PRECIOUS METALS & EQUITIES
PROSPECTS AFTER FED RATES CUT
by DeepCaster LLC
September 21, 2007
�The Fed's September 18, 2007 rates cuts temporarily bailed out their buddies on Wall Street, while simultaneously inviting hyperinflation, and sacrificing the U.S. Dollar, the long-term health of the U.S. economy, and the best interests of taxpaying middle-class American citizens* and future generations of Americans.� Deepcaster, September 18, 2007
��(the rate cuts are)�a temporary bandage�not going to solve our problem�I think we'll have more problems in the stock market this year and 2008�� Jim Rogers, September 18, 2007
�Nothing that has been done will correct�the economic problems�because the real problem is a trembling $20 trillion mountain of Over the Counter�derivatives�think about the Weimar Republic�� Jim Sinclair, September 18, 2007
The Fed's September 18, 2007 rate cuts temporarily bailed out their buddies on Wall Street, while simultaneously inviting hyperinflation, and sacrificing the U.S. Dollar, the long-term health of the U.S. economy, and the best interests of taxpaying middle-class American citizens* and future generations of Americans.
Thus it is important to reevaluate the prospects for Precious Metals and the Equities markets, after the September 18th Fed rate cuts.
Present appearances are not likely to be a harbinger of future realities, as we shall indicate.
Fundamentals for the U.S. economy and the World�s Reserve Currency, the U.S. Dollar, are worsening. Consumer debt, U.S. governmental debt ($9 TRILLION), and downstream-unfunded liabilities ($45 TRILLION PLUS) are at record levels.
M3 is increasing at an annualized rate of 14%** and Consumer Price Inflation at an annualized rate of 10%**. Thus, we have had what we expect will be the first of several credit market freeze-ups due to defaulting borrowers and reckless lenders, magnified by the leverage in $20 trillion plus of OTC Derivatives and grossly excessive �borrowed liquidity.�
ARM resets and consequent defaults and foreclosures are far from over. By correctly anticipating the foregoing, Deepcaster was able to recommend that its subscribers take profit on two �short� positions in August, 2007.
Ominously, on the very day of the Fed rates decreases were announced, the Treasury International Capital Flows (�TIC�) data for July, 2007 was released.
The bad news was that foreign capital flows into the United States hit their lowest levels since December, 2006, when one considers only the data for long-term securities. When short-term and long-term securities are considered together, the Treasury Inflows jumped to over $100 billion - - more than enough to cover the $60 plus billion trade gap for July.
The key point is that while foreigners are still willing to support the United States� overspending and over-indebtedness they are moving to shorter dated securities. Thereby, the data is not so subtly telling us that the days of foreigners financing the U.S. overspending and over-indebtedness are limited. Acute analyst Dan Norcini concludes from the economic and TIC data that ��the Fed will burn the dollar down, rather than let the U.S. equity market collapse.� Apparently so.
Regarding equities, after the Fed's rates cuts, the stochastics for the Dow and NASDAQ indicate �buy,� in the short-term.
Likewise, the advance/decline signals for the Dow, S&P and NASDAQ are all on a �buy� for the short-term.
And The Fed move caused a breakout up from the neckline of an inverse bullish head and shoulders. A similar inverse bullish head and shoulders breakout was reflected in the S&P 100 Indices and the NASDAQ indices charts also.
On the positive side also, a Gold breakout above the asymmetrical triangle chart of gold bullion and a breakout of a similar triangle for the HUI is bullish for gold, but see interventionals below.
However, as of September 20, 2007, NYSE downside volume was 70% and the Dow Industrials just hit the top of their Bollinger bond, both of which are bearish indicators. In addition, we have a bearish divergence between the Advance/Decline indicator and prices. All these are signs the equities markets may be topping.
Deepcaster aims to reconcile these conflicting indicators in his Forecast/Alert posting early in the week of September 24, 2007, in the �Alerts Cache� at www.deepcaster.com.
One fair conclusion is that The Fed will juice the Equities markets higher, so long as they are able, while sacrificing the Dollar and inviting hyperinflation. The market prices of Gold, Silver and Equities have responded predictably.
Equities markets shot up after the announcement, as did prices for Gold and Silver. The moves up for Gold & Silver are the obvious result of the weakening of the U.S. Dollar and the prospects for hyperinflation resulting from lower interest rates and increasing M3.
Yet the drama is not that simple, especially where considering future prospects is concerned. There are countervailing considerations.
