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(Part 1)
Key Sector Bubbles Bursting and Mega-Moves Up in others are our forecast for 2018 and we expect the Bursting and one Mega-Spike UP to begin very soon. (See our latest Alerts and Letters for our Specific Forecasts and Buy Recommendations).
The election of Donald Trump as President and then the December, 2017 passage of the Tax Reform Bill jacked up Market Sentiment to Bullish and then more Bullish and U.S. Equities Markets roared to record highs throughout 2017 and into 2018.
Now what? Now what are investors to do to Maximize Real Gains, and avoid losses, in 2018?
Consider:
Recent moves in The Bond Market and the $US Now reflect what we have been forecasting, that Inflation is coming. Thus, Bond prices and the $US have begun to tank as we forecast, mainly because Sovereigns, Businesses and Consumers are all too overleveraged.
And too overleveraged mainly because The Private, For-Profit Fed and other Major Central banks have kept Rates too low for too long and thereby artificially elevated Equities and other Financial Assets.
But the oncoming Inflation is likely to reverse this process by diminishing the price of Financial Assets and increasing the Prices of Real Assets, e.g., Commodities, including Gold and Silver (and in spite of Cartel [see Note 1] Price Suppression efforts). See our Recent Buy Recommendations aimed at profiting from these developments.
Short-term, the Specter of Increasing Real Inflation (from, e.g., more deficit spending to "fund" the prospective U.S. Tax cuts) plus China's reported aim of Decreasing U.S. Treasury purchases recently caused U.S. 10 Year Bond Yields to rise up to bounce around 2.6%ish and eventually will rise more as inflation becomes more apparent.
Couple that likelihood with the IMF's Serious Warning last April that over 20% of U.S. Corporations are at risk of Default if Rates Rise even Modestly (because they are over-leveraged), and you see why Soc. Gen has predicted "This doesn't end well." Deepcaster agrees that this world-wide overleveraging (facilitated by The Fed and other Central Banks) is perhaps the Greatest Threat to the Economy and Markets and will soon Crash the Credit Markets as Inflation intensifies.
The Bond Market simply does not "believe" the "Recovering Economy" Narrative and neither does Deepcaster. For example, the apparently recovering Eurozone economy is like the U.S. and Japanese Economies, inflated mainly because of Money Printing (i.e., QE) by their Central Banks.
Thus, we expect Yields will continue their rising trends (because of Real Inflation) to be interrupted intermittently by one or more Equities Crash Legs because inter alia, "interest coverage for the smallest 50% of companies is near record lows" (SocGen). Indeed!
Stagflation here we come, as we have warned.
The "Stag" Aspect of Stagflation results from the Economy which is NOT recovering (Shadowstats.com Summary and see Note 2 below)
"Economy Remains in Deepening Trouble and is Not at Full Employment"
"Weaker-Than-Consensus 148,000 Payroll Gain Was Boosted by Downside Revisions,
Low-Level Annual Payroll Growth Continued to Signal a New Recession
"December 2017 Unemployment Rates Were Mixed Month-to-Month:
U.3 Eased to 4.07% from 4.12%, U.6 Rose to 8.08% from 7.99% and the
ShadowStats-Alternate Held at 21.7%: No Full Employment
"Monthly Trade Deficit Topped $50 Billion for First Time in Five Years, with
Fourth-Quarter 2017 Real Merchandise Trade Deficit on Solid Track for
Worst Showing Since First-Quarter 2007
"Despite a November Gain on Top of Upside Revisions, Real Construction Spending
Continued in Annual Decline, as Last Seen During the 2006 Housing Collapse,
Still Shy of Recovering Its Pre-Recession Peak by 21.4% (-21.4%)"
Commentary Number 930-B, Shadowstats.com, January 8, 2018
As indicated above, of the several Triggers for a Credit Market and/or Equities Crash out there, THE BIG TRIGGER is coming soon is when the U.S. Congress and Investing Public fully realize The Tax Reform Plan is NOT Revenue Neutral and that the U.S. Government will have to go deeper into Debt. ($1.7 Trillion deeper according to the C.B.O.)
As well, The Great Credit Default Crisis (which we earlier described in detail) is beginning NOW (albeit in early days), just not widely acknowledged, yet, except now by SocGen. [of course the opposition in the U.S. will blame this on President Trump.]
Consider, the Bubble Character of the International Economy is reflected in the Balance Sheets of the Big 3 The Fed, European Central Bank and Bank of Japan, all have $4 Trillion plus Balance Sheets impossible to substantially unwind without Crashing the Economy. And businesses and individuals are carrying record levels of Debt. Collectively, all the aforementioned Debts are The unavoidable Big Kahuna.
Central Banks' Assets are now 40% of World GDP.
Also dangerous is the U.S. Sovereign ($20 Trillion plus) and Business Debt Bubble Debts that can never be fully repaid without devaluing the Currency and the recent drop in the USDX to 91ish is signaling this.
And another Major Drag on the U.S. Economy is the $330 Billion per year that the annual LEGAL Immigrant Inflow of 1.5+ Million Immigrants cost U.S. Taxpayers NET (after subtracting Taxes Immigrants pay). See noted Economist (of shadowstats.com) John Williams's study posted at CarryingCapacity.org which sponsored it and which has a Solution.
And consider other Bubbles, China's housing and Wealth Management Bubbles are The Biggest Ones, but not the only Dangerous Ones.
Yes, the $US is headed for a Crash below 90 basis USDX in the next very few months if not sooner, and eventually the Chinese Yuan too, but not so much ultimately because it is increasingly backed by Physical Gold, and thus has already become part of the World Reserve Currency Basket is important.
Those who are aware of the aforementioned facts and trends are well-prepared to Profit and Protect in 2018.
Best regards,
Deepcaster January 19, 2018
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: Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported January 12, 20182.11% / 9.85%
U.S. Unemployment reported January 5, 20184.09% / 21.7%
U.S. GDP Annual Growth/Decline reported December 21, 20172.30% / -1.78%
U.S. M3 reported January 4, 2018 (Month of December, Y.O.Y.)No Official Report / 4.77%(e) (i.e., total M3 Now at $18.496 Trillion!)