As is quite evident from the past couple months, investing in gold can be rather volatile. Clearly, the huge sell-off in the price of gold bullion over the past couple of weeks has shocked some people; an interesting result has been the reaction from the retail public, as many are now buying gold bullion in record amounts.

What Others Are Reading  : 2013 US Financial Crisis

Last week, the United States Mint actually ran out of the smallest American Eagle gold coin, and sales to India were 20% higher than the previous record, according to Standard Chartered PLC. Clearly, physical demand remains strong for gold bullion. (Source: Roy, D., et al., “Gold Rout for Central Banks Buying Most Since 1964: Commodities,” Bloomberg, April 25, 2013.)

Here is a key question for those who are considering investing in gold: what are your goals? Is a person investing in gold to diversify his or her assets or to trade and generate profits?

Having gold bullion as part of one’s portfolio can make sense as long as it’s understood that volatility will continue to be present. Since larger investors have added gold bullion as another asset to trade, determining the price of gold bullion has become increasingly difficult.

A chart for gold bullion is featured below:

Chart courtesy of www.StockCharts.com

The recent drop in gold bullion erased an estimated $560 billion in the value of central banks’ holdings, and it was one of the largest drops in 30 years. The huge spike in volume and the massive move indicate several large stops were triggered, causing the holders to liquidate their positions.

The question now: is the selling in gold bullion completed? Since no one can ever know the holdings and intentions of every investor, we can only discern from the large increase in volume that gold bullion might have possibly developed the floor at approximately $1,350 an ounce. However, there is no certainty that there will be enough buying demand to overcome the selling pressure. We would need to see gold bullion move back up to the previous support level, which will now be the resistance level, and how the market for gold bullion reacts.

The Relative Strength Index (RSI) spiked to extremely oversold levels, as noted by the circled areas in the above chart. These circles show several other points in the past where gold bullion became oversold or overbought. However, just because a market is showing an RSI in oversold or overbought territory, this does not mean that the market has to reverse. The market in gold bullion was oversold in February, but, as we all know, it continued lower.

Investing in gold over the past couple months has been difficult for many people. There are still large investors who are holding massive positions in gold bullion, such as hedge fund manager John Paulson with reported holdings at the end of 2012 equivalent to 65.7 tons. If investors in Paulson’s fund decide to redeem their cash, this could drive gold bullion even lower, because he would be forced to sell on the open market.

If you were investing in gold as an insurance policy, then much like your car or life insurance, you would not be continually checking it every day. Gold bullion is excellent as a trading vehicle because it provides plenty of volatility, but one must be flexible in being able to go both long and short with gold at a moment’s notice.

The key question: are you investing in gold as an insurance policy or as an active trader/investor looking to generate profits? Knowing the answer to this question will dramatically alter your trading strategy for gold bullion after the latest sell-off.

 Click here to visit : Has Gold Bullion Hit Rock Bottom?

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One of the biggest dangers when it comes to long-term investing is trying to determine the potential hazards on the horizon. Currently, market sentiment has become extremely positive in the market, driven by strong corporations with lean organizations and plenty of cash.

However, to be successful at long-term investing, we must look past current market sentiment conditions and determine what potential pitfalls could arise. Pension funds within corporations are becoming a serious threat in their potential to dampen market sentiment in the long run.

The deficit for American pension funds—the difference between the amount owed to retired workers and the level of funds in the pension—increased at the end of 2012 to $295 billion, up 17% from year-end 2011, according to Towers Watson. (Source: Badawy, M., “Corporate pension funding down in 2012 on falling interest rates,” Reuters, April 23, 2013.)

While assets within the pension plans have increased, as the stock market has moved higher, interest rates have declined to such a level that it still leaves a huge funding gap. Market sentiment for the current state of corporations might be accurate, but long-term investing is all about what will happen down the road. At some point, these obligations do have to be paid one way or another.

According to Towers Watson, American corporations contributed $45.0 billion in 2012 to their pension plans, the largest amount during the past five years. Since the turmoil in the market in 2008 and 2009, many pension plans have shifted away from equities and toward fixed income. According to Towers Watson, since 2009, the equity portion of the average pension plan has declined by 10%, while bonds have increased by eight percent.

Unfortunately, long-term investing decisions made by pension plan administrators can be problematic. Many administrators are reactive, not proactive.

When the stock market was tanking—and market sentiment along with it—it would’ve been the perfect time to add to the equity portion of a portfolio. Now, with market sentiment at such high levels and interest rates at such low levels, making a shift might be a mistake.

Unfortunately, many pension plans continue to pile into the bond market, which is yielding extremely low levels. This will mean that many pension plans will continue to be underfunded, as the current yield is too low to pay entitlements to retired workers.

It could become worse if market sentiment in the stock market begins to erode. If that were to occur, many corporations would have massive shortfalls in their pension liabilities, and they would have to eventually increase their contribution. Naturally, this would be a negative for shareholders and a warning sign for those interested in long-term investing looking out over a decade or more.

While it’s great to see market sentiment at such strong levels, underneath the surface, there are still potential problems when making long-term investing decisions. The potential shortfall in pension liabilities might be much larger than current investors believe, and it would be wise to look deeper into the companies in which you are investing.

Comment (1)

Consumers appear to be holding back on buying non-essential goods, and this could impact the economic recovery.

What Others Are Reading : Financial Crisis 2013

The durable goods orders contracted a dismal 5.7% in March, according to the United States Census Bureau, representing the largest decline in seven months—a far cry from the 4.3% rise in February and well below the Briefing.com estimate calling for a four percent decline.

Taking out the volatile transportation portion, durable goods fell 1.4%, versus the Briefing.com estimate of -0.1%, equaling the second straight month of declines.

The durable goods readings have largely been inconsistent, as reflected in the chart below, and suggest the economic recovery may be at risk.

When consumers are more confident, they tend to spend more on major purchases in the retail sector, such as homes, vehicles, furniture, appliances, and travel. This will impact the economic recovery, gross domestic product (GDP) growth, and the ability of companies to expand their businesses.

But whether it’s the added taxes or the fragile confidence from the lack of strong jobs growth, the decline in the demand for goods that are deemed non-essential should be a red flag that not everything is proceeding along smoothly, which could affect the economic recovery.

The fact remains that jobs creation is fragile and not expected to ratchet higher until 2014 and 2015, due to the slow economic recovery.

The recent 88,000 jobs created in March was weak, so it will be interesting to see what happens with the April non-farm payrolls reading due next Friday.

Retail sales have also been off and on. In March, retail sales excluding autos fell 0.4%, below the Briefing.com estimate for a gain of 0.3% and down from one percent in February.

The Thomson Reuters Same Store Sales Index (comprising 17 U.S. chains) increased 1.5% in March, below the 1.8% estimate and the weakest reading since September 2009.

There are clearly signs of potential stalling in the economic recovery driven by lower consumer spending.

Consumer confidence in March was weak at 59.7, according to the Conference Board, and was well below the Briefing.com estimate of 65.0 and the 68.0 in February. Moreover, the readings are nowhere near what I would view as confident. In fact, the readings were over 90 in December 2007, which was prior to when the financial crisis and recession took hold.

My concern is that without strong jobs creation, there will continue to be issues with confidence and the rate of the economic recovery—as evidenced in the decline in durable goods.

If you are expecting the economic recovery to pick up anytime soon, I suggest you reconsider.

