energy applications, among others. As with Gold, China has turned from a net exporter to a net importer.
As demand for Food and Energy continues to increase, propelled by the 80 Million persons added to the World’s population each year, expect Conflicts over Resources to continue to increase. Witness Japan’s and China’s conflict over Islands claimed by both.
The “Winners” will be those who follow The Golden Rule: Those who have the Gold (and the Energy and Agricultural Assets) Make the Rules. N.B. China is the USA’s largest creditor and wields considerable Financial, Economic, and Strategic Clout over Japan. Consider this Delightful Note from The Telegraph, U.K.:
“A senior advisor to the Chinese government has called for an attack on the Japanese bond market to precipitate a funding crisis and bring the country to its knees, unless Tokyo reverses its decision to nationalise the disputed Senkaku/Diaoyu islands in the East China Sea.”
“Beijing hints at bond attack on Japan”
Ambrose Evans-Pritchard, The Telegraph, 9/18/2012
The 21st century Power Reality of Resource Conflicts has begun.
Another Power Reality is MainStream Media News Manufacturing and Disinformation Dissemination. So far as financial and economic news is concerned, the flow of Disinformation has if anything intensified. Presumably to stave off a rush to Inflation Assets, the MainStream Media has disseminated The Fiction that the U.S., and certain others, are deleveraging. That is a Myth. Consider:
“In the second quarter of this year:
- Consumer credit in the US grew by 6.2%, the highest pace in nearly five years;
- US non-financial credit market debt grew by 5%, the highest pace in nearly four years;
- Total household debt increased 1.2%, the highest pace in over four years;
- US treasury debt has increased 110% in four years;
- After contracting by 1.2% in the first quarter, state and local borrowing is now up 0.8%
“The numbers don't lie. Genuine deleveraging would imply a reduction in debt, especially non-productive debt. Genuine deleveraging would see market prices determined by fundamental forces of supply and demand, not by government intervention, manipulation and inflationism.
“Instead, we get a profound form of 'mission creep' by central banks, whose policies are now destroying the very same economies they are nominally tasked with protecting.
“In the words of veteran analyst Jim Grant, the Fed has evolved well beyond its origins as a lender of last resort and not much else, and now is fully engaged in the business "of steering, guiding, directing, manipulating the economy, financial markets, the yield curve..."
“It is a wholly specious argument to suggest that the creation of trillions of dollars / pounds / euros / yen out of thin air will not ultimately be inflationary; it is like saying that storing an infinite amount of tinder next to an open flame does not constitute a fire hazard.
“Admittedly, the explicit inflationary impact of historic monetary stimulus will not be fully visible until those trillions are circulating in the economy in private exchanges between buyers and sellers-- rather than squatting ineffectively in insolvent banks' reserves. But financial markets are nothing if not capable of anticipating future trends.”
“The Greatest Trick the Devil Ever Pulled”
Tim Price, SovereignMan.com, 9/24/2012
In fact, Price Inflation is Intensifying already (e.g. 9.3% in the U.S. already [see Note 3 re. Shadowstats]) as the International Economy continues to slow. Stagflation is the name of this Reality (first visible in the 1970’s), and we now approach Hyperstagflation. Investor Antidotes to the foregoing are:
1. Maintenance of accurate information flows.
2. Long Positions in Monetary Metals and Tangible Assets that get used up such as Crude Oil and Essential Food Commodities.
Best regards,
Deepcaster
September 29, 2012
Note 1: 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 Shadowstats.com) 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% per year in the U.S. per Shadowstats.com).
To consider our High-Yield Stocks Portfolio with Recent Yields of 10.6%, 18.5%, 26%, 15.6%, 8%, 6.7%, 8.6%, 10%, 14.9%, 10.4%, 15.4%, and 10.7% when added to the portfolio; go to www.deepcaster.com and click on ‘High Yield Portfolio’.
Note 2: No question that THE BIG ONE is coming soon.
The Can can no longer be kicked down the road: Consider
“On a three-month rolling basis, portfolion and investment outflows from Spain totaled 52.3% of the country’s GDP, more than double the outflows from Indonesia, which reached 23% of GDP at the time of the Asian crisis.”
Jens Nordaig, Nomura
The only Questions are:
When?
In what form?
Key Powers-that-be have telegraphed it already.
They see it as the only way to save their Bacon.
