Long and Short Important for Profit & Protection in 2011

“There is a dire collapse taking place below the radar screens of the public. The financial condition of the fellow states of a currency union is the most critical component of a common union currency's value today. It is the challenged financial integrity of member states and their constituents, the cities, towns and villages that make up the state where risk is most prevalent.

The municipal bond market is today in a second freefall…

Fancy financial manoeuvres have been utilized at year-end to camouflage this growing and now transparent risk of bankruptcy. There is no difference between the use of OTC derivatives to camouflage Greece's financial weakness and the present procedures of fancy bookkeeping on behalf of the 40 now identified states of the United States.

Worst of all is that these municipalities are now in line at the gates of the Barbarians that actually caused all of this. They are seeking assistance from the very same international investment banks that are the OTC derivative manufactures and distributors of that singular cause of all the Western world monetary suffering. They are the chickens walking into the fox's lair that can only means their bones will be cleaned of flesh.

The momentum decline of the euro in operation short of the euro, named "Shark Feed," is the best precursor of the " Shark Feed" being a terminal attack on the US dollar very soon.”

“The Dire Collapse Taking Place”
Jim Sinclair, JSMineset, 12/14/10

“Lies, Lies, Lies: The New Foundation of the Financial System

“[T]he status quo would collapse were systemic fraud and complicity banished... They have become the foundation of the US economy and financial system..." – Charles Hugh Smith via Marc Faber

You will recall how Goldman Sachs wowed the whole world with its dazzling trading. Day in, day out...the traders at Goldman made money. The firm turned in "perfect" trading quarters, with not a single day showing a loss.

Surely, one of the junior traders would have miscalculated at least once? Or a seasoned old pro, after a well-irrigated lunch, take his fat finger and hit the wrong button? Nope. Not once did Goldman's trading machine err. It was uncanny. Almost unnatural.

Who was on the other side of those trades, we wondered? Trading is a zero sum game. One side wins. The other loses. So some poor schmuck must have taken a loss for every gain earned by Goldman's geniuses. Imagine him taking his lumps day after day...and still coming back for more. How could anyone stand so many losses? What kind of fighter could take that kind of beating and still be on his feet? And yet, there were no major new bankruptcies announced during that period. How was it possible? Who was losing all that money?

We were perplexed.

But now we know who the schmuck was...the poor sap was us! Had it not been for Senator Bernie Sanders from the Green Mountain State, who insisted that the Federal Reserve expose its shenanigans to the outside world, we would never have known what had happened to the Fed's $3.3 trillion in bailout cash. Now we know. Goldman helped itself 212 times - roughly every business day - during the 12 month period beginning in March '09, all the while telling the world that it needed no bailout.

Lies, lies, lies...

The first lie was the biggest whopper of all - that you could get rich by spending money rather than saving it.

The second was that the stock market would make you rich. All you had to do was to buy a well-balanced portfolio and hold for the long run.

When that one ran into a wall, along came the lie that you couldn't lose money in real estate.

There was also the lie that the free market would make people rich...and if it didn't, the authorities would force it to do so!

Then there was the lie that an economy saturated in debt could be stimulated to heights of prosperity by splashing on more debt.

And then there was the lie that you didn't need real money in the system; the authorities could manage a flexible, paper money system so as to help maintain full employment.

And then, after half a century of adding cash and credit, when the Wall Street speculators cried and moaned, we were told that they were "too big to fail." They needed to be saved.

Then came the lie that monetary and fiscal stimulus would lead to "recovery."

When recovery didn't come, we were told that "quantitative easing" would do the trick - so they pumped hundreds of billions of dollars into Wall Street's failed institutions. When it didn't work, we got QEII.

And now, the federal government is headed to bankruptcy. We are told not to worry. No need to change course. Tax. Spend. Overspend. Stimulate.

The same goofballs, liars and incompetents who have brought us this far say they'll take care of us.

Which is what we're worried about.”

