Meltdown Coming?! 08/23/2013)

Meltdown Coming?!

“Our estimates of prospective risk are surging…

“At present, we have what might best be characterized as a broken speculative peak, in that market internals (particularly interest-sensitive groups), breadth and leadership have broken down uniformly following an extreme overvalued, overbought, overbullish syndrome.

“If you recall, the market also recovered to new highs in October 2007, weeks after the initial, decisive break in market internals at that time. Presently, we’re looking at the same set of circumstances. On some event related to tapering or the Fed Chair nomination, we may even see another push higher. It isn't simply short-term risk, but deep cyclical risk that is of concern.”

John Hussman, Hussman Fund

There is increasing evidence that another Financial and Economic Meltdown is coming and that it will be worse than the one in 2008-2009. And even respected Financial Establishment Figures like John Hussman are beginning to go public with their concerns.

Indeed, perhaps The Main Indicator – The Greatest Bubble Asset – that a Great Meltdown is coming is already signaling it is launching.

Specifically, Savvy Investors, large and small, around the world, are already rushing to get out of the Greatest Bubble Asset ahead of the Bursting to Protect their Wealth. And those so-inclined are betting on the Bursting in order to Profit; thus Deepcaster’s recent Investment Recommendations have been made in anticipation of the likelihood of such a Meltdown.

But this impending Bubble Bursting is beginning to have a concatenating Ripple Effect throughout other major Markets. And eventually, sooner rather than later, the effect on virtually all markets, economies, and indeed, governments will be profound. Jim Willie explains what to expect.

“$$$Karen Hudes (formerly of World Bank) Refers to a Return to Order, and a Methodical Clean-up of the Criminal Bank Sector Being Tidy. It will not be Neat and Clean. Instead, Disorder will come by Storm. Escape Hatches Will Be Taken. External Force Will Soon Begin to Be Exerted from the East in More Obvious Ways.$$$

“…Her implication of a return to order in the next several years has no chance whatsoever of happening. Disorder has taken root and is spreading like wildfire, not the least factor of which is the rampant food price inflation in the rest of the world. Most emerging market nations have seen roughly a 30% food price inflation effect in the last six months from the USFed monetary policy action, seen as meted out in unilateral manner. The USGovt continues to make policy in foreign lands, to control SWIFT codes for banks, to block the pipelines, to permit drone aircraft to attack sites in Pakistan, to apply sanctions in trade, to urge governments like India to restrict gold sales, and to permit the big banks to operate with criminal impunity, while they continue to interfere with every conceivable financial market…. Be sure to know that the utmost respect is given Hudes for courage and forthright actions. But her views on a return to order are childlike….

“…So the West serves the bankers with welfare and toxic bond redemption, while the rest of the world suffers high cost to feed themselves and families. The stress within the system is unspeakable, and has already reached critical levels of stress for fractures, breakdowns, and collapse…. The East is scurrying to resist inflation, to install the USD alternative, to replace key portions of the financial structures…”

Hat Trick Letter, Jim Willie
Goldenjackass.com, 08/21/2013

Regarding The Main Indicator that a Meltdown is coming, we are speaking of course of the Greatest Bubble in World Economic History, the multi-Trillion Dollar U.S. Treasury Bond Bubble. Consider the catalysts.

With a balance sheet of over $3 Trillion, The Fed cannot continue QE forever without risking Hyperinflation. Indeed, the U.S.A. is Threshold Hyperinflationary already with Real CPI at 9.4% per shadowstats.com (Note 1) mainly as a result of QE. But, given that the Equities and several other Markets are levitating mainly because of QE, The Fed’s mere talk of tapering is increasingly causing a Mass Exodus of private and Sovereign Investors from the U.S. Treasury Bond Market.

The recent Treasury TIC Data Release shows foreign holders dumped $40.8 Billion in June. And June was the third month of dumping in the last four, for a total of $79 Billion. China alone dumped $21.5 Billion and U.S. Ally Japan dumped $20.3 Billion. And Billions in FNMA and Freddie Mac Securities were dumped as well.

The Consequence has been that, over the past few weeks, long-dated U.S. Treasuries tanked, with yield on the 10-year shooting up over a hundred basis points to 2.9%ish.

And ominously earlier this week, the President had a meeting with the Heads of Key Agencies focusing on the Economy and the Markets.

Last time that happened, the Gold Prices were subsequently taken down by over $200 in a couple of days. (Was the Bank of England’s recent revelation of a huge discrepancy in Gold Custody Reports evidence that 1,300 Tonnes of English Gold were used in the April price Takedown? What other explanation is credible?!) Intensifying Cartel (Note 2) attempts at Gold and Silver Price Suppression is evidence of increasing concern a Meltdown is approaching.

