The Margin Clerks Were Working

Tyler Durden's picture

Via Mark J. Grant, author of Out of the Box,

"This is the excellent foppery of the world: that when we are sick in fortune -- often the surfeits of our own behavior -- we make guilty of our disasters the sun, the moon, and stars, as if we were villains on necessity, fools by heavenly compulsion, knaves, thieves, and treachers by spherical predominance, drunkards, liars, and adulterers by an enforced obedience of planetary influence. An admirable evasion of whoremaster man, to lay his goatish disposition on the charge of a star!"
 
                       -William Shakespeare
 
You will hear many people in the next few days telling you that the gold market decline was just a correction. I do not share this view. For one the drop in the price of gold was the largest two day drop in 30 years. Secondly the volume was a record. This then leads to other conclusions.
 
Long experience in the markets will inform you that this kind of massive sell-off is indicative of someone or perhaps a numbers of someones with serious problems. It may be ETF's, it may be some hedge fund or it may be central banks who have pledged their gold as collateral with the ECB but somebody is in trouble. You do not get the breadth and depth of this kind of drop without someone having very serious issues.
 
"Thought, like all potent weapons, is exceedingly dangerous if mishandled. Clear thinking is therefore desirable not only in order to develop the full potentialities of the mind, but also to avoid disaster."
 
                       -Giles St. Aubyn
 
You can chalk some of it up to the apparent terrorist acts in Boston perhaps but the implosion was underway long before that took place and, in any event, a threat to the country generally results in gold spiking higher and not the opposite effect. Another indicator here is the sell-off in equities. In my opinion this was not just a correction either but the fallout from gold. The massive margin calls in gold forced people to sell equities to gain additional cash and you got a spiral effect in both markets. Then as stocks dropped there were margin call in equities so that one decline fed upon the other. The losses were of such magnitude that both markets entered what can be honestly called a feeding frenzy and the carnage was self-evident!
 
Given the severity of the decline you are likely to see a bounce in both gold and equities today. I would cast a suspicious eye upon both. The drop-off was of such magnitude that it may be little more than a short covering rally tinged by the believers that both markets will go up eternally. It will be a few days but it will leak out just who was singed by the decline and for how much and then we will have a better perspective.
 
The world is a fragile place these days. World-wide Quantitative Easing has buoyed all of the markets. The backdrop though is economies that cannot support current prices. Europe and Japan are both in tatters, China is slowing down and America is in what I would call a "sputter." Yesterday was a stark reminder of what can happen when the discrepancy between the results of the flood of newly minted cash comes into conflict with underlying fundamentals. The markets can turn on a dime and the move can be severe and painful.
 
Yesterday the margin clerks were hard at work. Today they may be more restful but those clad in the green eye shades may not be done with us yet. Yesterday also gave us an important hint.
 
The cash provided by the Central Banks has been leveraged to the nines as indicated by the severity of the sell-off in both gold and equities. More cash will likely have to be raised in the coming days which is why I think the Fates may not be done with us yet. Early morning indications do not indicate a bounce of any magnitude, in either market, and so I would remain cautious as many over-leveraged positions continue to scamper for cover.

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Imminent Crucible's picture

Good stuff, DeadFred. This is how language evolves and new terms and concepts come into being. Like Hope and Change--I think it's already in some lexicons, this way:

hopenchange (noun): A manufactured sense of false optimism engendered by cynical demagogues to persuade the masses to place their destiny in someone else's hands.

Related to 'Si, Se Puede', a declaration of false opportunity provided by bureaucrats armed with stolen money.

Quinvarius's picture

I suspect some certain bankers were forced to cover GLD redemptions from their personal stash.  The downside of double counting.  Just imagine what the biggest ahole on the planet would do as GLD's custodian, and that is probably what did happen.

And as far as this article, gold has had the same % decline as it did in 2008, top to bottom for reasons that should have sent it over 2000.

Gazooks's picture

odd, no loss here

 

oz yesterday, oz today

tenpanhandle's picture

My ounce weighs more than yesterday as it has my tears on it.

Glass Seagull's picture

 

 

Fed:  "Take your VAR down."

PBOC:  "No, YOU take your fucking VAR down!"

Shizzmoney's picture

Wait, you mean when you print endless amounts of money it makes markets more volatile and unpredictable? 

You gotta be fuckin' kidding me!

mendigo's picture

Just because it is adverse and does seem to make sense does not make it a coordinated global conspiracy.
Seems too ham-fisted.
Suspect some dumbass despot.

Caveman93's picture

"I would remain cautious as many over-leveraged positions continue to scamper for cover."

I would get the fuck outta the dollar!

hardcleareye's picture

Not my neg.  But I am curious, if you go out the dollar were do you go?  Seems to me like the dollar is the least ugly sister at this point (that can change....), everything else looks over priced and over bought, that might change shortly.

