From SEC Employee Rick Bookstaber "We All Know Gold Is In A Bubble"

Tyler Durden's picture

Former Bridgewater-ite (which we hear is not doing that hot lately) Rick Bookstaber, who was recently appointed at the SEC in some risk management capacity, comes out with a truly amusing rant on why gold is in a bubble, and, not just that, but that "we all know gold is in a bubble." Ignore the fact that all multi-billionaire hedge fund managers have been loading up, all relevant and semi-relevant pundits have been claiming that gold is gradually becoming the one alternative to fiat debasement which has recently become a global phenomenon, and ignore that even with the dollar going up, gold has defended its 1,100 an ounce price quite successfully. Bookstaber compiles vivid imagery upon even more vivid imagery, and goes as far as comparing the quest for gold with the pursuit of hookers "Even if a guy is just after sex, he at least has the decency to act like there is some substance behind his interest. But with gold, 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”. No one? Dear Mr. Bookstaber, feel free to peruse the following thoughts by Eric Sprott, Dylan Grice,
Hugh Hendry, David Rosenberg, Fred Hickey, Jim Grant, David Einhorn and last but not least, Goldman Sachs, on some contrarian opinions to your prevailing dogma. And speaking of unconflicted advance warning vis-a-vis ponzi bubbles, where was your current employer cautioning the general population about the dot com bubble? Or the housing/credit bubble? Or the Madoff ponzi? Or the current Great Currency Deflation Bubble? Perhaps you can expend your time and energy on the real source of soon-to-be unparalleled wealth loss instead of focusing on the fringe "tin foil"-hatted gold community which nobody takes seriously anyway (except India of course which just incidentally bought 200 tons of gold north of $1,000).

From the SEC-member's blog:

The Gold Bubble

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.

The Naked Bubble

Usually the markets have the
courtesy of giving cover for bubbles. We adorn the bubbles with some
justification. Even if a guy is just after sex, he at least has the
decency to act like there is some substance behind his interest. For
the Internet bubble, it was that fundamental analysis based on the
brick and mortar world did not bear relevance in the New Paradigm. For
the Nikkei bubble, it was that the crazy P/E ratios were not
considering one subtlety or another in the Japanese accounting system.

But with gold, 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.

Herds, crowds, mobs, and the Top Ten

And yet, we follow the herd, as we have countless times in the
past. Herding is a timeless and universal market behavior, but one that
seems less than rational. It is broader than markets; think of the Top
Ten phenomenon. We feel better if a lot of other people think that our
favorite artist or actor is The Best. We like a song better if we know
a lot of other people are liking it as well. Thus our love affair with
lists. Magazines featuring the Ten Sexiest, the Five Best, the 100
Whatever are all best sellers, even if the list is the product of a
story meeting between an editor and five reporters.

Herding can be explained as an
artifact of what was rational behavior in earlier times, when we were
running around as hunter gatherers. Back then, mob and herding behavior
made sense. Mob behavior if attacking a competitive group or killing a
large animal; herding behavior if protecting against predators or
uprooting to a new location. Whatever it was that got started, you
could be pretty sure there was safety in having a crowd on hand to
finish it.

The very notion of mobs and herds evokes a certain spontaneity. But
with the gold bubble, we are moving on to a concept of herding by
appointment. Everyone seems to be happy in agreeing that this is a
bubble, and we are all going to participate in this bubble in a
rational, genteel way. We have all decided that this is going to be a
number one hit, a Top Ten. Though we might want to ask who is leading
this herd, because my bet is they will be stepping aside and cheering
us over the cliff.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Assetman's picture

We all know it is a bubble.

The key word isn't "bubble".

The key word is "We".

If he knows that the "we" are the powers that pull all the levers, you might take the statement as a giant word of caution.

Otherwise, we can all take it with a grain of salt.

DaveyJones's picture

the only thing he's not blowing, is a bubble out of gold.

Anonymous's picture

A wise man (my father) once told me.

"It's bet to have it and not need it, than to need it and not have it."

I have "it".

Anonymous's picture

Or,"... pot will get you through times of no money better than money will get you through times of no pot..."

Crime of the Century's picture

Tsk tsk - this phenomenon is international in scope. Little Ricky doesn't know a fraction of the "we's" who will determine the final outcome.

Anonymous's picture

I know better than to mock the desires of the BRICs as if they are still 3rd world stepchildren. China & Russia have both vocalized their desire to see resurrected SDR money have some physical backing. India has moved to "solidify" her asset base, and Brazil seems to be unafraid to thumb her nose northward. Pray tell, what has Bookstaber to offer these commodity countries besides a sneer, the very attitude which only drives the current wedge even deeper. Face it, Jeff. The US-UK axis is all in, and the bet is looking like craps.

jeff montanye's picture

i'm going out on a limb here, but this blog is getting a little TOO conspiratorial.  nil desperandum mr. copperfield.  fundamentals will out.  play defense.  enlarge positions as the market moves with you.

