A bullish argument? In three words: Print More Money.
Paulson & Co. sold a third of the their SPDR holding which is quite a large liquidation. However, Paulson remains bullish on gold as was seen in positive comments he made recently so it would seem likely that this sale may have been an effort to raise cash after his fund suffered sharp losses in the last quarter. Some hedge funds sold the ETF to cover losses during a rout that erased $7.8 trillion from the value of global equities since May. Soros Fund Management LLC held 48,350 in the SPDR Gold Trust as of Sept. 30, compared with 42,800 shares at the end of the second quarter. The increase in Soros gold holdings are meager at some $10 million worth but suggest that Soros is not as bearish on gold as the multitude of news headlines, regarding his comments regarding gold being “the ultimate asset bubble”, would suggest. Soros added 145,000 call options and 120,000 puts in SPDR Gold in the third quarter. This confirms that Soros is not as bearish on gold as some would have us believe. There is also the real possibility that Soros’ fund, like other hedge funds, may have opted to own allocated bullion rather than a gold trust. Some hedge funds have opted for allocated gold bullion due to it being more discreet with a lack of disclosure (no quarterly filings), due to the lower long term costs and due to allocated accounts having less counter party risk than a trust with many indemnifications. Steven Cohen’s SAC Capital Advisors LP and New York- based Touradji Capital Management LP established gold positions in the third quarter. SAC Capital, which manages $14 billion and is based in Stamford, Connecticut, held 184,601 shares in the SPDR Gold Trust as of Sept. 30. Paul Touradji had 45,000 shares compared with none on June 30, the filings show.
Now that we already had one notorious bond bear in the house with a late afternoon appearance by Bill Gross, who in a very polite way, apologized and said that while he may have been wrong in the short-term, he will be proven correct eventually, it is now time for the second uber-bond bear to make himself heard. In a CNBC interview with Jim Rogers, the former Quantum Fund co-founder, who back in July said he was had shorted US Treasurys, exhibited absolutely no remorse, instead reiterated a 100% conviction in his "bond short" call: "Rogers said when there is a bubble, such as the one being experienced in U.S. Treasurys, prices could go up for long periods of time. Bill Gross of Pimco, who also had a bearish view on Treasurys, threw in the towel earlier this year. But Rogers is sticking to his opinion that Treasurys will eventually fall. "Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse." The reality is that while Bill Gross has to satisfy LPs with monthly and quarterly performance statements (preferably showing a + sign instead of a -), the retired and independently wealthy Rogers has the luxury of time. And hence the core paradox at the heart of modern capital market trading: most traders who trade with other people's money end up following the crowd no matter how wrong the crowd is, as any substantial deviation from the benchmark will lead to a loss of capital (see Michael Burry) even if in the longer-term the thesis is proven not only right, but massively right. Alas, this means most have ultra-short term horizons, which works perfectly to Bernanke's advantage as he keeps on making event horizons shorter and shorter, in the process killing off any bond bears which unlike Rogers can afford to wait, and wait, and wait.
Jim Rogers Explains To Bob "Not a Cheerleader" Pisani Why He Is Short Stocks, Long Commodities, And Wants Europe To FailSubmitted by Tyler Durden on 09/09/2011 14:58 -0500
Jim Rogers was on CNBC earlier, discussing the recent intervention by the SNB and the overnight plunge in Europe, in the process generating yet another amusing episode of market "non-cheerleader" Bob Pisani attempting spin the global economic collapse in a favorable light on not one, not two but on three separate occasions, and being soundly rejected by the far more, informed shall we say, Rogers. Specifically, to Pisani's repeated attempt to get Rogers to admit the uber-secret of which stocks he is long (CNBC Ponzi playbook 101), the former Quantumanite responds that not only is he not long anything, he is mostly short stocks and very much long commodities for two simpler reasons: "if the world economy gets better i'm going to make money in commodities because of shortages that are developing. Especially in agriculture and precious metals. If the world economy doesn't get better, Bob, you're not going to make any money in Toyota or IBM but you might make money in commodities because they're going to print more money. It's the wrong thing to do but they will print money. Bernanke is already printing money again. You have to protect yourself. I'm short stocks but i don't expect the world economy to get better. Not much better anyway, if it does and I am long commodities as a protection." And on some other topic like the Chairsatan, "Bernanke has been lying to us again", on the SNB intervention attempt: "This is a terrible mistake" and on what should happen to Europe: " It would be good for the world, though, if they let people go bankrupt."
Why Concentration in Gold and Silver Assets Will Continue to Trump Diversification as an Investment StrategySubmitted by smartknowledgeu on 09/09/2011 08:08 -0500
Diversification serves as a cover for the fact that the great majority of commercial investment industry employees know little more about markets than you do and are nothing but glorified salesmen and saleswomen in fancy suits and expensive cars, thanks to the large fees their clients pay them every year. Think about it. Did you really need a Private Wealth Manager to lose 35% to 40% of your portfolio's value in 2008? For anyone that can think for himself or herself, the facts clearly prove that concentration trumps diversification as an investment strategy. This should not even be a debatable point for anyone that understands anything about investing strategy.