Comment (0)

A key point is that the Fed/Treasury Actions of 2008, 2009, 2010, 2011, 2012 and 2013 are not long-term fixes. One reason they are not long-term fixes is that they “fix” a liquidity problem in a way that allows insolvent or nearly insolvent financial institutions to have liquidity that would allow certain normal but often deleterious operations (i.e. the continuation of even more lending based on borrowed liquidity) to continue temporarily.  Deepcaster has previously demonstrated the perils inherent in an economy increasingly relying on “borrowed liquidity” (i.e. debt) as a result of Fed policies rather than the traditional “earned liquidity” (i.e. savings) – see Deepcaster’s January, 2008 Letter and former Deutsche Bank Chief, Kurt Richebacher’s (RIP) writings.

Thus, the “borrowed liquidity cure” is worse than the disease. At about 100% of GDP, the USA’s debt cannot ever reasonably be repaid nor the debt of other countries (e.g., Japan where debt is 220% of GDP, and several Eurozone countries where debt exceeds 100% of GDP).  Thus, what The Fed and ECB have given us is a flawed Financial Band-Aid, and only a Taxpayer guaranteed Band-Aid for the Mega-Bankers (and profit for The Fed and its Shareholders which make more money as borrowing increases) at that. The FASB is complicit in this Deception because it continues to allow Mark to Myth rather than requiring Mark to Market accounting for Toxic Assets.

A Systemic Solution

Allowing the International Economy to be based on a Fiat Reserve Currency managed by a Private For-Profit Central Bank, The Fed, is unsustainable.  No Fiat Currency Regime in history has ever survived indefinitely. Many have ended in Disaster.

So The Systemic Solution is apparent.  We outline it in our December 2012 Update. Suffice it to say that one Element of The Solution involves taking Legendary investor Jim Rogers’ Advice recently neatly expressed as The Solution to the problem of The Fed:  “The Fed should be abolished and Chairman Bernanke should resign.”  (March, 2008, CNBC) 

An excellent idea.  Indeed, The Fed is a private for-profit group of International Banks, whose main motivation is in providing profits for, and protecting the interests of, The International Bankers Cartel and favored institutions and parasites, not in serving the needs of U.S. citizens (or most citizens of other countries for that matter). Rep. Ron Paul and the nonprofit group Carrying Capacity Network (www.carryingcapacity.org) are among those advocating Auditing and Abolishing The Fed. And the Ongoing Agony of Eurozone Citizens, could, in the long run, be halted by returning to National Currencies backed by Gold and Silver.

The Cartel End Game

Thus assuming The Cartel leaders know what they are doing what is their ‘End Game’? For details regarding The Cartel ‘End Game’ see “Investor Advantage: Revisiting the Cartel's 'End Game'” (3/6/09) and “Gold-Freedom versus The Cartel ‘End-Game’ & A Strategy for Surmounting It (09/23/10)” in the ‘Articles by Deepcaster’ cache at deepcaster.com.

A Strategy for Investors & Traders

Fortunately, the following considerations and guidelines help enable Investors to Profit and Protect in spite of Cartel Intervention, and particularly regarding Interventions in the Precious Metals Markets.

1. Although The Cartel is still Potent, it is significantly less potent than it was even a few months ago due primarily to:

a)    The years-long efforts of the leaders and members of GATA and other organizations and writers in exposing Precious Metals Price Suppression 

b)   The stunning Allegations that Major Gold Repositories do not have nearly as much Physical Gold (or Silver for that matter) they say they do. See the allegations regarding a major Gold ETF and the London Bullion Market Association in Deepcaster’s April 9, 2010 article (“Climacteric for The Cartel; Opportunity for Investors [04/09/10]” in the ‘Articles by Deepcaster’ Cache at deepcaster.com) and Deepcaster’s April, 2013 Articles and Alerts.

c)    Increasing shortages of Physical Gold and especially Silver.

These reports are doubtless leading Major Gold and Silver Investors to demand Delivery and possession of Physical Gold – a wise decision. But The Cartel is still the Biggest Player in many markets and, if the timing and market context are propitious, the Biggest Player makes Market Price temporarily (witness the 2/29/12 and 12/13/12 and April, 2013 Takedowns). In addition, The Cartel has the advantage of de facto controlling the structure and regulation of various marketplaces and that is a tremendous advantage; just as the Hunt Brothers years ago discovered much to their dismay and misfortune, when they tried to corner the Silver Market.

1. Thus we recommend that Investors follow their lead with a significant portion of the funds allocated to Precious Metals purchases committed to purchasing, and taking Personal Delivery of (no Bank Vaults, please), Physical Gold and Silver.

Indeed, because Physical held in one’s personal possession is so precious, some forms of it trade at as much as a 20% premium to the spot price of “paper” Gold.

But not all forms of Physical are Equal, as it were. Some forms are much more liquid than others, and some are much more susceptible to counterfeiting, as e.g. by Tungsten-lacing. 

Deepcaster has recommended Purchase of One Form of Physical Gold (and Silver), that is quite liquid, not easily susceptible to counterfeiting, and commands a considerable premium over the spot price of Paper Gold (and Paper Silver). See also Deepcaster’s Alert for the week ending March 9, 2012 and his December, 2010 Letter “Gold with Income; in the ‘Alerts & Letters Cache’ at www.deepcaster.com. (See Notes 1 and 2.)

1. Do not give Short Shrift to Gold and Silver Miners and other Tangible Assets in sustained and relatively inelastic demand. 

But purchasing shares of these should be done with particular care, because, being “paper” (or, usually, electronic entries on some remote server) Miners shares are especially vulnerable to periodic Cartel attacks and Price Takedowns.

Thus, they are most profitably accumulated near Interim Lows resulting from Cartel Interventions.

In order to estimate these Interim Lows one needs not only to consider Fundamentals and Technicals, but also Interventionals.

Note: A major premise of The Strategy is that one can certainly remain a Hard Assets Partisan while at the same time insulating oneself to some degree from future Cartel Takedowns.  For an outline of The Strategy (particularly as applied to the Gold and Silver Markets) see December 13, 2012 Article and Regarding Specific Recommendations for Profit and Protection, see Notes 2 and 3. 

Note, importantly, that Central Banks themselves are increasingly buying Physical Gold and Equities now. In November, 2012 the Bank of Korea bought $780 Million (14 tonnes) worth and China has become the World’s largest Producer and Importer. Note Well!

Perhaps A. Migchels’s Forecast and Warning is correct:

"The Petrodollar is based on the Black Gold standard and it is dying, as is the US Empire. But central banks all over the world are buying Gold like there is no tomorrow. Gold is assaulted by the Fed to maintain Dollar credibility, while the Money Power's international central banks and other insiders are very grateful for a 500-1000 dollar per ounce discount to prepare for the transition. The New World Order cannot collapse the financial markets until they collapse Gold, get our firearms, and get everyone into paper. They are trying to get everyone into the stock market, which will then flash crash."

Real Currencies, Anthony Migchels, April 2013

Best regards,

Deepcaster
April 26, 2013

Note 1: *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.

Note 2: Our earlier Four Wave forecast is playing out thus far, as forecast. But first…

The recent dramatic Gold and Silver and general Commodities Price Takedown demonstrated that the Prospects for certain Key Commodities Price

– launches soon are better than ever (but of course from lower levels) and

– that even higher Price Targets sooner are now in store for these Key Commodities.