With the health of the world wide financial markets sitting on a trembling $20 trillion mountain of OTC darkly liquid derivatives, the risks have never been greater (see Deepcaster�s �Protecting and Profiting from Dark Liquidity: at www.deepcaster.com). But with The Fed's capacity to pour on the juice and move the markets still apparently unimpaired, there is surely a titanic battle going on. So it is absolutely critical to continually consider the fundamentals, technicals, and interventionals in order to provide the best forecast for future protection and profit.
Consider the following salient facts, and Central Banker Cartel*** enabled developments:
� The Fed allowed the Repo Pool to drop slightly on Friday, September 14, 2007, continuing its modest downtrend - - bearish for Equities, at that time. But they increased the Repo Pool Monday, September 17, 2007 as they typically do when they expect/intend to create major moves and they want to have sufficient Repo �ammo� to control them.
Sure enough, Monday�s Repo boost was a harbinger of the Big Fed Move on Tuesday, September 18, 2007, and partial cause of the equities markets launch that day.
� The Precious Metals shares lending arrangement with primary dealer JPM and the seemingly limitless capacity of The Fed-led Cartel to cause paper Gold & Silver Bullion contracts to be sold into the markets to suppress Gold & Silver prices does NOT augur well for Gold & Silver Bullion or shares, in spite of their technically bullish formation breakouts.
� The �Mortal Enemies� of the Banker Cartel�s Crown Jewels (their Treasury Securities and Fiat Currencies) are The Tangible Assets (as Deepcaster has explained in recent Letters and Alerts): The Cartel�s favorite targets are the Monetary Metals, Gold & Silver and the Strategic Commodities of which Crude Oil is the primary one.
� The Fed-led Cartel can NOT for long tolerate the apparent increasing legitimacy of these tangible assets as the store and measure of value (and thus as alternatives to their Fiat Currencies and Treasury Securities).
� Most ominously for Gold & Silver, neither during the week ending with the Fed Discount rates cut of August 17, 2007, nor immediately after the hyperinflationary rates cuts of September 18, 2007, did Gold or Silver exceed their May, 2006 highs. In a non-interventional market both would have skyrocketed.
� Ominously for Gold & Silver (but not necessarily for equities) in early September, 2007 virtually all the senior managers of Barrick Gold (arguably the leading world-wide gold company) exercised options and immediately sold all of their stock after the exercise. If these insiders (who are in the best position to know) were bullish on the future price of Gold would they have sold the shares immediately? We think not.
Prospects for the Precious Metals & Equities
A Titanic Battle is underway: The Major Contenders are The Fed-led Cartel versus Fundamental Realities.
On one hand, The Fed seems bound and determined that they will not allow the equities markets to fall very substantially, come hell or high water. And, thus far, they have been able to prevent Gold & Silver from skyrocketing.
Of course, in order to continue juicing the equities markets they have to increasingly hyperinflate the money supply (M3) and the credit supply and other forms of liquidity. Of course, this juicing is very hyperinflationary and negative for the U.S. Dollar and U.S. Treasury Notes and Bonds.
Thus an additional question is whether the resulting Equities Markets moves up are sustainable and reflect an uptrend. Deepcaster has weighed the fundamentals, technicals and interventionals and issued its Forecast at www.deepcaster.com.
Regarding Gold & Silver, quite simply the fundamentals and technicals have never been better. But will they will be able to overwhelm then Fed-led Cartel�s*** interventional firepower is the question of the decade. Deepcaster also gives his response to this question in his latest Letter and Alert posted at www.deepcaster.com.
Clearly the financial system is showing unparalleled strains and systemic risks resulting primarily from the Fed's actions and policies which we have previously described.
Market Realities are coming home to roost, as it were. That is why it is essential to intensively and regularly study the interactions among the fundamentals, technicals and interventionals, as Deepcaster does. Only in this way can one have a reasonable basis for forecasting the outcome of The Titanic Battle and, thereby, enabling wealth protection and profit opportunity.
*Chairman Bernanke testifying on September 20, 2007 opposed increasing the size of home loans FHA/FNMA could buy saying that it might ��reduce market discipline further��
Deepcaster asks Mr. Bernanke if he thinks that Fed-engineered excessively high M3 and liquidity creation of recent years and its August 17, 2007 and September 18, 2007 discount rate cuts to facilitate loans to and by the biggest banks did not also reduce market discipline for those wealthiest entities?!
***We encourage those who doubt the existence of Intervention by a Fed-led Cartel of Central Bankers to read Deepcaster�s October, 2006 summary overview of Intervention entitled �Juiced Numbers IV: How the Government Gets the Statistics It �Wants,� Markets Get Manipulated, Citizens Get Deluded, and Worse� 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.
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