Knowledgeable commentators, including John Embry of the Wealthy Sprott Group, speculate (unfortunately, because their speculations are likely more Probability than Speculation) that:

  • an Historic Collapse and Meltdown, may be Imminent, likely because, inter alia,
  • Rising Interest Rates are Devastating in this highly over-levered economy, because, inter alia,
  • $Trillions in Interest Rates Derivatives could implode, sending
  • Real Interest Rates and Oil Prices Sky High, causing
  • a Meltdown which seriously Wounds the Economy, and generates counter party defaults.

Consider what is already happening with the U.S. Dollar and long-dated U.S. Treasury Securities.

Normally, rising rates generate strength for a currency since relative Interest Rates and Purchasing Power (via e.g., the Big Mac Burger price comparison) Parity are two key determinants of a currency’s strength. But increasing Foreign Dumping of U.S. Treasury Paper signals the beginning of a move away from the U.S. Dollar and signals increased dumping of U.S. Dollar dominated Assets is to come soon also. Only the Depreciation of other Fiat Currencies and Fed QE has, thus far, prevented the $US dumping from becoming a Rout.

As the dumping increases, ever higher rates will be generated to justify the increased risk of holding U.S. Treasuries. And, mid-to-long term, the $US will move ever lower and then catastrophically lower.

Short-term, however, since the USA is still (but not for long) perceived as the strongest economy vis-à-vis both the Eurozone and Emerging Markets, the $US should remain in the 80-84ish trading range basis USDX.

And U.S. Treasuries, per the 10-year, should continue to trade, short-term, somewhat higher in the 2.6% to 3% yield range, short-term. It is highly likely the Fed will continue QE into 2014 with little or no tapering (though they have and will likely continue to talk tapering on occasion) and that should (but not certainly) support Treasuries in this range for a few more weeks or very few months. But the long-term Trend for the U.S. Dollar and U.S. Treasuries is down, as U.S. Treasuries are a Most Massive “Asset” Bubble ever. Thus Deepcaster has and will continue to forecast when The Takedown of the U.S. Dollar and U.S. Treasury Securities will begin to accelerate.

It is very important to Note that continuing Fed-generated QE will likely become relatively ineffective as we approach and move into 2014. And, as Embry points out, there are already signals that it is already becoming less effective in supporting U.S. Treasuries. Non-U.S. Central Banks and Big Investors are already dumping U.S. Treasuries by the carload. Thus, at some week or month soon even The Fed will be unable to save U.S. Treasuries, which will then really tank (Rates Spike).

“What’s the “deep cyclical risk” Hussman is talking about?

“It’s the risk of a market that has been bubbled up due too much cheap credit. Like any bubble, it floats around until it finds its pin….

“Ordinary people have come to think that Wall Street is there to help them make money. Progress, prosperity and rising asset prices – now and everlasting. Amen. …

“These beliefs are tested. There are setbacks. Shocks. And brief corrections.

“But if these are overcome quickly enough, say by Fed policy, a kind of blind faith takes hold. Investors begin to believe the impossible.

“Now, for example, investors think the Fed “will not allow” a serious correction.

“It should be pointed out, tout de suite , that the Fed can influence the markets. But it does not control them. And the more it influences them, the harder they are to control.

“Why?

“Investors trust the Fed to protect their money... just as the Fed makes their investments less trustworthy! Because the more influence the Fed exerts over prices, the farther they move away from where they ought to be.(emphasis added)

“If the Fed offers makes credit too cheap for too long, for example, stock prices adjust…and soon become higher than they should be. At some point, they are so high – and so far removed from solid values – that the proud tower wobbles, and then collapses, regardless of what the Fed is doing .

And based on what’s happening in the bond market, it appears as though the Fed has already lost control….” (emphasis added)

“CRASH ALERT!” Bill Bonner
Diary of a Rogue Economist, 08/22/2013

Important Warning! : If (when) the Yield on the U.S. 10-year T-Note closes decisively above 3%, the Crash of the U.S. Treasuries Market will likely have begun.

In that event, interest rates for all loan transactions will rise dramatically which will greatly constrain lending. And that will likely be one Catalyst for our Forecast Equities Crash. This is but one reason The Fed has no choice but to continue QE in some form and to continue it until PriceHyperinflation and/or other factors are reflected in the collapse of the $US… Thus, when continuing QE (i.e. Bond Buying) no longer serves to support Treasuries, i.e. to suppress Interest Rates, that will be another signal that Financial Collapse is impending, because that will signal The Fed has lost control of the Bond Market. Such has not definitely happened just yet but we expect it will. N.B. We have already seen the beginning, with the 10-year yield rocketing up from 1.7% to 2.9%ish recently. (Some, including Rob Kirby, whom we respect, think The Fed can control the whole curve indefinitely through OTC Swaps and Forward Rate Agreements. We disagree, because this omits Real World Developments, e.g. QE generated Price Inflation of Real Assets.) We already saw counterparty defaults on Paper Assets in the 2006-09 Crash, and we will see them again, as The Bond Market and the Multi-Hundred Trillion Dollar Derivatives Superstructure Crashes in 2014, or earlier.

