• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Meet The Man Behind The Liquidating Hedge Fund That Blew Up The Gold Market

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Fri, 01/28/2011 - 11:34 | 912935 DonnieD
DonnieD's picture

Is that Don Cheadle?

Fri, 01/28/2011 - 11:39 | 912965 Warrior 25 Million
Warrior 25 Million's picture

looks like it to me

Fri, 01/28/2011 - 11:41 | 912974 hedgeless_horseman
hedgeless_horseman's picture

Cute wife/girl friend.  I bet she kept some physical position.

Fri, 01/28/2011 - 12:02 | 913085 dark pools of soros
dark pools of soros's picture

and she probably liquidates often....

Fri, 01/28/2011 - 12:10 | 913119 OnTheFelt
OnTheFelt's picture

That's not his girlfriend....that's Annie Duke.  She is a professional poker player.  That picture was taken at the Aussie Millions poker tournament.

BTW - Annie Duke was was just recently exposed to be involved in a massive insider cheating scheme with Poker Stars.

Fri, 01/28/2011 - 12:13 | 913134 KidDynamite
KidDynamite's picture

I think you mean UltimateBet, not PokerStars, right?

 

Shak's wife  (perhaps Ex-wife, actually, I think) is Beth Shak  - she's google-able I'm sure.

Fri, 01/28/2011 - 14:06 | 913722 OnTheFelt
OnTheFelt's picture

Yeah you're right, Ultimate Bet, my bad

Fri, 01/28/2011 - 11:50 | 913030 Dismal Scientist
Dismal Scientist's picture

Yep. Thats what happens when you star in a sequel, rather than the original. Iron Man 2 was a mistake...

Fri, 01/28/2011 - 12:10 | 913070 Pladizow
Pladizow's picture

Year      Month of Gold low

2001         March/April

2002        Jan

2003       April

2004       May

2005       Feb

2006       March

2007       Jan

2008       Nov

2009       Jan

2010     Feb

 

So 9 out of the last 10 years gold hits its low by May.

And 7 out of the last 10 years it hits its low in the first quarter.

IGNORE THE NOISE!

Fri, 01/28/2011 - 12:01 | 913077 Fish Gone Bad
Fish Gone Bad's picture

Straight out of Hotel Rwanda.

Fri, 01/28/2011 - 21:57 | 914881 Pegasus Muse
Pegasus Muse's picture

Reading Adrian Douglas' comments over at LeMet tonight.  He believes this story concocted by WSJ is BS.

==============

Everyone is happily touting this story to explain the 81,000 OI (Open Interest) cratering on Monday which was the biggest one day drop of OI in history. http://www.gata.org/node/9540 . NOT SO FAST. This is baloney in my opinion.

The last COT (Commitment of Traders) report shows total spreads in managed money were 63,507 contracts. This "Shak" dude is a money manager so how did he liquidate 81,000 contracts? The total reported spreads were 103,947…are we meant to believe that this one dufus from Las Vegas had 80% of all spread contracts!!??

The WSJ article just stinks. For example people don't say things like "Yeah, that was just me liquidating my spread position," Mr. Shak, 51, said in an interview. In the article it says he was down 70% but quotes him as follows: "I just chose to close, I didn't like my positions so I chose to liquidate, I wasn't forced. I was in the process of closing anyway."...You have to be kidding me!...70% down "he didn’t like his positions"!! That’s just the sort of thing an average Joe will say!

The Commodity Exchange Act provides anonymity for traders …we are still waiting for the investigation from 2008 in what happened in silver and who did what yet WSJ in a matter of days gets the name and all the trading info about the "Shak Attack". This is an early April Fool’s spoof and very conveniently put out to kill everyone’s curiosity…move along nothing to see here just one guy liquidating 81,000 spread contracts!

Let’s hear it for the CFTC and the gold cartel and Obama’s goal of more transparency!

Cheers
Adrian

Fri, 01/28/2011 - 11:34 | 912938 youngman
youngman's picture

What is scary to me is...here is a 10 million dollar fund...having a 850 million position in futures.....wow if something happens...could he cover....

Fri, 01/28/2011 - 11:39 | 912959 HamyWanger
HamyWanger's picture

Are you suggesting we should forbid this kind of leverage???

The cost to the global economy would be astronomical.

Levies are healthy and useful for the global economy and jobs creation.

Read Dr. Keynes or Dr. Krugman on this subject.

Fri, 01/28/2011 - 11:43 | 912983 H. Perowne
H. Perowne's picture

Almost got me, Hamy. Well played. The answer is print moar . . . what was the question again?

Fri, 01/28/2011 - 12:26 | 913205 SheepDog-One
SheepDog-One's picture

Print more, as each new bundle of worthless FRN's means another country falls into riots and escaped leaders. Party on, Ben!