“Lies, Lies, Lies: The New Foundation of the Financial System”
Bill Bonner, The Daily Reckoning, 12/13/10

“Chinese Take-Out (of the US Economy)

The Chinese really must think the American strategy and behavior to be braindead and self-destructive. The US helped them assemble a manufacturing industry, replaced US income with debt, and finally faces the Grim Reaper in a national episode of systemic failure. The US leadership is as stupid and mindless as the population is driven by compulsive consumption over the cliff, as the nation faces ruin. The Jackass warning has been for five years that the Chinese experiment would end in tragedy, and that when a preponderance of USTreasury debt is owned by foreigners, especially a single foreign nation, the Untied States will lose its sovereignty. It is worse. It lost its vitality entirely. With its financial engineering backfire, the nation is broken from a sequence of repeated asset bubbles & busts. With its wartime economy, the nation seeks new enemies and prefers exports of weapons to productive goods. The nation is like a Sherman Tank sinking in a sea of quicksand with credit cards as banners flown, all overdrawn and canceled.”

“Chinese Take-Out (of the US Economy)”
Jim Willie, goldenjackass.com, 12/15/10

A week ago we laid out the seemingly Inconsistent Reasons to be Bullish on Equities-in-General and other Key Sectors, and Reasons to be Very Bearish as well, as follows:

There are plenty of Good Reasons to Forecast a Doomsday Scenario for the Markets, especially the Equities Markets, in 2011. Among them are:

•USA and Key Eurozone Nations Debts are already unpayable without Devaluation

•Key Emerging and Frontier Markets are closely linked to the USA and Eurozone, so that all would plunge together in a Crash

•Increasing U.S. and Eurozone Money Printing (Q.E. 3, 4, 5…?) and Bailouts debases those currencies, thus confiscating the Wealth of Investors, Savers, and Retirees, as well as Risking Hyperinflation not too far down the road and is very conducive to the Creation of Asset Bubbles. These Bubbles eventually will Pop with Severe Consequences.

•Worsening Unemployment Situation in the U.S. and other Major Nations virtually guarantees More Fed and other Mega Bank Q.E (i.e. Money Printing).

But there are Plenty of Reasons to expect a Boom in the Equities and Key other Markets as well in 2011. Among them are

•Gold and Silver (and Risk Assets in General, as reflected in the now-20-months-long Equities Rally) are soaring to Record Highs due to Fundamentals including ever-increasing Q.E. and the No-Tax Increase Tax Deal

•In the Bond Market, the 10 Yr. Yield Rocketing to over 3.5% on the Tax Deal news, ostensibly reflecting a Strengthening Economy

•Key Forces have driven many Commodities Prices Higher

•Cartel* Markets Manipulation, though not as Potent as in past years, can still serve to boost Key Markets

So which Scenario is correct? They Both Are!

How is this possible?

The Resolution to this Seeming Inconsistency depends on Timing and Watchfulness and Sector Selection. Thus we suggest a few Guidelines and Indicators to help determine when and where to be Long and when and where to be Short in 2011.

Equities, for example, are in a now-20-months-long Bull Market. But Given the aforementioned Negatives, it is highly unlikely that this Bull will survive throughout 2011. Thus, Deepcaster is monitoring a number of Indicators which will signal it is time to take profits from the Long side (of e.g. Equities) and jump onto the Short Side e.g. via Short ETFs, such as those we have recommended. The farther we go into 2011, the more likely an Equities Markets Crash becomes.

Among the Many Indicators we watch are U.S. Dollar levels and U.S. Long Bond Rates, Treasury International Currency Reports, POMO and TOMO Injections, Euro-PIIGS Status, Fundamentally, Technicals, and Interventionals, and, especially, Real CPI and GDP Numbers, as opposed to the Bogus Official Ones.