Why? The recent Cartel coordinated Precious Metals Takedown appears to have been effected by the selling of 400 tonnes ($20 billion) of paper Gold – representing 15% of all annual mine production. Total contracts traded represented about 3,000 tons. If all that were Physical, it would not be feasible, and probably not possible, to make delivery. Only The Cartel or a Major Catastrophe could have created such an 8 Standard Deviation Event!

So have we hit bottom in the Gold Price? And which Key Commodities have Stellar Price prospects? We answer these questions, comment on Cartel Motivation, and make a Buy Recommendation in our recent Alert “Our 4 Wave Forecast Accurate So Far; Buy Reco; Forecasts: Gold, Silver, U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates, Equities, Crude Oil, & Key Commodities”  just posted in ‘Alerts Cache’ at www.deepcaster.com.

And we recently made a Buy Recommendation with great Profit Potential.

Note 3:  All good Forecasts reflect probabilities not promises, guarantees, or certainties. We do not issue Forecasts unless our analyses reflect at least more-likely-than-not probabilities. But occasionally our Forecasts indicate, IMO, a higher, i.e. a much-more-likely-than-not probability for certain Key Sectors we cover. 
And this is one of those weeks in which Key Fundamental, Technical, Interventional, and Political reflect not certainty (and certainly not a guarantee) but rather, a much-more-likely-than-not probability, for one Key Sector we cover. 
To consider these Forecasts, see our Alert “ 17.97% Yield Buy Reco & Remarkable Forecasts: Equities, Gold, Silver, U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates, & Crude Oil,” posted in ‘Alerts Cache’ at www.deepcaster.com. 
And to consider our recent “Blue Chip” Buy Recommendation recently yielding 17.97%, and selling as we write for about $5/share, read that same Alert.

Comment (0)

"Then, when the Fed’s fire hoses started spraying an elephant soup of liquidity injections in every direction and its balance sheet grew by $1.3 trillion in just thirteen weeks compared to $850 billion during its first ninety-four years, I became convinced that the Fed was flying by the seat of its pants, making it up as it went along. It was evident that its aim was to stop the hissy fit on Wall Street and that the threat of a Great Depression 2.0 was just a cover story for a panicked spree of money printing that exceeded any other episode in recorded human history….

“Because they stopped it in its tracks after the AIG bailout and then all the alphabet soup of different lines that the Fed threw out, and then the enactment of TARP, the last two investment banks standing were rescued, Goldman and Morgan [Stanley], and they should not have been. As a result of being rescued and having the cleansing liquidation of rotten balance sheets stopped, within a few weeks and certainly months they were back to the same old games, such that Goldman Sachs got $10 billion dollars (from The Fed – ed.) for the fiscal year that started three months later after that check went out, which was October 2008. For the fiscal 2009 year, Goldman Sachs generated what I call a $29 billion surplus – $13 billion of net income after tax, and on top of that $16 billion of salaries and bonuses, 95% of it which was bonuses.

“Therefore, the idea that they were on death’s door does not stack up. Even if they had been, it would not make any difference to the health of the financial system. …

“The banks quickly worked out their solvency issues because the Fed basically took it out of the hides of Main Street savers and depositors throughout America….

“Well, once you basically unplug the pricing mechanism of a capital market and make it entirely an administered rate by the Fed, you are going to cause all kinds of deformations as I call them, or mal-investments as some of the Austrians used to call them, that basically pollutes and corrupts the system. Look at the deposit rate right now, it is 50 basis points, maybe 40, for six months. As a result of that, probably $400-500 billion a year is being transferred as a fiscal maneuver by the Fed from savers to the banks. They are collecting the spread, they’ve then booked the profits, they’ve rebuilt their book net worth, and they paid back the TARP basically out of what was thieved from the savers of America.”

David Stockman, Frmr Head, OMB & Member, House of Representatives, (1977-81)

The Great Deformation: The Corruption of Capitalism in America, 2013

The private-for-profit Fed’s Intervention in the Markets on behalf of their owners/shareholders, the Mega-Banks, is an old and ongoing story. Unfortunately, it is having several ongoing and worsening Negative Consequences including those Stockman points out, on Investors and Main Street in general.

Not so well publicized is The Fed/Mega Banks’ ongoing interventions to Suppress the Prices of Gold and Silver because they are the Competitor to the Fed’s (and other Central Banks) Fiat Currency(ies) and Treasury Securities.

Market Manipulation (and not just of the Precious Metals Markets as we shall see) provides a Challenge to Investors, and a Threat to their Wealth, but also Great Opportunities to Profit and Protect Wealth, as we explain here.

The Gold Antitrust Action Committee has done a remarkable job in Exposing this price suppression.

“Western central banks conceal their gold loans and swaps because information about them is ‘highly market-sensitive and accountability about them would hinder secret currency market interventions by central banks, according to a confidential report by the International Monetary Fund obtained this week by GATA. … 

“This is, the explicit but secret policy of Western central banking toward gold is to deceive and manipulate markets, as GATA long has complained. … 

“Secret IMF report: Hide gold loans and swaps for market manipulation,” The GATA Dispatch, Gold Anti-Trust Action Committee, 12/11/2012

Gold and Silver are the Metallic Canaries which, absent Price Suppression would signal many Economic Negatives, including the inflationary effect of The Fed’s and other Central Banks QE. The Fed et al have become increasingly desperate to canceal these Hidden Realities as the Cartel’s (Note 1) dramatic April, 2013 Takedown shows. 

“[O]n Friday, April 12, the Fed’s agents hit the market with 500 tons of naked shorts. Normally, a short is when an investor thinks the price of a stock or commodity is going to fall. He wants to sell the item in advance of the fall, pocket the money, and then buy the item back after it falls in price, thus making money on the short sale. …

“…with naked shorts, no physical metal is actually sold…

“Consider the 500 tons of paper gold sold on Friday. Begin with the question, how many ounces is 500 tons? There are 2,000 pounds to one ton. 500 tons equal 1,000,000 pounds. There are 16 ounces to one pound, which comes to 16 million ounces of short sales on Friday.

“Who has 16 million ounces of gold? At the beginning gold price that day of about $1,550, that comes to $24,800,000,000. Who has that kind of money?

“What happens when 500 tons of gold sales are dumped on the market at one time or on one day? Correct, it drives the price down. Investors who want to get out of large positions would spread sales out over time so as not to lower their sales proceeds. The sale took gold down by about $73 per ounce. That means the seller or sellers lost up to $73 dollars 16 million times, or $1,168,000,000.

“Who can afford to lose that kind of money? Only a central bank that can print it.”

“Assault on Gold Update,” Paul Craig Roberts, Frmr Asst Treasury Sec’y Reagan Administration, PaulCraigRoberts.org

Roberts also explains one Major Reason The Fed is short selling bullion.

“The fact that the Federal Reserve is short selling bullion means that there is something desperate going on. I assume it is related to the USDollar. If the dollar drops sharply in exchange value, the Fed cannot control the interest rate and the bond price, and so all of the bubbles would blow up. All of the recent reports of countries moving away from the dollar to settle their international payments have most likely caused a great many countries to look at getting out of dollars. We not only have the BRICs moving away from the use of the dollar, but also China, Japan, and all of the East Asians. Recently we have even seen reports out of Australia that they are going to deal directly with China in their own currency. So this drop in demand for dollars when the Fed is creating one trillion new dollars every year means the exchange value of the US dollar is untenable.” (Emphasis added –ed.)