Three key metrics which strongly suggest that silver remains far from a bubble if not undervalued. The first is silver’s real price today adjusted for the inflation of the last 31 years. Silver’s real high in 1980 was $130 per ounce – more than double the price today (see chart above). The second is the gold silver ratio which has averaged 15 to 1 throughout history due to geology and the fact that there are 15 parts of silver to every 1 part of gold in the earth’s crust. The third metric is comparing silver’s current bull market to that of the 1970’s. Silver has risen by a factor of 10 in the last 9 years – from near $4 in 2001 to over $41 today. In its bull market from 1971 to 1980, silver rose by over 3,199% or by a factor of more than 32 in just 9 years culminating in the blow off top in 1979. Today, the physical supply of silver bullion is much less than in the 1970’s. Also there is the ‘Asian factor’ and 3 billion people with growing incomes, many of whom see silver as a store of value against currency depreciation. Demand for silver in Asia has been increasing and in China alone silver demand is increasing from a near zero base. The demand was not present in the 1970’s.
Ron Paul has another illustrious supporter - Jim Rogers. The Quantum fund co-founder, who has been spot on about pretty much everything for the past 3 years (see Roubini Versus Rogers Is Right Debate for 2010: Investor Jim Rogers thinks gold will double to at least $2,000 an ounce. Economist Nouriel Roubini says that’s “utter nonsense.” As these well-known market personalities duke it out, they’re doing us a favor by highlighting a critical debate: Which is the bigger threat -- inflation or deflation?), not to mention gold (to the amusement of such Keynesian soundbites recorded for posterity as the following: "Maybe it will reach $1,100 or so but $1,500 or $2,000 is nonsense"), and especially inflation (perhaps the only thing that will prompt a chuckle out of Gadaffi and Mubarak these days is someone telling them that their multi-decade reigns are over due to hyperdeflation and plunging food prices), was caught on tape voicing his endorsement of the only sane person who can possibly do something for this country. "In this election if Ron Paul gets anywhere near the nomination I would certainly support him. He is the only one that I've seen in American politics that seems to have a clue about what's going on." Zero Hedge agrees on all counts.
This may be a sign that the current sharp rally may have reached its zenith as neither bank has a great track record regarding short term trading calls on commodity markets. In the short term there is the risk of a correction as gold’s rise is now becoming front page (on front page of FT today) and headline news. The fact that silver has fallen in recent days and remains below $40/oz and the fact that gold mining equities have also not risen may also be a warning signal. Gold has risen from below $1,500/oz to nearly $1,800/oz in 5 weeks (since the start of July) and is up nearly 18% in dollar terms. Therefore, in conventional terms gold is most certainly overbought. However, we are not living in conventional or normal times and the ongoing global market crash and global currency debasement means that there is a chance that gold will go parabolic as it did in the 1970’s.
While there is nothing new in the just released Jim Rogers interview with the WSJ, it is always refreshing to hear him tell the truth, which is, of course that "the US has already lost its AAA status. Who cares what Moody's say." As for the response: "The market looks ahead: this is not the first time that the market has dealt with the fact that the US is bankrupt." As for his proclivity to buy long term US debt: "I wouldn't lend money to the US in US dollars for 30 years at 3%, or 4%, or 5% or you name the interest rate.... I shorted it June 10. I am short the US bond market as we speak." Great stuff as usual.
It was just three short months ago that Jeremy Grantham was spewing Malthusian fire and brimstone. He did so, however, from a broadly generalist perspective. Today, the head of GMO has released his second follow up in the "peak everything" series which is sure to provoke yet another round of bickering and debate between the disciples and nemeses of the logarithmic function and its applications in the real world. Among the key topic dissected this time are ongoing resource depletion and soil erosion. To wit: "As the population continues to grow, we will be stressed by recurrent shortages of hydrocarbons, metals, water, and, especially, fertilizer. Our global agriculture, though, will clearly bear the greatest stresses. It may have the responsibility for feeding an extra two to three billion mouths, an increase of 30% to 40% in just 40 years. The availability of the highest quality land will almost certainly continue to shrink slowly, and the quality of typical arable soil will continue to slowly decline globally due to erosion despite increased efforts to prevent it. This puts a huge burden on increasing productivity...Here, the discussion is about the pain and time involved in getting to long-term sustainability as well as trying to separate the merely irritating from the real, often surreptitious, threats to the long-term viability of our current affluent but reckless society. The moral however, is clear. As Jim Rogers likes to say: be a farmer not a banker – the world needs good farmers!"
Equities internationally and bonds in Greece, Ireland, Spain and Italy have fallen this morning while gold rose to new record nominal highs in euros and pounds (over EUR1,118/oz GBP980/oz respectively). The Italian 10 year rose above 6% for the first time and the Spanish 10 year yield rose to 6.12%. US stock futures are pointing to losses on the U.S. opening. Irish government bonds have reached a new euro era record high with the 10 year rising to 13.57% - up from 11.6% only 5 days ago. Ireland’s “bail out” is clearly not working as contagion deepens in the eurozone.