Systemic Meltdown Risks & Devilish Derivatives
Deepcaster

The risk of Systemic Meltdown continues to increase.

The Total Value of all Derivatives Outstanding now exceeds One Quadrillion U.S. Dollars, nearly a doubling since the last BIS report.

The value of listed Derivatives is now about $548 Trillion and OTC (Dark Liquidity) Derivatives is $596 Trillion, as of December 2007, for a total Notional Value of over $1000 Trillion.

Remember that Derivatives Markdowns and Failures are at the core of several ongoing financial crises, including the Credit Market Freeze-Up and Mortgage Crises.

If any major counterparty/ies to these Derivatives contracts fails, that could bring the entire "Paper Domino" Derivatives Edifice (and thus the entire Financial System) crashing down as well.

Thus, whatever funds (taxpayer guaranteed or provided, ultimately, of course) are necessary to rescue major financial institutions at risk for failure will be provided by Central Banks.  Since Derivatives Markdowns or Defaults are increasing dramatically, this entails Central Banks providing a veritable flood of paper money, a flood which has already begun.  And this dramatic Monetary Inflation necessarily entails increasing Price Inflation (i.e. Hyperinflation), an indirect "tax on taxpayers.

Now, with this sobering background, consider what we learn from recent events about the Ongoing Trends and how to Protect and Profit from them.

Crude Oil - A Canary in the Oil Fields

Crude Oil's $10 spike on June 6, 2008, was catalyzed by increased (but bogus) Official Unemployment Numbers (as we pointed out, the Real Numbers are much worse) as well as a comment by a high Israeli Official that an attack on Iran was inevitable, as well as short covering.  That is exactly the kind of "perfect storm" of events which not merely resulted in the highest ever 1-day Crude price increase, but more important, demonstrated (again, as did the August/September 2007 Credit Market Freeze-ups and the March, 2008 demise of Bear Stearns) the increasing fragility of the economy and financial system.

Moreover, consider key ominous signs "beneath" the headlines.  First, to a large extent, the past year's massive Crude Oil price rise is symptomatic of a dramatic weakening of the U.S. Dollar in that period.  A much weaker Dollar purchases less oil; therefore the price of oil in U.S. Dollars goes ever higher.

Even more ominous, that spike may have meant that The Cartel* is starting to lose control of its oil price rigging capacities.  It is clear that The Cartel has available to it for price manipulation nearly $9 trillion in OTC Derivatives devoted to Commodities (as of December, 2007) according to the BIS (the Central Bankers Bank, www.bis.org, path:  Statistics>Derivatives>Table 19 and ff.).

*We encourage those who doubt the scope and power of Intervention by a Fed-led Cartel of Central Bankers and Allies to read 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.

Indeed, the recent Congressional testimony of Michael Greenberger, former Commodities Trading Commission Official, that two major investment banks manipulated the price of Crude buttresses other substantial evidence that The Cartel controls the Crude Oil price via these Investment Bank Agents.

Recently there were indications that The Cartel had started to move the price of Crude down, and indeed it had started to move down to the low $120s.  And yet the market spiked up for the reasons we mentioned above.  Bottom line:  The Cartel's Market Intervention Regime may be starting to intermittently lose control.

The Silver Market Crisis

In addition, the Silver Market has been flashing an increasing number of Early Warning Signals notwithstanding The Cartel's Price Rigging which is quite blatant in that market.

The Cartel's price suppression of Silver (and Gold) is becoming ever more difficult to effect.  While The Cartel has kept Silver prices in the major markets dampened down (in the $16-18 range in early June, down from about $22 a few weeks earlier) and has managed to do this in the face of dramatically negative news from both the economy and financial markets, actual Physical Silver is increasingly harder to obtain.

The most recent Silver Shoe to drop is the June 6, 2008 memorandum from the U.S. Mint to all authorized Silver American Eagle dealers (only 13 in the United States) indicating that shipments of actual Silver blanks from its vendors will be significantly reduced and therefore "the United States Mint will continue allocating American Eagle Silver Bullion Coins per the process initiated April 21, 2008." 

And investors wishing to purchase Bullion Bars typically have to wait many weeks.

In conclusion, while the Paper Silver market continues to manifest the effects of The Cartel's ongoing and massive price suppression, the Real Physical Silver market is getting tighter and tighter.  This presents a serious challenge for The Cartel Manipulators.  But it ultimately can be quite profitable for investors in certain forms of Physical Silver who also actually take possession of it.

