Tuesday, March 9, 2010

WTF Is This All About? Senior SEC Policy Adviser Warns on Gold

File this under Bizarre.

I have never before seen an SEC employee comment about investments. Senior SEC Policy Adviser Rick Bookstaber is not only commenting on an investment--gold--but he is calling the gold price a bubble. He goes even further and suggests that George Soros and John Paulson are painting the tape to suck in individual investors. WTF?

Bookstaber writes on his blog:
This represents my personal opinion, not the views of the SEC or its staff.

I am not going to spend time here talking about how the price of gold is off-the-wall, that it is not just a bubble in the making, but a bubble waiting to burst. I don’t want to waste your time on that point.We all know it is a bubble.

George Soros has said “The ultimate asset bubble is gold”. Many of the top asset managers, such as Tudor and Paulson, are piling on; Paul Tudor Jones recently said gold “has its time and place, and now is that time.” The banks are echoing this view with their research. Goldman has a research piece that looks for gold to approach $1,400 in the next year. The more ebullient Charles Morris of HSBC has said, “I absolutely believe it’s heading into a bubble, but that’s why you buy it. ” He, along with a number of other professional and otherwise rational managers, looks for gold to move as high as $5,000 an ounce.

More interesting than this almost universal agreement is what that agreement tells us about the dynamics of the market...

...no one seems even to care about giving a justification, other than “gold has been a store of value throughout 5,000 years of monetary history”. Which is fine as far as it goes, but that doesn’t say anything about what the price of that store of value should be.

Pump and Dump

Given that “hedge fund” and “highly secretive” are usually said in the same breath, don’t you get suspicious when so many of the top managers are so vocally out there about their gold investments? And when their positions are structured in a way that make them open to view? Paulson and Soros have huge positions in gold ETFs. We know that, because if you buy ETFs, they show up in your 13-F filing. Granted, with an equity investment you can’t help putting that information out into the market, but with an asset there are plenty of ways to take the position without signaling it.

That they are taking a highly visible route to their positions suggests the game that is being played is one of leading the herd. The 13-F reports positions with a big lag, so no one will notice if they quietly slip out the side door while the party is still hopping. And how about when the view is backed up by none other than Goldman Sachs? Will they let everyone know when they think it has gone too far before they get out. Or before they go short? Maybe they already have.
I am stunned by this commentary in many ways. I didn't know there was an SEC adviser out there commenting on the economy---much less a specific investment. I am stunned he is hinting that the major players are using SEC filings to deceive the average investor.

I think the key here is the way Bookstaber just dismisses gold as an investment, not even mentioning its value as an inflation hedge. He tries to portray it as just a manipulated game. He wants to scare individual investors.

The very tied in Nouriel Roubini is also negative on gold and picked up Bookstaber's post for his own site.

I'm short-term bearish on gold (because of slowed M2 growth), but I have to think something big is brewing. Why do Bookstaber and Roubini want to kill gold so bad? What's up with the mixed message from Soros? Why does the CFTC head, the former Goldmanite, Gary Gensler, want to kill off futures currency trading for individuals?

Anyone of these oddities is enough to sit up and take notice, when they are bunched like this, you really have to wonder what is going on. I don't have the answer, but I am paying very close attention.


  1. RW,
    c'mon wake up, you seem to be SO close sometimes that you can't see the elephant that the markets are bumping up against.

    tyler and geoffrey batt gave everyone a glimpse last night, see; Is The Federal Reserve Insolvent?

    i thought this comment was insightful;

    .......Yet with each passing day, all those who are fully aware that the Fed's course is one of self-destruction, grow bolder, until finally one day a new class of investors - the Fed vigilantes will emerge, looking for cheap opportunities to make a killing (think ABX) on the other side of the "Fed trade", which ultimately will lead to a systemic catharsis of unprecedented proportions.......

    RW, money expansion matters not when those in the know "KNOW" that the Fed is toast ...... they are already far ahead, and are preparing for the sharp moment in time when the "herd" will comprehend the same.

    technically you are right, the Fed is not classically printing YET, but more and more believe that the math shows that they will go from a standstill to the speed of light in a blink ...... upon which time, it will be far to late to mount the life boats.

    carpe diem

  2. Good observation Wenzel. Anonymous may be correct but his comments are too much like reading tea leaves for me. I have a hard enough time anticipating what I am going to think next let alone anticipating what others are going to think or do ("from a standstill to the spped of lght in a blink.."). However, the only reason anyone wants something to be cheaper is because they want to buy more of it. That is particularly true of Soros' past strategy. Glad you are monitoring this issue.