Dr. Paul Craig Roberts, quoted in “Global Money War Report,” Jim Willie, goldenjackass.com, 04/21/2013

This Ongoing Price Suppression legitimizes and bolsters the Ostensible Value of Major Nations’ Treasury Securities and Fiat Currencies as stores and measure of value vis-à-vis Gold and Silver.

Remarkably, The BIS, The Central Bankers’ Bank, advertised in June, 2008 that one of its “Products” was “Interventions” in the Gold Market, as well as Currencies.

The Price Suppression Scheme is International, involving many Banks as Mr. Rigaudy’s characterization implies. 

“Our Products – Forex and Gold Services > Interventions”

The Bank for International Settlements (BIS): An Introduction
Jean-François Rigaudy, Head of Treasury, June, 2008

Indeed, the aforementioned latest example of the Cartels Precious Metals Price Takedown shows The Cartel* increasing desperation and determination to hide the Negative Effects of QE from the Public. 

First, reviewing several facets of, and Key Points in the History of Manipulation is crucial to understand the variety of Effects, and how to Profit and Protect from them (and see e.g., Notes below). Consider… 

And there are other Negative consequences of this Mega-Bank Cartel for Investor Citizens around the World. 

“We have had a Fed engineered serial bubble, that has created the appearance of wealth, that has caused people to consume beyond their means through borrowing, and that has flushed the income and wealth of our society up to the top, as a result of the Fed turning the financial markets into a casino. These are pure casinos, they are not capital markets, they are not adding to the productive capacity of our economy, they simply are a bunch of robots trading with each other by the millisecond as a result of the Fed giving them zero cost overnight money, and giving them all kinds of hand signals on what to front-run.

“The Fed is destroying prosperity by funding demand that we can't support with earnings and production, causing massive current accounts deficits and the flow of funds overseas and the build up in China, OPEC and Korea of massive dollar reserves which is a totally unsustainable, unsupportable system, and we are coming near the edge of where that can continue to remain stable.”

Stockman, December, 2010 

Among the Mega-Banks holding huge Precious Metals and other Derivatives Positions are familiar names (JPM Chase held a Derivative Portfolio of some $70 Trillion Notional value in 2010). 

“This report (Q1 2010 Bank Derivatives report – ed.) contains more evidence that a flood of paper gold and silver instruments are being used to divert investor capital away from the purchase of the actual physical metals in order to suppress prices… 

“Two bullion banks, JPM and HSBC, continue to dominate the precious metals derivatives market with positions that are outrageously oversized compared to the underlying metals markets…” 

“Manipulative Gold & Silver Derivative Positions Continue to Grow!”
Adrian Douglas, Marketforceanalysis.com, 6/26/10

Other Negative Consequences of Massive Fed and other Mega-Bank QE (Money “Printing” and Credit Facilitation) were presciently identified by Bob Chapman (R.I.P.) and Warren Buffet. 

“Banana Ben, like his equally pernicious predecessor, Easy Al, is trying to paper over declining US living standards by orchestrating asset bubbles. Ironically, …

“Soon Ben will be at his Rubicon. He must then either monetize everything or allow short rates to explode higher. This of course would precipitate the dreaded debt deflation that solons have tried to avert.”

Bob Chapman, International Forecaster, 12/18/10 

“Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them:  we view them as time bombs, both for the parties that deal in them and the economic system.” 

Warren Buffet, February 21, 2003

Indeed, Ben’s Fed has arrived at his Rubicon is reflected in the recent Fed decision to conduct Q.E. to infinity. The Time Bomb to which Buffet refers has started to explode. And The Fed and other central Bankers are Massively Monetizing (i.e. printing/digitizing Money and Buying) Sovereign and other Debt, and thus creating Massive Asset Bubbles in the Treasury Bond and Equities Markets.

For example, in the December, 2011 to February, 2012 period The ECB injected One trillion Euros’ into the International Economy on top of all the Fed QE and other injections. And it is this Immense and Ongoing QE which provides Great Profit Opportunities (see Notes 2 and 3) as well as Great Systemic Threats, as we explain. 

Thus it is important to understand that it is not just the P.M. Markets that are manipulated but Equities, Bond, and other Markets as well. Consider just one example:

 “…All told, the Fed has bought $20 billion worth of Treasuries in this fashion, $11.15 of which it purchased last week alone. With this kind of weekly money pumping in place, Bernanke and pals don’t need to continue their “behind the scenes” games (like the options expiration week money pumps). 

“Or do they?

“Unbeknownst to most investors, last week Ben Bernanke pumped an additional $11.05 BILLION into the system ON TOP of the $11.15 pumped via the POMOs. In plain terms, the Fed juiced the system by $20+ billion in a single week, bringing its liquidity pumps RIGHT BACK to QE 1 LEVELS.

“If you want to know why stocks have rallied in the last month (September, 2010; Ed.) this is THE reason. The economy isn’t improving and the European Crisis isn’t over. Nothing has improved. All that has happened is the Fed funneled money into the Primary Dealers who ramped the market…. 

“In plain terms, the market is being juiced higher, plain and simple. There is no fundamental reason for stocks to be rallying.”

 “The Only Reason Stocks Have Rallied This Month”
Graham Summers, Seeking Alpha, 9/28/10

See also “There are no Free Markets anymore,” cpowell, gata.org

See also “Markets Are So Rigged By Policy Makers That I Have No Meaningful Insights To Offer” 2/20/2012, Bob Janjuah, Nomura International Strategist.

Indeed, near the end of the Fall, 2008 Equities Market Crash (i.e. as of December 2008) there were about U.S. $548 Trillion in Notional OTC (i.e. Dark, Not Exchange Traded; thus traded mainly by Mega-Banks) Derivatives still outstanding worldwide.

Yet over three and one-half years later (as of June 2012 – the latest BIS Report date) that total was at about $639 Trillion, which nearly equals the all-time pre-Crash (June, 2008) High of $684 Trillion, according to the Central Banker’s Bank, the Bank for International Settlements (www.bis.org, path: Statistics>Derivatives>Statistical Tables, Table 19).

Warren Buffet is surely correct to label Derivatives as “Time Bombs” because the leverage inherent in them is both a threat to Investors and to the financial system.

Clearly, a Conclusion that Systemic Risk (generated by Derivatives Exposure which existed, e.g., at AIG) has somehow been substantially lessened by the actions of the private for-profit Fed, the European Central Bank, the U.S. Government, or any other source, is wrongheaded.

Given the Massive Size and Impact of the over $600 Trillion in Dark OTC Derivatives, Investing or Trading without addressing the issue of likely Cartel* Market Interventions is a recipe for disaster.

Thus, we offer the following Overview and Update regarding The Interventional Universe to provide a Springboard for the Profits and Protection Strategy which we outline below. And in our 2012 and 2013 letters and Alerts, we offer Buy Recommendations designed to profit from Forecast Mega-Moves.

This April, 2013 Article is the Fourteenth in a series of Deepcaster's work originally entitled "Juiced Numbers". It provides an Updated Overview and Summary of Market Intervention and Data Manipulation.  It reflects Analysis of key recent Releases from (and actions of) the BIS (Bank for International Settlements – The Central Banker’s Bank), BLS (Bureau of Labor Statistics) and The U.S. Federal Reserve, as well as Highlights of recent Interventions, and updates regarding The Cartel* “End Game.” For the sake of Brevity, we refer to our earlier articles in this series.