Equities on The Edge

Regarding increasing Systemic Risk in the Equities Markets, consider that the very volatile market action of June 5, 2008, with the Dow up 200 points, and June 6^th, with the Dow down almost 400 points provides evidence the Equities Markets are more and more difficult to control.

A key item of evidence is that one of The Cartel's major manipulation tools, the Repo Pool has increased fivefold in just five years.

With its massive Repo Pool injections (recently at record high levels to keep the Equities Markets artificially elevated) the pressure increases on The Cartel to allow the markets to move ever lower.  This provides a profit opportunity for those who know how to nimbly short-sell or purchase puts. 

In sum, the evidence of the Financial and Market Reality, namely that we are moving into a deepening Hyperinflationary Recession, becomes more and more apparent.  Even though Friday, June 6^th was a serious down day, there is evidence The Cartel bought the market hard to prevent it from entirely collapsing that day.

Stunning Statistics

Indeed, key statistics confirm this stagflationary reality:  Annualized Real GDP Growth is about a negative 2%; M3 Growth about 16%, Real Unemployment about 13%, and Real Consumer Price Inflation about 11.8%, all according to the credible calculations of shadowstats.com.

The Main Cause of Financial and Economic Woes

As background for our considering how to protect and profit, it is important to understand The Main Cause of today's market and economic woes:

• The Fed's massive and irresponsible providing of easy credit, accelerating after the Y2K Crash.  That is to say, encouraging reliance mainly on providing excessive borrowed liquidity rather than encouraging earned liquidity.
• The Fed's irresponsible accelerating printing of U.S. Dollars (with M3 increasing at 16% annualized according to shadowstats.com) far in excess of GDP growth has made it ever more likely that a deepening Hyperinflationary Recession or Depression is highly likely, if not inevitable. The Fed-led Cartel's Massive and Ongoing Intervention in the Major Markets creates dangerous and growing "bubbles" and other unsustainable imbalances.
• The Fed-led Cartel's permitting, and even encouraging, massive and still-increasing Derivatives "Bubbles" creation.  

Furthermore, much higher Crude prices mean that increased energy costs will slow economies world wide, pushing them into a Deepening Recession.

A Bond Booby Trap

A more Ominous Development in the United States that is not getting the publicity it deserves is the downgrade of Bond Insurers MBIA and Ambac by two notches to AA.  We have extensively detailed the very serious consequences of this downgrade to States and Municipalities in our recent Letters and Alerts.

The bottom line is that this Bond Insurer Downgrade dramatically magnifies the momentum toward a Hyperinflationary Depression since the stimulus provided by massive public works projects financed by various state and local governments will simply be greatly diminished, because those projects will be much more difficult to finance.

The Cartel's Ominous "End Game"

Frankly, all the foregoing not only increases the momentum toward a deepening Hyperinflationary Recession, but also increases the odds of a Cartel attempt to implement its Ominous "End Game," which Deepcaster has clarified in several articles.  That that multi-faceted "End Game" will not work to benefit either investors or citizens around the world is clear from the manifold evidence.

A key aspect of The Cartel plan (when the U.S. Dollar is "allowed" to irretrievably sink) is to replace the Dollar with the Amero which, doubtless, The Cartel plans to control as well.  Of course, this plan entails the ongoing suppression of Gold and Silver prices.

The details of this nefarious plan can be found in Deepcaster's Alert of 8/13/06 "Massive Financial-Geopolitical Scheme Not Reported by Big Media." 

Fortunately, even some members of Congress have awakened to this threat and have introduced a Resolution to stop The Cartel's "End Game" Plan (H.Res. 40, Goode, R-VA).

Actions for Protection and Profit

The foregoing demonstrates that investor actions to provide protection and profit should be accelerated. 

Buy selected "Inflation Assets."  That is, those that are likely to at least mimic, if not exceed, Monetary Price Inflation in value.  Foremost among these are selected opportunities in the agricultural sector.

Reduce debt.  Income with which to pay down debt will become harder and harder to obtain as the current de-leveraging, reduced corporate earnings, and slowing economic growth continue.

Buy the Ultimate Safe Haven Assets - Gold and Silver - in the appropriate form at the right time (i.e. at interim bottoms of Cartel-generated Takedowns).

Avoid the Financial and Consumer Sectors which rely for their health on consumer spending (e.g. retail) or consumers paying down debt (e.g. financial).

Work to become more Self-Reliant in one's living circumstances.

Systemic Meltdown will likely not occur this week, this month, or even this year (though it is possible).  But, unless very real Trends-in-Being are reversed (a daunting challenge), a Systemic Meltdown is likely in the next three or four years.

Deepcaster

June 13, 2008

www.deepcaster.com