Buzzworthy's picture

The only thing the paper gold sell-off indicates is that physical metal is not available to fill the leveraged paper bets.  If you bought a paper contract with the expectation that you would receive the metal and then were told none was available, you too would pitch your contract.  What we are witnessing is the imminent collapse of the paper gold market, just as it was INTENDED to collapse.  The recent AMN AMBRO default was the first major warning signal as to what is coming.

W74's picture

Most of the online sites have shut down sales or are putting people on notice for 2-4 week delivery.

SheepDog-One's picture

Must....Pump....Stawks....

But be cautious, up here there be monsters.

jjsilver's picture

Total crap, the criminal bankers hands are all over this. This is premeditated

Stuck on Zero's picture

Funny, this crash in gold just as Germany demands its gold back.  I'd say the Fed dumped paper and bought physical to send to Germany.

 

Kirk2NCC1701's picture

"Anyone who tries to time the bottom will get carried out", according to the CNBC guy yesterday morning.

My take is "The price is right when you like the price and can afford it".  I'd be holding phyz now -- as the 'profit' in paper will vaporize when it can't be converted into phyz.

"Let's get physical, physical, I wanna get physical..." - Olivia Newton John

Imminent Crucible's picture

"I would remain cautious"

That's always good advice, but---how cautious is it to remain in the US dollar or ANY paper currency when you take cognizance of all the global financial risks cited by the author of this article?

Europe in tatters (and a depression), Japan destroying its currency in a desperate bid for inflation (undone in two days), and the Fed blowing the money base into a multi-trillion dollar bubble to stave off an economic collapse that keeps creeping back in with every jobless claims report, PMI survey, homebuilder confidence number, etc.

All these diseases keep the central banks of the world turning to the same prescription: CTRL+P

newworldorder's picture

Most on this board are not naive nor stupid.

-  If Banksters or Hedgies are allowed  to continue their pilage without rule of lasw then we need to shut down the regulators and save taxpayer money.

-  IF sovereigns and or Central banks are doing this through proxies, then the marrkets need to be shut down. The charade needs to STOP.

Are you listening Mr. Bernacke?

Crash Overide's picture

Yeah A LOT NEEDS to happen but in reality the game will continue until it doesn't. Feels close, the nature of things dictates correction.

Roger Knights's picture

Here's a link to a terrific Seeking Alpha article, posted a day or two ago, "Is gold foreshadowing a stock market implosion?" The author draws a parallel to gold's decline in 2008 in advance of the decline in stocks. He thinks gold-selling is a sign that big financial institutions are in dire straits.

http://seekingalpha.com/a/spwv

Here's a comment I just posted on Seeking Alpha:

Based on what I've read on Seeking Alpha, I think the selling that brought on this decline was from a Big Bank in trouble. Possibly it owned, on extreme margin, Japanese govt. bonds that had recently declined. It was very underwater as a result. So (I speculate) it went to its country's central bank and asked for the loan of a lot of gold. The central bank realized that if the Bank went bust, it would have been a falling domino that would trigger a global financial catastrophe, so it made the loan. The bank then sold the gold to raise cash.

I've been describing the likelihood of this situation occurring in comments for over a year, and said that it portends great volatility ahead for gold. I.e., lots of sharp downspikes. But I've also said that these downspikes will draw in Asian buying that will support the price at $1400 or so. Perhaps, if more Big Banks get in trouble, more forced selling will occur, and the price will go lower. But lower prices will attract big buyers. The long-term trend is up.

The other Big Banks that have sold loaned gold in the recent past to raise cash will also be buyers at these lower levels, to repay their CBs,. So that's another cushion on the downside.

 


Bobportlandor's picture

Since the little guy is mostly gone what I think we're seeing is the titans have no one but other titans to pick on.

And this is why Bernanke is trying so sucker the retail buyer back.

I see this process a flesh bacteria starting in the toe and working it's way through the body.

Bicycle Repairman's picture

"Long experience in the markets will inform you that this kind of massive sell-off is indicative of someone or perhaps a numbers of someones with serious problems."

Yes.  And now "problem solved".  Because when you have unlimited money, no laws and your hands all over the market regulators, any problem can be solved.

The difference between 2008 and today is they've figured it out.  All the "players" are on board.  That's the reform you got.

screw face's picture

Well this is weird to say and a bit off subject, the Back Bone that runs all automatic systems and the net, is way infected and will only get worse until ca-lapse of system, no amount of band-with will overcome the problem.

They have fixed things real good, all binary systems are doomed due to infection, now that's progress, screw everyone, annihilate yourself.

Zero Hedge, just in time for A. I.

rense repeat

trader1's picture

can your imagine yourself living off grid?