Bailouts and Stimuli have afforded The Cartel a whole panoply of additional tools for Market Intervention which they did not possess even five years ago. These tools make tracking “The Interventionals” ever more challenging. In sum, this report provides even more evidence of increased Risk of Hyperstagflation and/or Systemic Collapse, and of the beginning of the attempted implementation of The Cartel’s Nefarious “End Game” (see “Saving Investments, Sovereignty, & Freedom from the Cartel ‘End Game’ (1/13/11) in the ‘Articles by Deepcaster’ cache at deepcaster.com).

Moreover, it provides evidence that the private for-profit Fed’s and its allied Mega-Banks’ Policies and Actions are the Primary Cause of the Economic and Financial Crises from which we suffer today.

Therefore, Deepcaster suggests below a Systemic Solution and a Strategy for profiting and protecting from the Interventional Regime’s actions and policies, and coping with its ‘End Game’ Strategy.

The Covert Interventional Context – Overview

Deepcaster is periodically asked to explain, and provide evidence for, our view that a U.S. Federal Reserve-led Cartel* (apparently composed of the U.S. Federal Reserve, Major Central Bankers and key Primary Dealers manipulates a wide variety of markets.  [Apparently one “Operational Vehicle” through which The Cartel works is called “The President’s Working Group on Financial Markets” established by Congress after the 1987 crash, and which is often informally and widely referred to as “The Plunge Protection Team” or PPT.]

Essential to maximizing profits and to avoiding losses is to recognize that the Fed-led Cartel (Note 1) manages two complementary Interventional Regimes – one quite public, and the other dark one, at least as powerful, covert.  (A glimpse into this covert was afforded via the Partial Audit mandated by the Dodd-Frank Bill.) Thus, a critical key to profit and loss is tracking the “Dark Interventionals” (which leave “Tracks” so to speak) as best one can, as well as the public ones.

Moreover, whether an Intervention is Overt or Covert is often a matter of degree.  Overt Intervention often has a Covert aspect (e.g. how was that TARP Bailout Money used and who received it?), and Covert ones are often difficult to detect, but nonetheless can often be tracked using publicly available information. Consider for example, the Graham Summers Quote above.

It is important to note also that by “Cartel Intervention” we do not (usually) mean that the Cartel totally controls prices in any particular market, at all times. Various markets are affected in varying degrees, at varying times, by Cartel manipulation attempts. 

In markets such as the (relatively) Small Cap markets for Gold and Silver Bullion and especially Mining Stocks, Cartel manipulation attempts can have much more impact and are, at times, and for certain time periods, tantamount to control. 

COVERT DIRECT INTERVENTION 

Covert Direct Intervention to manipulate a variety of markets appears to be accomplished primarily via four categories of vehicles:

1)   “Repo” Injections from The Fed (TOMO’s & POMO’s though POMO injections have become more widely reported recently) 

2)   Over The Counter (OTC) Derivatives (reported at www.bis.org, see above)

3)   “Bailout” monies and Authorizations which Congress unwisely gave the Fed without requiring full disclosure or Oversight and, in particular, the TARP and TSLF (Term Securities Lending Facility) injections by The Fed, QE1, QE2, QE3 and the ongoing QE4, and other Vehicles such as the Primary Dealer Credit Facility (PDCF)

4)   Debt Monetization and Credit Facilitation by The Fed and other Banks such as the ECB and its $1 Trillion Dec. 2011, February 2012 LTRO Operation.

[For fuller Explanation, see Deepcaster’s Article “PROFIT & PROTECTION FROM CARTEL INTERVENTION -- Including New Interventional Tools Description “ (12/23/09) in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com and for details regarding Cartel use of Repos, Derivatives, Bailout Monies and other Vehicles see the July, 2009 Letter.] 

The Challenge:  Determining the Impact of The Interventionals

The challenge for Investors and Forecasters is to determine where (i.e. in what Sector/s) and how (immediately, in increments, etc.) the Repo-backed funds and/or TARP/TSLF/Bailout/QE/LTRO Funds and/or OTC Derivatives (“Interventional Funds”) etc. will be employed.  Deepcaster and those very few others, who monitor the Interventional Funding (and related Cartel and Allies’ actions) to the extent that is feasible, make educated Forecasts of where and how such funds are likely to be used based on patterns, tendencies, and judgments virtually all of which can be gleaned or inferred from publically reported information.  But no outsider can know for sure. 

Those who doubt whether the Cartel has the capacity to manipulate the markets (and especially the larger markets like the multi-trillion dollar currency and bond markets) are invited to inform themselves about the U.S. Trillions plus of OTC Derivatives at Fed Primary Dealer J.P. Morgan Chase, or those at Fed Primary Dealer Goldman Sachs and Fed Primary Dealer Citibank.

Indeed both Opportunities for and Threats to Investors are generated by Cartel Policies and the Massive OTC Derivatives positions. Consider:

“With Key Mega-Financial Institutions around the World claiming in 2008 that they risked collapse if they were not bailed out, one must ask which ones benefited from the $15 Trillion plus Increase in Gross Market Value of their OTC Derivatives in the six months between June, 2008 and December, 2008 when the Equities Markets were crashing and Investors around the world were losing trillions? A logical Conclusion: Key Central Bankers and Favored Financial Institutions of The Fed-led Cartel*, quite possibly including the shareholders of the private for-profit U.S. Federal Reserve” (cf. BIS Table 19 cited above)” 

Deepcaster, May 29, 2009

For further details see our July, 2009, Letter, and 12/23/09 Article, Ibid.

INDIRECT MANIPULATION

Key Statistics continue to be gimmicked by Official Sources including especially the USA and China much to the detriment of American Citizens and Investors Worldwide. One result of this is that the extent to which Mega-Bank Policies result in the confiscation or devaluation of Investor Wealth, is hidden.

Investors and citizens-at-large are misled by Official Statistics which have been gimmicked, as shadowstats.com demonstrates.  All of the following Real Numbers for the USA are calculated by shadowstats.com, which calculates them according to traditional methods used in the 1980s, and early 1990s, before The Political Adjustments currently being utilized began in earnest.

As the Real Numbers mentioned below demonstrate, our ongoing economic and financial crisis is not merely a “normal” business cycle Recession, but a System-Threatening Crisis.  Indeed, we are on the Threshold of a Hyperinflationary Depression. (See below)

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

Annual U.S. Consumer Price Inflation reported April 16, 2013
1.47%     /     9.12% U.S. Unemployment reported April 5, 2013
7.6%     /     22.9%
U.S. GDP Annual Growth/Decline reported March 28, 2013
1.67%        /     -2.20%
U.S. M3 reported  April 14, 2013 (Month of March, Y.O.Y.)
No Official Report     /    4.26%

Knowing these Real Numbers facilitated Deepcaster’s and others Investment Recommendations and his making five short (and subsequently quite profitable) recommendations to subscribers at about that time.

To understand the motives and Goals for Fed and Cartel Policies and actions consider: 

A Brief Anatomy of the “U.S.” Federal Reserve

Indeed, the Profit Motive lies behind Fed Actions.  Even the most causal student of Economic History knows that the United States’ Federal Reserve system, or “The Fed” as it is called, is not a U.S. government owned or controlled entity.

Various international private banks, several of which are headquartered in Europe, own “shares” in the “United States” Fed. Moreover, this “United States” Fed leads a Cartel of Central and Private Banks* who collectively intervene in a wide variety of markets, as Deepcaster demonstrates here. All this is obviously quite financially incestuous.