Also important to note is that Bogus Official Statistical Data has been used to Conceal Signals of an Impending Meltdown.

Significantly, Egon von Greyerz of Matterhorn Asset Management contends that the United States’ “falsification” of GDP, Inflation, and employment numbers is a sign that the U.S. Dollar is beginning to lose its World’s Reserve Currency status. (See Shadowstats.com for the Real Numbers. Note 1)

We agree. If all were healthy with the Economy, Markets, and U.S. Dollar, what need would there be to falsify the numbers?!

As the yields on long-dated U.S. Treasuries (and thus interest rates in general) increase, this will signal increasing Price Inflation resulting from the past and ongoing QE Price Inflation. And of course this will mean (and has already meant) increasing Crude Oil Price Inflation, a sure Killer for Economic Health. Crude Oil trading above $100/bbl is not solely a result of Mideast Conflict concerns.

Interestingly, Key Technicals are showing a short to mid-term price target for WTI. Crude of $150/bbl or more! This is consistent with an Equities blow-off top which we forecast and then an Equities and Bond Market collapse.

We reiterate, the recent elevated (over $100/bbl) Oil Price can be explained by considering the following: that Equities and Bonds are artificially elevated, Fiat Currencies are losing Purchasing Power due to ongoing QE, and many Commodities Prices are depressed until just now due primarily to China’s slowdown, and Paper Gold & Silver Prices are depressed by The Cartel, and long-term rates are headed up.

Therefore, only Crude Oil has been recently seen as a reliable store of value to many sophisticated Investors. Thus it is not surprising to us that WTI Crude has approached the $110 level recently notwithstanding the Economic slowdown. Part of this strength is due also to QE-generated Real Price Inflation, and to recently reported above-ground supply drawdowns.

Because Crude is essential, with relatively high inelasticity of demand, and because it gets used up, it is not as easily subject to price manipulation though, for sure, its Price is manipulated. Thus a spiking Crude Price provides yet another Signal that Hyperinflation is impending and thus that a Financial Crash is likely to be coming within 18 months or so, and likely sooner than later.

Seeing more Inflation and Financial Crises on the horizon, plus a diminishing of the Purchasing Power of the $US and other Fiat Currencies, the truly “smart” money – sophisticated investors and some Mega-Banks – are intensifying their buying and taking delivery of Physical Gold and Silver. Despite the Cartel Banks’ ongoing attempts to suppress Gold and Silver prices (e.g. via the repeatedly increased tariffs imposed by the Indians) the increasing demand for Physical is squeezing the shorts, and Paper Prices, and The Cartel.

This explains the spikes up in price we are seeing and will increasingly see. It is a war between the Big Cartel Banks (to protect the decreasing Legitimacy of their Fiat Currencies and Treasury Securities), and Savvy Investors of all stripes.

Regarding Equities, The Fed’s tapering (even if somewhat reduced in September – possible, but not likely to be sustained) should continue to buoy the Equities Markets up for a few weeks or very few months more until The Great Crash. (Cf. Deepcaster’s forecasts.)

In sum, though increasingly it looks as if the bottom is nearly in for Gold, Silver, and the Miners, do expect Great Price Volatility and more Cartel Price Takedown attempts.

Physical Gold and Silver held in your personal possession, and Quality Miners stocks are Investors’ best Assets to hold for Protection and Profit to prepare for The Coming Meltdown.

“In times of universal deceit, telling the truth is a revolutionary act.”  

George Orwell

Best regards,

Deepcaster
August 23, 2013

Note 1: *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, 2013
1.36%     /     9.62%

U.S. Unemployment reported August 2, 2013
7.6%     /     23.3%

U.S. GDP Annual Growth/Decline reported July 31, 2013
1.62%        /     -1.75%

U.S. M3 reported August 20, 2013 (Month of July, Y.O.Y.)
No Official Report     /     4.55% (i.e, total M3 Now at $15.304 Trillion!)

Note 2: We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s December, 2009, Special Alert containing a summary overview of Intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions - III” and Deepcaster’s July, 2010 Letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds" in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, 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.” Attention to The Interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.