35Pete's picture

What would you expect in a culture of universal deceipt and deception? For people to just go along with the official version of events? Secrecy and lying breed mass distrust. As they should.

walküre's picture

Backstabber doesn't get it.

Fiat paper dollars or virtual "credits" somewhere on a bank account are surreal.

Gold is real. When - not if - the shit hits the fan, the trust is gone, the numbers don't matter WE ALL KNOW that only GOLD will be accepted as tradeable currency.

That's why I hold gold.

Anonymous's picture

well said

AR15AU's picture

How many sheep have been herded into the USD bubble? 

Yawn...  If the government technocrats are speaking out against gold, then gold is precisely what I want.  If the gold bubble bursts, and I have the opportunity to accumulate at $250 / oz again, I will truly be grateful.  I have 40 years of income ahead of me and the thought of keeping USD at JPM makes me want to puke.

Whizbang's picture

I will be buying by the dumptruck load if it drops to 250, not at 1200 an oz. This gold rally does remind me a lot of the tech rally. "It can't go down" or "it will never go down" words god looks for when he's bored.

Missing_Link's picture

Well, OK.  I am more or less neutral on gold, but I don't think you can compare it to the tech rally.  Gold is actually something (and something with many productive uses in society) rather than a couple of idiots in a penthouse suite with a Cisco router and a retarded business plan.

Anonymous's picture

i dont hear ANYONE saying "it cant go down".

MagicHandPuppet's picture

I hope "it" does go down... I have some FRNs I need to unload for a bargain!

Anonymous's picture

And yet historically it always does. For those who say "gold always goes up", I would counter "And always crashes".

BlackBeard's picture a regulator isn't he just a little bit conflicted to be giving commentary on a market?


He needs to shut the fuck up and go back to screening for unusual option activity or surfing tranny porn asap.

Hansel's picture

He's just trying to pump his new book.  From his site:

"I started this blog is to provide commentary in the spirit of my recent book, A Demon of Our Own Design."

I guess the SEC pay doesn't cover the bills.  His pedigree:

worked at Bridgewater Associates, ran the Quantitative Equity Fund at FrontPoint Partners, risk management at Moore Capital Management, risk at Salomon Brothers, ten years at Morgan Stanley.

Anonymous's picture

sounds like a fuckin genius to me

Crime of the Century's picture

ten years at Morgan Stanley

So that's who was in charge of custodial silver accounts.

jeff montanye's picture

no!   i say they must try harder to serve the public interest than surf tranny porn (i would generalize).

Anonymous's picture

with idiots like this guy working at the SEC, is it any wonder nobody ever, takes a perp walk?

Cistercian's picture

 He works for the SEC.That, and that alone, renders him untrustworthy and corrupt.

 Not to put too fine a point on it, who gives a heaping pile of steaming turds what this jackass says.

 He works for Mary Shapiro.I rest my case.

MagicHandPuppet's picture

+1... all he's doing is trying to sell a book by appealing to all the suckers who "buy and hold" on wall street and do everything else they are told.

Whizbang's picture

One of my close friends (when I lived in vegas) back in 2005 was a real estate investor. He always laughed at me for not investing in real estate. "god only made so much land" he would say. I remember watching him do blow on his yaght in l.a. a couple months later claiming that real estate would never go down, and that it wasn't too late for me to get in. Once, in 2006 I told him that I didn't want to invest with him because realestate was a bubble caused by easy lending standards, and almost got my face broken for it. Although I hesitate to say that gold is on the level of real estate back in 2006, Every time I've posted on this site about gold being in a bubble, I get the same "i'll break your f'ing face" reaction from readers here,.

As an update, my buddy mike lost all of his properties, his gold digging wife, filed bankruptcy, and is now a coke head bum living in the inland empire. Just a heads up from someone who's seen it before.

trav7777's picture

They dug 10% less gold out of the ground last year than the previous.  This trend of declining production has been true every year since 2000.  Ore qualities are getting lower and lower and discoveries are laughable.

Gold's price action is quite easily explained by peak production phenomena, not bubbles. 

People said oil was in a bubble was NOT.  The $145 price was driven by the fact that consumption was exceeding production by as much as 2mbpd, and inventories were being rapidly depleted.  Oil, too, has peaked.  Now here we are back at $80/bbl in the midst of MASSIVE demand collapse. 

Against even level demand for gold, declining supply means a price increase.  All the rest of this goldbug bullshit is just so much noise.