But it creates Profit Opportunities for Investors.
To see these Opportunities, read Deepcaster’s latest Alert, “The Big One Cometh! Opportunity Knocks; Forecasts: Gold, Silver, Crude Oil; Equities, U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates,” just posted in ‘Alerts Cache’ at deepcaster.com.
And do not miss our recent Recommendation which could turn a 4,500% Profit if it moves back up to its 52 week high.
DEEPCASTER LLC
www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
DEEPCASTER HIGH YIELD PORTFOLIO
Wealth Preservation Wealth Enhancement
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Replies
I can’t say as I’m surprised by the announcement late Friday that lobbyists representing JP Morgan, Goldman Sachs, and Morgan Stanley, among others, had successfully obtained a judgement quashing the proposed position limits on speculative traders in commodities.
According to Bloomberg:
“U.S. District Judge Robert Wilkins in Washington today ruled that the 2010 Dodd-Frank Act is unclear as to whether the agency was ordered by Congress to cap the number of contracts a trader can have in oil, natural gas and other commodities without first assessing whether the rule was necessary and appropriate.
“Although the court does not foreclose the possibility that the CFTC could, in the exercise of its discretion, determine that it should impose position limits without a finding of necessity and appropriateness, it is not plain and clear that the statute requires this result,” the judge said in his 43-page ruling.
The International Swaps and Derivatives Association Inc. and the Securities Industry and Financial Markets Association sued the commission, arguing that the CFTC never studied whether the regulation was “necessary and appropriate” or quantified the costs tied to implementing the rule. The groups represent banks and asset managers including JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Morgan Stanley. (MS)
The message has been sent to the primary manipulative forces in the markets for commodities: “You may continue to influence prices contrary to the interest of the global economy at will.”
The immediate peril as a result of this ruling, is that the gold and silver bull trends revived by the unlimited capital fabrication now underway will be teed up for another huge short that will send the prices tumbling whenever the colluding entities decide the time is ripe.
As Bart Chilton, one of the CFTC commissioners stated in response, “There’s no question that huge individual trader positions have the potential to influence prices in a way that hurts legitimate hedgers and ultimately consumers.”
The average investor and even the principles of investment banks are challenged by what they view as a complex market, and who are easily persuaded to dismiss the evidence. But the new ruling is a re-enforcement of the conditions that allow such manipulation to persist.
It is unfathomable to thinking individuals how the complacency is so ubiquitous.
Its not a simple concept to understand. Absent position limits, futures and forwards contract originators can create as many contracts as they can find buyers for to sell or buy gold at a fixed price in the future.
In a properly regulated market, (and by the simple logic of supply and demand economics) it would either be a) required that the originator of a forward sale actually have the commodity on hand to sell, or b) that the buyer of a forward sale actually take delivery.
This would imply that there could not be contracts issued representative of more gold, silver, or oil than is readily available for delivery i.e. not more than is produced.
The opposite is the case now, and looks like it will be going forward, thanks to the absence of position limits. With market participants able to create as much apparent and artificial demand and/or supply as they like, the prices of commodities are at the mercy, in large part, of the market participants. And, as we’ve seen by the recent LIBOR scandal, banks do not act in the interests of their clients, or the governments who make their larceny possible, or the general public.
Furthermore, without legislation to force reconciliation of dark market pools, where all kinds of commodities and other derivative instruments are traded on an unregulated basis in an invisible market, the massive nominal value of the entire derivatives market, estimated to be in excess of $600 trillion, calls into question the ability of regulators to protect the interest of the broader financial system against reckless betting.
With the death of the position limits rule, one must question the likelihood that other Dodd-Frank legislation will get shot down as a result of lobbying against it in the courts.
Businessweek reports that “Starting next year, new rules will force banks, hedge funds, and other traders to back up more of their bets in the $648 trillion derivatives market by posting collateral. While the rules are designed to prevent another financial meltdown, a shortage of Treasury bonds and other top-rated debt to use as collateral may undermine the effort to make the system safer.”
This rule will no doubt also see challenges from lobby groups backed by market participants. The incremental dilution of the Dodd-Frank act is a growing catalyst for more financial calamity.
If the rule stands, the stage is set for the necessity to fabricate more capital, to create enough “top rated” debt instruments to act as collateral in the grand derivatives casino. If it doesn’t get cancelled by a complicit court.