Fri, 01/28/2011 - 11:45 | 913001 lizzy36
lizzy36's picture

Why no Harry, lets encourage this kind of leverage.

One $10m fund controlling 12% of the gold market. Yeah, that is going to end well.

See 2008 when the banks were levered on average 40x-50x. What the hell could go wrong indeed?

Fri, 01/28/2011 - 12:05 | 913095 dark pools of soros
dark pools of soros's picture

yeah but it is all backed by 300 million future taxpayer payments..  that's some serious reserve

Fri, 01/28/2011 - 12:10 | 913118 JW n FL
JW n FL's picture

+++++++++++++++++++++++++++++++++++++++++++++++++

Fri, 01/28/2011 - 16:27 | 914230 i.knoknot
i.knoknot's picture

yup, and i'm *certainly* teaching my kids how to bend-over and passively take it.

aren't you guys?

Mon, 04/11/2011 - 17:04 | 1159082 Manthong
Manthong's picture

you mean 300 million future chop suey chefs.

Fri, 01/28/2011 - 12:50 | 913329 Freddie
Freddie's picture

+1

Fri, 01/28/2011 - 11:46 | 913004 Sean7k
Sean7k's picture

Leverage is a two edged sword: too little and price discovery is hampered, too much and markets can collapse on expectations and sell-offs.

When you referred to Dr. Keynes and Dr. Krugman, you forgot Dr. Pepper- they're a matching set.

Fri, 01/28/2011 - 12:07 | 913103 firstdivision
firstdivision's picture

I would actually equate it to a single ended dildo.  You're either getting screwed, or doing the screwing.

Fri, 01/28/2011 - 13:47 | 913642 Canuckistan Al
Canuckistan Al's picture

More like Dr. Suess if you ask me.

Fri, 01/28/2011 - 16:32 | 914258 i.knoknot
i.knoknot's picture

you injure the good name of dr suess. i challenge you to a duel.

seriously, dr seuss will likely go down as one of the more prescient writers/communicators of our era.

  horton hears a who
  star-bellied sneeches
  lorax
  etc.

if only the above-mentioned drs had a tenth of his sense.

Fri, 01/28/2011 - 12:53 | 913349 Common_Cents22
Common_Cents22's picture

30-40-150x leverage should only be left up to the pro's, like those phd's at JP, GS, LTCM etc...

Fri, 01/28/2011 - 14:10 | 913724 shortus cynicus
shortus cynicus's picture

Just one explanation for new users.

Question: Dr. Wanger's answer was very, very, very funny, but notwithstanding got junked to death, why?

Answer: because he meant it seriously. We know, he or hes new reincarnation, doesn't understand his own jokes.

Fri, 01/28/2011 - 11:42 | 912976 gold mining ceo...
gold mining ceos are idiots's picture

It was a calendar spread. His position was not large net. He was probably short front, long back.

Fri, 01/28/2011 - 11:43 | 912981 gold mining ceo...
gold mining ceos are idiots's picture

It was a calendar spread. His position was not large net. He was probably short front, long back.

Fri, 01/28/2011 - 11:59 | 913068 Ratscam
Ratscam's picture

any idea how an 85x leverage is possible with a 6% margin rate?

Fri, 01/28/2011 - 12:16 | 913148 BearOfNH
BearOfNH's picture

Spread margins are frequently lower than net position margins.

 

Fri, 01/28/2011 - 12:26 | 913203 Ratscam
Ratscam's picture

trade example please

Fri, 01/28/2011 - 13:26 | 913544 BearOfNH
BearOfNH's picture

If you snoop around the CMEgroup website you'll see their exchange minimum 100 oz. gold contract has a $6700 initial margin, while a long-dated gold spread (say, 4/11 to 12/13) has a $338 initial margin.

So you can go long or short one GCJ1 by putting up maybe $7500. Or you can trade the GCJ1/GCZ3 spread for perhaps $400.

Your broker can demand more than exchange minimum and most do. But if they go apeshit on their customers, their customers will go elsewhere.

(The same is true of exchanges, as well. Hence regardless of what US laws you quote or wish for, the truth is that margins are ultimately set by the free market.)

Fri, 01/28/2011 - 12:20 | 913154 emsolý
emsolý's picture

borrowed funds in addition to the fund's capital and then use that as margin

edit: now that i see the response above, with lower margin requirement on spread bets,  i guess that answer is more plausible (but does not invalidate mine)

Fri, 01/28/2011 - 13:06 | 913430 Math Man
Math Man's picture

Left out of the Zerohedge article:  (from the WSJ article)

What Mr. Shak took on was a "spread trade," in which he was long and short gold contracts of various maturities.