Anonymous's picture

Guess what they dug 10% gold out last year then previous? They also made 100% less land then the year previous.

hedgeless_horseman's picture

Not exactly true, unless you rounded up.

I hear that these investments are not doing so well.

jimmyjames's picture

by trav7777
on Tue, 03/09/2010 - 16:00

Against even level demand for gold, declining supply means a price increase.  All the rest of this goldbug bullshit is just so much noise


Not the fact that prices deflate against gold in deflation or people pile into it-for a currency short or hedge or because of fear or central banks buying now-instead of selling--

I think there's a bit more to the gold price-then just decling supply--uncertainty is what juices gold-

at least in the short term--

Haven't seen any real hard evidence of shortages--so supply-at this point-is not really the price driver--

Sure-ground supply and demand--peak gold--are important--and has an influence on the price--but--the other drivers--above--are not bullshit--


Missing_Link's picture

Good story.

Traders and investors need to be neutral, unemotional, and unbiased, and you're certainly correct that many on these boards are not.

AR15AU's picture

To me, gold is like firearms.  It allows me to live my life independent of the consequences of my moronic countrymen. 

Therefore, I don't really care what other people think about it, good or bad.  If its in a bubble, so be it.  Makes sense to me that a lot of people would want it.  If its going to be scorned by the masses and hated on CNBC, again, so be it.  I get to accumulate without all the pesky competing bids. 

Whizbang's picture

I agree, I have a small armory in my apartment, and I just ordered a 1000 rd. box for auxillary. That is what I consider preparation for a major usd collapse. You can't eat gold, and if you want to shoot something to eat, lead is a lot cheaper than gold to buy now.

Gold...Bitches's picture

funny, i dont recall anyone ever suggesting they eat the gold they bought...


you cant eat FRN's either buddy.  well, you CAN, but they make your sheet turn a funny color.

swamp's picture

Thin gold foil is used in certain uncommon desserts and more commonly used in Ayurvedic medicines in India. So it is consumed, although that's not the reason I've been buying it since 2003.

Anonymous's picture

there will be plenty of peeps willing and able to bust a cap in your ass and walk away with your gold.. when the time comes.

trav7777's picture

You need 1000 rounds for hunting?

Got bad news for you, buddy...FRN collapse is the least of your worries.  The greatest is that you are a horrible shot.

No freakin idea what you plan to do with all those guns.  You are but one person and you would get steamrolled by even 2 guys with even a smidgeon of military training in small unit combat, nevermind an organized or even disorganized gang of more than that.

What I marvel at is people who think real life is like SOCOM Strike Team Bravo.  You do NOT want to be in a gunfight.

35Pete's picture

Trav. Are you a firearms owner? 1,000 rounds is NOT a lot of ammunition. I went through 150 rounds of 9mm and 200 rounds of 7.62x39 at the range last weekend. That's 350 rounds in a few hours. 

Ohh, you're right about avoiding the gunfight but I disagree with the inference that having arms is pointless. A .357 magnum beats a baseball bat anyday of the week. 

For those SOCOM wannabees: Go to an IDPA training session just once.

You'll get a flavor for what it's like to shoot under pressure. Don't shoot your foot off! Ohh, and though IDPA tries to put a bit of stress into you, it ain't nuttin' like having someone shooting at you. Tunnel vision, clouded thinking, sweaty palms, uncoordinated reflexes. You do NOT want to get into a gunfight. Run away, hide, avoid it at all costs. Only use a firearm in the gravest extreme. 


Rusty_Shackleford's picture



When your campsite is attacked b a hungry bear, you don't have to be the fastest camper to survive.  You only need to be slightly faster than the slowest camper.

Goblins will always seek the easiest target.

However, you'd be surprised how quickly someone's plans change when they see one of their fellow goblins' heads fall back to earth as a fine pink mist. 

It tends to sap their enthusiasm.


You will most likely not be up against someone with combat training.  You are most likely going to be up against some dirtbag who spent most of his life on his couch watching TV who wants to steal your food and rape your daughter.


Since you don't think having a firearm and ammunition is the way to prevent such a thing, what exactly is your plan son?



Seer's picture

In your "apartment?"  City dweller?  You're already dead!  You'll be eating human flesh, that is, until someone hungier, with a bigger gun (and not yet puking on human flesh) figures your a cheap meal...

Geez people, if you run out of food- grow it!  If you have problems there, then the least you can do is eat the rich first! (they likely aren't comprised of the cheap food that they've jammed down our throats)

perchprism's picture


When the Cannibal King of Raleigh goes on the march into the countryside with his terrible cannibal army, I'll be holed up with my 12-gauge and AR15, under my house, quiet as a mouse, eating potato pie.

dark pools of soros's picture

i have a feeling that you are already there most of the time.....

Anonymous's picture

don't knock it 'till you try it!