These International Bankers, acting through their “U.S.” Fed, profit both by creating money out of “thin air” and by collecting “interest” from U.S. Taxpayers on the Treasury Securities it has bought with U.S. Dollars (Federal Reserve Notes) it has created out of thin air. The Dean of the Newsletter Writers, Richard Russell, eloquently describes all this:

“I still can’t get over the whole Federal Reserve racket…

“The damnable result is that the Fed effectively controls the U.S. money supply. The Fed is …not even a branch of the U.S. government. The Fed is not mentioned in the Constitution of the United States. No Constitutional amendment was ever created or voted on to accept the Fed. The Constitutionality of the Federal Reserve has never come before the Supreme Court. The Fed is a private bank that keeps the U.S. forever in debt - - or I should say in increasing debt along with ever rising interest payments.”

Richard Russell, “Richards Remarks,” dowtheoryletters.com, 3/27/2007

[Historical note:  recall that President John F. Kennedy was unhappy with Fed policy and therefore caused U.S. Notes to be printed by the U.S. Treasury as Constitutionally Authorized and as a substitute for Federal Reserve Notes.  The issuance of these U.S. Notes ceased shortly after President Kennedy's Assassination.]

The one conclusion that one can make from the foregoing is that the failure to take account of the power, force and pervasiveness of Fed-led Cartel Manipulations (i.e. The Interventionals) is an invitation to financial and investment disaster (see 12/23/09 Article, Ibid). 

The Interventional Regime – Motive, Causes and Consequences

Clearly, The Cartel has created a Financial System subject to ever-greater Systemic Risk.  Why?

Harry Schultz, the Eminence Grise of the Financial Newsletter writing fraternity, puts the question in this way when writing about the Financial Crisis –

“What is the reason for this seemingly random monetary mess that multiplies its momentum every day?  The answer, in one word, control.  The elite/insiders already have control of the financial system, but they wanted more, much more…and it was not random, it was planned.” (emphasis added) 

Harry Schultz, HSLetter

Since the cornerstone of The Cartel’s power lies in maintaining the legitimacy of their Fiat Currencies and Treasury Securities, the last thing they want is to have Gold, Silver and Tangible Assets held by investors to increasingly be seen as the Ultimate Stores and Measures of Value rather than their Fiat Currencies and Treasury Securities, in other words, as money. Thus they will continue attempts at Takedowns of Gold and Silver and other Hard Asset prices. 

Cautions for Investors and Traders Regarding Interventions     

We issue a word of caution to our readers.  So long as The Cartel is in a very active interventional mode (e.g. as in taking down the price of Gold and Silver periodically) one should not be lured into thinking that the periodic up spikes in the prices of Gold and Silver necessarily present a "breakout" or a buying opportunity.  As a practical matter, technical breakouts are sometimes a lure designed to suck in more "longs" prior to a subsequent deeper Takedown. Consider the parabolic spike up in both Gold and Silver prices in the hours before the December 13, 2012 Takedown began.

However, the Cartel’s ability to sustain Takedowns has been considerably weakened recently largely because of increasing demand for delivery of Physical Metal (as opposed to “paper” e.g. Certain ETF shares) – See Below.

“THE DIVERGENCE BETWEEN THE PAPER GOLD PRICE AND THE METAL GOLD PRICE IS GROWING, CURRENTLY AT ABOUT 40%. It means the Western Gold market is broken. My Jackass forecast for a price divergence has been repeated for almost three straight years, and it is here finally, having occurred. Notice the contradiction, with huge precious metal demand growth, followed by lower price, therefore a broken corrupted market. The Gold price is being pushed down, because the Bad Guys want to buy it from the Idiot Sheeple sellers.

“The signal for an ambush came over a week ago, when ABN Amro defaulted on gold delivery in the Netherlands. They and the rest of the Boyz had no gold bars in inventory. They need it desperately, but the price drop will not win them much gold. It will win them a force majeure from which they will attempt to wiggle out legally from a mountain of contracts. The coin demand is rising by 80% to 100% per year, again contradicting the fallen price. Look forward to the day when COMEX shuts down. The day will come. However and urgent warnings. When the COMEX shuts down, the event will occur at the same time as several big financial firms going bust. They will use the occasion to steal private citizen money in private accounts. If observers want the COMEX to be busted, then they must hope for a paper versus metal price divergence even larger, like 100%. Therefore, the Jackass is encouraged by the smashdown, and increasingly annoyed by the childlike whining within the gold community, which really does not comprehend the gold market at all. They fail to comprehend that the COMEX price is not the true valid defensible gold price which is governed by equilibrium between Supply & Demand.”

“Gold and Currency Report”, Jim Willie,

goldenjackass.com, 04/21/2013

Nonetheless, it is essential to study the Fundamentals and Technicals even though the Interventionals can temporarily override the Fundamentals and Technicals.  One must study the Fundamentals not only for all the usual reasons but also because Fundamentals somewhat constrain the timing and effectiveness of Interventions by The Cartel.

Similarly, one should study the Technicals for all the usual reasons and, in addition, because it is in The Cartel’s interest to make its actions seem technically plausible in order to continue to “run mainly under the radar.”  It is not in The Cartel’s interest to make its Interventions any more visible than they already are.  Indeed, there is powerful evidence that The Cartel often uses and/or helps create technical patterns (aka “Painting the Charts”) which lure certain investors (such as hard asset investors) into getting “off sides” before Cartel actions such as taking down the price of Gold or Silver.

Interest Rate Manipulation & The Bond Market

(See March, 2012 Update)

Specific Interventions

For a full discussion of the following Interventions and Tools, see Deepcaster’s July, 2008, December, 2008, July, 2009, December, 2009, July, 2010, December, 2011, and 2012  and 2013 Letters & Alerts posted in the ‘Letters’ & ‘Alerts’ Archive at deepcaster.com:

• The Spring 2006 Interventional Takedown
• The August through October, 2006 Interventions
• The August and September, 2007 Market Interventions
• The March 2008 Crisis-Induced Takedown of Gold & Silver
• A New Interventional Tool: Fed Intervention in the Equity Markets Via the Primary Dealer Credit Facility
• Equities Markets Boosting: March, 2009 – June, 2010
• QE 1, 2, & 3, Operation Twist, & LTRO Infusions 2011 & 2012
•  December, 2012 Takedown
• April, 2013 Takedown

Thus, the net-result of Fed/Treasury actions have been to increase long-term Systemic Risk, Hyperinflation Risk and consequent Taxpayer Liability rather than diminish it.

Increased Systemic Risk and “Earned” Liquidity versus “Borrowed” Liquidity (see Part 2)

Comment (0)

When I read the newswires each morning, I scour for trading opportunities; but the one thing that I have been noticing lately is the lack of moderate revenue growth among the reporting companies. I’m not saying that I would like to see revenues growing at 30%–40% or more, but even growth in the low double digits would suffice at this point, given the global stalling.

The market is all giddy about the first-quarter earnings season early on, but I really don’t understand why investors are that happy. I’m clearly not seeing the same things.

As of Monday, about 104 S&P 500 companies have reported during the earnings season, and their results have been in line with the previous quarters, in which about 67.3% beat earnings-per-share (EPS) estimates, according to Thomson Financial.

Again, the first-quarter earnings are encouraging—but not exactly something to get euphoric about.

What Others Are Reading : Financial Crisis 2013

The reality is that while two-thirds of the S&P 500 companies are beating estimates during the earnings season, the revenues side is another story—a story that I feel is being ignored by investors.