It isn't an outright bet on gold prices, but rather on the degree of movement among different contracts. The fact that the sale came from a spread trader, rather than a gold holder, could put some investors' minds at ease.

The spread trade is irrelevant.  He was long AND short.

The REAL liquation has been coming from the ETFs.

Holdings at GLD have declined to levels not seen since last June.

54 tons out of GLD alone.  THIS MONTH.

That is 15% of all the gold bought by all the ETFs COMBINED last year.

Gold longs are lucky there is unrest in Egypt.

It's the only thing that can mop up the excess ETF supply.

 

Fri, 01/28/2011 - 13:25 | 913542 HoofHearted
HoofHearted's picture

Bullshit. People sold when they saw massive selling from one guy. This led to prices dropping, people getting nervous that it might be done for gold. People got out of their paper, the ETFs. Seems like a wall of worry to me....

Fri, 01/28/2011 - 16:51 | 914347 i.knoknot
i.knoknot's picture

it feels a little bit like the 'fat finger' excuse on that last flash-crash. i guess we've gotta have a reason, and 'there it is'...

hmmm. *both* long and short and losing 7 million? not very symmetrical, eh? i think he picked a team, even with his hedges. wrong team...

FWIW, if you read the GLD prospectus, you can pretty safely assume that there is no real gold at GLD, so the question becomes more along the lines of:

  why are they creating the appearance that they are dumping
  the (non-existent) metal, unless there's a big effort going on
  to tease the analysts and tank the market.

these numbers are merely a part of the game. "escher finance" (constant back-revision) is the other biggie.

GLD/SLV etc are brilliant mechanisms created for no other reason than to defer real demand with paper promises. pure counterfeit. and now there's a platinum ETF. surprised? take delivery, friends. take delivery.

BTW, your point about egypt's serendipitous timing is spot on.

as per lizzie, i also find it unsettling that a leveraged $10mm fund can knock the gold market that hard. imagine of a day's worth of the FED printing were worked in the same manner...

crazy!

Fri, 01/28/2011 - 13:08 | 913446 knukles
knukles's picture

"The dollar amount of the gold liquidation was very small, it was just a lot of contracts."

LOL

Fri, 01/28/2011 - 15:43 | 914057 mogul rider
mogul rider's picture

I'd like to personally thank this idiot, I got the Precious cheaper, much cheaper. Who is the next idiot to step up?

C'mon shitheads leverage it , leverage it. c'mon!!!!

Brang it on!!!!

Jesus - there can't be a global conspiracy to rule over us, these shitheads are too stupid

Fri, 01/28/2011 - 16:54 | 914369 i.knoknot
i.knoknot's picture

re: the shitheads...

they've got tenacity (and congress :^). impressive bastards.

Fri, 01/28/2011 - 11:35 | 912947 lsbumblebee
lsbumblebee's picture

Greg. Any relation to Mort? Gotta be.

Fri, 01/28/2011 - 11:37 | 912953 bernorange
bernorange's picture

Political instability spreading in the middle east... bullish for PMs?

Fri, 01/28/2011 - 11:46 | 913007 william the bastard
william the bastard's picture

Is Paulson trapped? HeHe

Fri, 01/28/2011 - 12:54 | 913360 Common_Cents22
Common_Cents22's picture

yeah, trapped with his $5billion return in 2010.

Fri, 01/28/2011 - 11:41 | 912972 gold mining ceo...
gold mining ceos are idiots's picture

So let's say he was 70k of the liquidation. What does that do to the over owned theory?

This one clown controlled 12% of the open interest?

That strike anyone as odd? 

Fri, 01/28/2011 - 11:44 | 912988 NOTW777
NOTW777's picture

not believable. part of the story is missing.

remember blame waddell and reed

Fri, 01/28/2011 - 12:17 | 913158 Ratscam
Ratscam's picture

sounds fishy. Any 1% down move would have caused a margin call.

Strange.

Fri, 01/28/2011 - 16:35 | 914285 Bicycle Repairman
Bicycle Repairman's picture

I call complete BS on the story.  Some two-bit gambler in the corner of the globe can crash the gold market?  I think that someone out there would like PM investors to believe that the gold market is that unstable.  BS.

Fri, 01/28/2011 - 11:43 | 912985 Oh regional Indian
Oh regional Indian's picture

Crazy. 10 Mil and such an impact. 

Only in these times.

 

ORI

http://aadivaahan.wordpress.com/2011/01/26/a-ha-ahahaha/

Fri, 01/28/2011 - 11:44 | 912991 slow_roast
slow_roast's picture

This is the most interesting ZH article I've seen in a long time...and that says a lot because they're all amazing.  I can't believe the leverage allowed by suh a small firm.  Did the markets learn nothing from LTCM?

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