It’s always a pleasant surprise to find yourself in good company. As loyal readers already know, here at Notes HQ we’re not exactly part of the “in crowd.” Whether we’re writing about the trillion dollar deficits, banks’ phony earnings, government bamboozles or the sucker’s rally in stocks, you’re unlikely to find the official spin in our daily missives.

Generally, we like it like that. It makes us feel special. Instead of pulling up our knee socks and getting out our pompoms along with the mainstream media hacks, we remain ever sceptical about tales of recovery… of so-called “green shoots”… and, above all, of Washington’s empty promises and various boondoggles.

But once in a while, it’s nice to know you have friends… that people far smarter than you share the same opinions as you do.

So it was with much delight that we opened up the latest King Report from honorary underground investor Bill King – a Wall Street veteran of 30 years.

King, an analyst with M Ramsey King Securities, Inc, understands something we hold as a central tenet here at Notes: the inside world of Wall Street is far different that what is disseminated to the masses.

So how does King view the “green shoots” recovery and the recent rally in stocks? Well, some points will be familiar to Notes faithful. King says that:

1. “Green shoots” are just another Bernanke equivocation and Street yearning
2. “Insider” banks have fleeced patsies for necessary capital
3. The dollar, bonds and commodities keep checking the Fed across the big game board. And in order to avoid being checkmated, the Fed has been forced to sacrifice stocks
4. The current “second derivative” rally, which is the latest permabull/Street shill euphemism for “dead cat bounce,” is occurring on very poor technicals. As we pointed out yesterday, volume is contracting, which is contrary to the start of any bull market. And leadership is by the misfits, which is never good.

But King also brings a lot of new insider intelligence to the table. And, boy is he suspicious of the “green shoots”/V-shaped recovery story being churned out by the mainstream media.

King points out that the Prince of Darkness himself, Goldman Sachs boss Lloyd Blankfein, recently stated that this is not a recovery, that the recession will be “long and protracted” and that any recovery would be “shallow.”

As we’ve noted on numerous occasions, Blankfein is the insider’s insider – he certainly has the ear of Treasury Secretary Geithner and former Goldman alumnus Larry Summers, President Obama’s chief economic advisor.

What really caught our eye, however, was King’s assertion that the “deflation trade is back in vogue.” Short term, this means stocks and commodities should fall and bonds and the dollar should rally.

As we said before, the Fed can’t afford to let long-term bond yields to rise too much: this trend, if were it to continue, would push up mortgage rates and kill off even the remotest possibility of a housing market recovery. And with 30-year bond yields pushing 4% yields, it was clear that something had to give.

The problem for the Fed is that massive budget deficits mean a massive increase in supply of Treasurys and the threat of higher yields. And this puts further pressure on the Fed to monetize the debt by buying back bonds. As King puts it:

Although an expansion of Treasury bond purchases by the Fed would have the benefit of lowering long-term interest rates temporarily to stimulate the economy, in the current environment it could be dangerous for two reasons. First, it might suggest that the Fed is willing to monetize Treasury debt. The Fed does not, and should not, want to make it easy for the Treasury to sell its debt and thereby be an enabler of fiscal irresponsibility. Second, if the Fed loses its credibility to resist pressures to monetize the debt it could cause inflation expectations to shift upward… leading to a serious problem down the road.

The Fed, dear reader, is boxed in. If it doesn’t step in to monetize the debt (by buying bonds from the Treasury with freshly printed dollars) the excess of supply over demand in the US Treasury markets will push up yields… and therefore borrowing costs across the entire economy.

If it decides to monetize the debt, it will push up inflation expectations (the more money in the system the higher the likelihood that this will translate into higher inflation rates) – and yields will rise anyway.

The only real solution would be for Congress and the Obama administration to lower federal spending – and as this has a snowball’s chance in Hell of happening. Team Obama is on a spending binge that makes a recently dumped Valley Girl armed with her daddy’s platinum card look thrifty.

We’re sticking to our script – deflation now, (hyper)inflation later. There is simply too much pressure on the US economy to give the authorities – who are largely responsible for the current mess in the first place – room to wriggle.

Of course, the big market movements will happen on the back of the Fed’s upcoming (at the time of writing) policy decision today.

We note with interest that the Dow has risen by an average of 2.5% on each of the past four Fed decision days. Three of those four rallies were followed by sharp declines that erased the gains.

This should speak volumes to those of you who still think we have a free market.

This is important. Because investors who fail to grasp the government’s role in the market will sooner or later get seriously burnt. None of us live – or invest – in a vacuum. So the question is: how much do macroeconomic conditions determine the reward you earn from your efforts?

According to crisis investor James Dale Davidson, macro conditions determine more than you think. In the upcoming issue of James’s investment research service, Crisis Strategy Alert, he hones in on the implications of America’s ballooning unfunded liabilities – and what this means for your financial future.

James’s message is simple: get out now while you still can.

Clearly, US politicians were thinking ahead when they established the peculiar system of taxation that made income taxable by citizenship rather than residence. If the US taxed as almost every other country does, by domicile, the airports and ports would be crowded with people heading for the exits.Even so, I still think there may be a strong argument for getting out. Unless you are convinced that the fiscal and monetary framework, the tax regime and the prospect of monetary disruption are almost completely irrelevant to your prospect of success, you have to recognize that the United States faces dire straits in the years to come. Weimer Republic, the sequel, is almost a best case scenario.

The primary Social Security deficit has already kicked in. Already, less money is being taken in through payroll taxes than is being paid out to retirees. The forecast that the Trust Fund will be depleted in 2016 counts accrued “interest” owed by the Treasury to the Social Security account. This is a noble fiction, much like borrowing money from your left trouser pocket, placing it in your right pocket, and promising to pay interest to your left pocket on the money you proceed to spend.

Equally, almost $90 trillion of the unfunded entitlement debt is owed for medical entitlements to retirees. It is far from obvious that hyperinflation would obliterate these obligations, rather than raising them to a higher nominal value.

The real issue facing the US economy is that it is being bankrupt by the accumulation of social costs. In almost every field, costs in the US have hypertrophied – largely, I believe, as a negative consequence of long-term US stability.

James’s views are not for the fainthearted. And the recommendations in each monthly issue of Crisis Strategy Alert are nothing if not unconventional.

But if you’re interested in learning about profitable alternatives to the status quo and you want to make money from the continuing economic collapse, James’s investment research and macro reports are exactly what you’re looking for.

To take a 60-day risk-free trial of Crisis Strategy Alert, simply click here.