Companies are beating the earnings estimates assigned by Wall Street. In some cases, the earnings estimates are lower than previous estimates; in this regard, the companies are, in some cases, actually only meeting or beating reduced estimates during this earnings season.

Moreover, we are also seeing legitimate earnings manipulation by companies that want to please Wall Street and investors. This is not illegal and can often return business intelligence (BI) for shareholders.

By pursuing aggressive cost cutting and containment, companies can reduce the cost side and present a much better earnings picture, even if revenues were lackluster. This is what Wall Street and investors want to see. So, never mind the revenues side.

Xerox Corporation (NYSE/XRX) marginally beat on earnings in its first-quarter earnings season, but its revenue growth of a mere three percent was on the light side and failed to meet Thomson Financial estimates.

McDonalds Corporation (NYSE/MCD) saw its revenue expand by one percent, while earnings were in line. Same-store sales fell one percent worldwide—don’t tell me everything is OK in this earnings season.

Then there’s also International Business Machines Corporation (NYSE/IBM), whose revenues fell five percent in the first-quarter earnings season, with the company looking for answers to its hardware business.

General Electric Company (NYSE/GE) also fell short on its revenues in its first-quarter earnings season—down sequentially and year-over-year.

Caterpillar Inc. (NYSE/CAT) reported weak results, with revenues declining 17% year-over-year in the first quarter. Worse yet, the company also made a downward revision in its 2013 revenues guidance.

“What’s happening in our business and in the economy overall is a mixed picture. Conditions in the world economy seem relatively stable, and we continue to expect slow growth in 2013,” said Caterpillar’s CEO Doug Oberhelman in the company’s press release. (Source: “Caterpillar Reports First-Quarter Results, Revises Outlook and Announces Resumption of Stock Repurchase,” Yahoo! Finance web site, April 22, 2013.)

This last comment sums it up, but unfortunately, the stock market may be ignoring the red flags. My advice: take some money off the table!

Read More : Accounting Usually Creates a Decent Earnings Season—But Not This Year

Comment (0)

With the stock market at all-time highs, the momentum has been built on the belief that an economic recovery is close at hand and the world will avoid a global recession. However, new data show that perhaps this belief might be too optimistic.

Markit Economics has just released the Purchasing Managers’ Indexes (PMIs) for many nations and economic zones around the world. Frankly, the data are quite bleak, showing that an economic recovery is certainly not occurring anytime soon, and that a global recession is becoming a distinct possibility.

For April, the U.S. Flash Manufacturing PMI (early reading) came in at 52, versus expectations of 53.8, and last month’s data point of 54.6. Just a reminder: a PMI number above 50 is a sign of growth; below 50 is a sign of contraction. (Source: “Markit Flash U.S. Manufacturing PMI,” Markit Economics web site, April 23, 2013.)

While the U.S. manufacturing PMI data still show expansion, the decline was significant, as was the degree by which it missed expectations. This April PMI reading for the U.S. was the lowest in six months, and is an indication that the economic recovery in the manufacturing sector is starting to slow.

The PMI composite for the entire eurozone was a very poor 46.5 in April, down slightly from expectations of 46.8. While the reading was unchanged from March, it is worrisome that there were no improvements at all. There is no current economic recovery in Europe; in fact, this reading indicates that economic activity has declined for 19 of the last 20 months.

Is a global recession very far away? Obviously, predicting the future is impossible. What we can do is look for trends. Many people already know that the economic recovery in the southern European nations has been poor. Yet many investors had been hoping that Germany would be able to kick-start an economic recovery.

Unfortunately, Germany’s manufacturing PMI came in at 47.9 in April, down from 49 in March, and below expectations of a reading of 49. This reading marks the first reduction in manufacturing activity for Germany in 2013.

It appears that the weakness internationally is now affecting relatively stable countries, such as Germany and the U.S.

The HSBC Flash Manufacturing PMI for China came in at 50.5, down from 51.6 in March, missing expectations of 51.4. This reading shows that the economic recovery within the Chinese economy is also faltering.

A global recession occurs when most of the major nations are declining in economic output. The current trend, as we’ve just seen from the manufacturing data provided by Markit Economics, is that there appears to be no strong economic recovery occurring at this point, which raises the possibility of a global recession.

What this means for American stock investors is that many sectors that were hoping to benefit from an economic recovery might see significant price declines. Commodities are already suffering from the lack of an economic recovery—for example, copper prices continue to sell off.

I would be quite cautious with any stocks that are economically sensitive. A global recession will mean a lack of ability to increase revenues. As we wait for further data to see if a global recession will ensue, much like any major sell-off, this period will provide excellent buying opportunities. This means that raising cash during this current uncertain environment is a prudent strategy.

Additionally, there are companies that offer the ability to differentiate their products through innovation, while paying an attractive dividend yield. One company that has already priced in weakness in its sector is Intel Corporation (NASDAQ/INTC).

Frankly, investors have already priced in a global recession when it comes to personal computer (PC) sales. At this point, I believe the discount is already factored in, yet the company is already developing new technology for the mobile phone sector.

If Intel is able to gain any traction in the mobile phone sector, this could be a strong generator of revenues, even if there is no economic recovery. Regardless of a global recession, people and companies still need technology to function in this day and age, and at some point after a stock is beaten down, it becomes a value proposition.

Plus, Intel issues a strong four-percent dividend yield, which is very attractive when compared to a 10-year U.S. Treasury at less than 1.8%. With the possibility of deflation becoming more imminent, as commodity prices drop and both the Producer Price Index (PPI) and the U.S. Consumer Price Index (CPI) are below optimal levels, such a strong dividend yield over the next decade will help cushion weakness until an economic recovery finally takes hold.

Read More : More Signs of Economic Weakness: Where to Place Your Money

Comment (0)

One of the most worrying signs from the latest batch of economic data is that the global recession might be reappearing. Central banks around the world have been attempting to fuel their economies through massive stimulus, yet these efforts appear to be failing.

Increasingly, the earnings outlook for a number of companies continues to be quite poor for the remainder of the year. This is giving me pause for thought, because these poor outlooks raise the chances that another global recession will occur.

Last week’s data from the Conference Board Leading Economic Index for the U.S. indicated a drop in March. This was the first drop in seven months—certainly a negative move away from the chance of averting another global recession.

More importantly, the Conference Board’s outlook for the next three to six months dropped 0.1% in March, below the median forecast by a survey conducted by Bloomberg. (Source: Smialek, J., et al., “Leading Index’s Drop Points to Slower U.S. Growth: Economy,” Bloomberg, April 18, 2013.)

Manufacturing also declined, as indicated by the Federal Reserve Bank of Philadelphia reporting that its factory index dropped to 1.3 in April from 2.0 in March. (Source: “March’s Coincident Indexes Show Increased Economic Activity in 47 States,” Federal Reserve Bank of Philadelphia web site, last accessed April 23, 2013.) This was a significant reversal from the median forecast, in which expectations were for the index to rise to 3.0.

How does this affect the earnings outlook for corporations? Many companies have been expecting that the global recession could be averted, as each company’s revenue and earnings outlook last fall was fairly positive for 2013. It now appears that the earnings outlook for many companies is being downgraded significantly because economic weakness is still prevalent.