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

Consider the following Bogus Official versus Real Numbers

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

Annual U.S. Consumer Price Inflation reported December 15, 2010
1.14% / 8.54% (annualized November, 2010 Rate)

U.S. Unemployment reported December 3, 2010
9.8% / 22.6%

U.S. GDP Annual Growth/Decline reported November 23, 2010
3.24% / -1.44%

U.S. M3 reported December 11, 2010 (Month of November, Y.O.Y.)
No Official Report / - 2.89%

Also crucial to Monitor are Gold and Silver Prices, not merely as Indicators of Fiat Currencies Purchasing Power Deterioration (though they are important for that), but also of Cartel* Interventions and Interventional Capacity.

In the Medium and Long Run, we see the aforementioned Equities Bearish Factors overwhelming the Bullish Ones, which will have Severe Negative Consequences for Equities-in-General and for Commodities which are in Elastic Demand.

Given this negative Scenario Safe Havens are Gold, Silver (with Caveats) and Agricultural Commodities in relatively inelastic demand (such as wheat).

Medium and Long term, we are very Bullish on Gold and Silver.

But Gold and Silver for years have suffered from Cartel* Price Suppression Attacks, though they have become less vulnerable to these attacks in recent months. See Deepcaster’s Article “Opportunities to Profitably Escape Paper “Wealth” into 2011 (10/07/10)” in the ‘Articles by Deepcaster’ Cache, for details.

Indeed, Financial and Economic Conditions are such that we do not recommend shorting Gold and Silver, even in advance of a likely Cartel* Takedown attempt.

*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 Deepcaster’s website. 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 Deepcaster’s website 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.

Fortunately, The Cartel has lost considerable Power to Suppress Prices in recent Months due to Revelations by GATA, Deepcaster and others that various Bullion depositories likely do not have the Metal they say they do with the result that increasing Numbers of Investors are demanding physical Delivery and Possession of their Bullion, as well they should.

But as recent weeks' action shows the Cartel still has some Power to Temporarily Suppress Prices.

Deepcaster response to Cartel Market Manipulation (i.e. the Precious Metals Market) is fivefold:

1.Buying on Dips, coupled with a Willingness to Tolerate Price Volatility

2.The Core Holdings of Ones’ Precious Metals Position be in one form (see our Precious Metal Recommendations) of Physical Metals, in Personal Possession

3.that Well Managed reasonably priced Miners be bought on Dips, and, if one is a Trader, a portion sold near interim highs

4.that a portion of Ones Holdings be in a Dividend Paying Precious Metals Fund such as one which we have Recommended, and

5.Regarding Silver, since it is also an Industrial Metal, it is especially vulnerable to Slowdown in Economic Activity and (for the Shares) Takedowns in the Equities Markets.

In sum, we expect another Markets Crisis will launch in 2011 and Gold and Silver are the place to be.

Gold and Silver are the single most important Means to Profit and Protect regardless of Economic, Financial, or other Market Conditions.

Consider, finally, that, given the aforementioned Negatives, a Crisis is likely “baked into the cake.” The Fed’s (and Eurozone Bankers) Price boosting via Q.E. can not go on forever, and, in any event Q.E. worsens the Inevitable Crash because it serves only to pile more Debt upon already Unpayable Debt.

The Bond Markets are already Signaling that Q.E. will result in increasing Inflation and Interest Rates which will Seriously Injure the Equities Markets, and Burst Equities and other Key Asset Bubbles.

These Asset Bubbles are not just limited to the Eurozone PIIGS though e.g. Greece (with a E$1.2 Trillion Debt) is sure to Default, which coupled with other Sovereign Defaults will create an Existential Crises for the Eurozone and another System is Crisis for all Major Economies and Markets.

Those who believe The Ongoing Ostensible Recovery is Sustainable, should Consider the following Debt to GDP Chart from the Bank for International Settlements, The Central Bankers Bank.

Global Debt (Fiat Currency Purchasing Power Degradation) Risk

Conclusion: Most Major Fiat Currencies are not reliable Stores of Wealth.

Thus Gold and Silver should be the most significant Long Positions for Profit and Protection in 2011.