One example is Caterpillar Inc. (NYSE/CAT), which disappointed in its first-quarter earnings and lowered its earnings outlook for 2013. Caterpillar announced an earnings outlook for fiscal 2013 of approximately $7.00 per share, in the lower part of the range of previous estimates of $7.00–$9.00 announced just this past January. (Source: “Caterpillar Reports First-Quarter Results, Revises Outlook and Announces Resumption of Stock Repurchase,” Caterpillar Inc. web site, April 22, 2013.)

Caterpillar has also lowered its sales guidance for the duration of 2013 to the range of $57.0–$61.0 billion, down from $60.0–$68.0 billion. One reason for the decrease in its revenue and earnings outlook is that the global recession is weighing heavily on mining stocks. Mining companies are incurring huge cost increases as commodity prices drop precipitously—a bad combination and one that will most likely result in additional decreases to the earnings outlook for those firms in 2013.

The drop in the price of many commodities is causing mining stocks to retrench and cut costs, including those for expansion plans. This is hurting companies, such as Caterpillar, that had been hoping the global recession could be averted and commodity prices could gain pricing strength.

Caterpillar’s 10-year stock chart is featured below:

Chart courtesy of www.StockCharts.com

This 10-year chart shows that while the stock has recently retrenched, it could still drop significantly lower if the global recession worsens. While the firm’s earnings outlook has decreased substantially, if the global recession were to accelerate in its decline, we could see a drastic drop in the share price for Caterpillar and many other companies that rely on economic growth.

At this point, I would certainly urge caution for investors in companies such as Caterpillar. Until we see evidence that the global recession will be averted, the earnings outlook for many commodity-related companies could continue to be revised downward. It appears we are at a crucial crossroad, and from here I would need to see further data showing that the global recession will be avoided before considering accumulating economically sensitive stocks. Until that point, a company such as Caterpillar could see additional selling pressure for much of this year.

Comment (0)

Consistent jobs growth remains an issue here in the U.S.

We also know that the lack of jobs is a worldwide problem that is only made worse by the world’s growing population and the stalling global economy.

The reasoning behind this worldwide jobs problem is simple.

What Others Are Reading : 2013 US Financial Crisis

Jobs are created when the economy expands, which drives the need for more workers. Of course, modern technology, industrial efficiencies, and the increased use of robots all combine to pressure jobs growth, and I expect this pressure to continue.

Just take a look at China. In that country’s vast manufacturing landscape, the key driver is the masses of unskilled workers who are required to toil at their workstations for 12 hours or more each day.

China’s companies can make use of robotics to help in many of the assembly areas, but it seems that these companies use human labor instead—perhaps because creating jobs for the masses is a goal of communist China.

According to the International Monetary Fund (IMF), China’s unemployment rate has managed to hold pretty steady at just over four percent since 2003. In 2012, the unemployment rate was 4.1%, the same as in 2010 and 2011, and the estimate for 2013. (Source: “China: Unemployment rate from 2003 to 2013,” Statista web site, last accessed April 23, 2013.)

But in the more industrialized countries, like the United States and countries in Europe, there has been a move toward modern industrial techniques and the use of robotics.

And while America struggles to create jobs growth, the situation is extremely dismal in Europe.

As I commented in these pages a few weeks back, the jobs growth situation in Europe is horrible, with the official unemployment rate hovering at well over 20% in many countries (and the unofficial rate likely sitting much higher).

Greece is a mess, with hordes of jobless workers, and it will likely get worse, given the country’s austerity program.

Spain had an unemployment rate of more than 26% at the end of 2012. The Spanish youth have it really bad, with the unemployment rate for 16- to 24-year-olds at a staggering 55%. (Source: Global Post, “Spain’s unemployment rate hits record 5 million in February,” VOXXI, March 4, 2013, last accessed April 23, 2013.)

The problem is that without strong economic renewal, which we have yet to see, jobs growth will continue to be problematic in many of the world’s industrial regions.

The IMF acknowledges the problem of jobs growth. In its discussion at the 2013 Spring Meetings, the IMF stressed the need to drive economic growth and jobs. (Source: “IMF Outlines Steps to Energize Global Recovery,” International Monetary Fund web site, April 20, 2103.)

So, when you hear about the global recovery, especially in reference to the eurozone and Europe, take a look at the jobs growth, and you will realize there are still major problems to be resolved.

Don’t simply jump back into European investments thinking the worst is over, because it is not—the lack of jobs growth globally indicates the worst is still with us.

Read More : Global Economy Still at Risk, Just Look at the Jobs Picture

Comment (0)

Apple Inc. (NASDAQ/AAPL) finally broke below $400.00 last Thursday, an occurrence that I recently discussed in Investment Contrarians. As I said, the short term will generate volatility for the stock, but I continue to believe there is still hope the company can turn around going forward.

The problem with a momentum company like Apple is that with its rapid rise in share price to over $700.00, there’s immense risk for investor mistakes to occur if the company does not consistently deliver. And I’m not talking about delivering just average results; momentum companies such as Apple have to deliver exceptional results to the market and please investors.

What Others Are Reading : Next Financial Crisis

In the case of Apple, soft growth over the last several quarters has proved devastating to the stock and can cause investor mistakes.

After beating Thomson Financial earnings-per-share (EPS) estimates by 22.5% in the fiscal 2012 second quarter, Apple came back and offered up three straight dismal quarters in which the company fell short on earnings in two of the three quarters and barely beat in the most recent. Ignoring these falls inevitably led to investor mistakes, as demonstrated by the share price.

The same is said for the overall stock market. Traders gave investors strong gains in the first quarter, but that has not been the case in April, as global growth concerns are surfacing. The aftermath has been selling pressure and the greater likelihood of more selling down the road.

The two cases of Apple and the overall stock market demonstrate the need to be careful with momentum stocks to avoid potential investor mistakes.

The reality is that once the market euphoria fades, the risk of a sell-off increases, which leads to investor mistakes and major losses. This is why I have been suggesting that you take profits as the market edges higher. The sustainability of the gains was clearly an issue, in my view.

Another big momentum stock that may be vulnerable to some selling is Internet bellwether Google Inc. (NASDAQ/GOOG). The stock is off from its high but still trades at nearly $800.00. Google is one bad report away from a sell-off and, given the current price, it wouldn’t be pretty. Just take a look back at Apple.

In the case of Google, while revenues are estimated to rise 40.2% in 2013, according to Thomson Financial, 2014 is predicted to see Google grow its revenues by a mere 15.6%. While the growth is still decent, the market will want to see more, and this could lead to investor mistakes.

Google, in fact, has seen its earnings’ surprises fall. In the first quarter of 2012, the company beat the Thomson Financial consensus EPS by a mere 4.5%, followed by 0.8% in the second quarter, and an earnings shortfall of 15.2% in the third-quarter earnings season. The fourth quarter saw a marginal rebound in earnings growth but, at 1.36%, it was not earth-shattering and could lead to investor mistakes down the road.

Another major momentum play that you need to be cautious about is priceline.com Incorporated (NASDAQ/PCLN).

With this slowing, you need to be careful when looking at momentum plays—whether it’s a stock, a commodity, or an index—in order to minimize investor mistakes.

On the other side of the ledger, an intriguing momentum play is Netflix, Inc. (NASDAQ/NFLX), which has beaten the Thomson Financial consensus EPS by an average of 154% over the last four quarters, which is exceptional and supports the stock’s surging price. But again, signs of slowing will likely crush the stock and result in investor mistakes.

Read more  : Momentum Is Great—If You Are on the Right End

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