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The Big Short–Now the Big Long

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Kal Kotecha PhD
We live in an era of fraud in America. Not just in banking, but in government, education, religion, food, even baseball… What bothers me isn’t that fraud is not nice. Or that fraud is mean. For fifteen thousand years, fraud and short sighted thinking have never, ever worked. Not once. Eventually you get caught, things go south. When the hell did we forget all that? I thought we were better than this, I really did.

  • Mark Baum from the Big Short

The Big Short is turning into the Big Long and that is — being long on precious metals. The movie Big Short was based on a true story outlining two separate groups that understood the mortgage crisis and capitalized on it. How did they do this? They investigated who the banks were approving for subprime mortgages. They went to see the properties, interviewed the homeowners and realized that a bubble was forming. Mark Baum asked, “I don’t get it, why are they confessing?” (referring to the mortgage brokers approving just about anyone for a subprime mortgage). His associate replied, “they’re not confessing, they’re bragging.”

In the same light, there may have been some sort of a bubble in gold and gold stocks in 2010 and investors sold. Just like with the 2008 financial and real estate crisis, it overshot to an oversold position. A base in gold has been forming and a breakout looming. The fundamentals for gold look solid and if it can break the $1200 ounce resistance, we could see higher highs. But what are the banks buying now? Do they know something we do not?

In an article by Avery Goodman of Seeking Alpha   http://seekingalpha.com/article/3421396-the-big-long-goldman-sachs-and-hsbc-buy-7_1-tons-of-physical-gold he states: “On August 6, 2015, Goldman Sachs (NYSE:GS) and HSBC (NYSE:HSBC) took delivery of a sum total of 7.1 tons of physical gold. No, I have not made any typographical errors. And no, I am not talking about electronic paper claims. I am talking about shiny yellow metal stuff that you can touch and feel. The gold bars were not purchased for bank clients. They were purchased for the banks themselves. How do I know this? They are designated by the exchange as being for delivery to the bank’s “house” accounts at COMEX, not to client accounts. Goldman Sachs, alone, took 3.2 tons worth of physical gold bars. Yet, even as the firm builds its stockpile, Goldman tells clients not to do it. In spite of the antics in the paper-gold market, we know the physical market is on fire. Demand will exceed known supplies by at least 1,350 tons in 2015. More in 2016. But, that won’t stop someone from setting up the paper market in order to buy from the physical market very cheaply. This is because the mysterious gold “supplier of last resort” will fill COMEX physical delivery demand, for the moment at least, no matter how high it rises, and no matter how low other supplies may be.”

This points to some type of “gold manipulation”. Wasn’t there manipulation in the 2008 stock market crash as well as the subprime debacle? Weren’t the banks controlling us like little pawns? hmmmm

Avery Goodman continues: COMEX is designated by the US Financial Stability Council as a “Financial Market Utility” (FMU). The Council was set up by the Dodd-Frank Act, and views any failure of this “too-big-to-fail” entity as likely to lead to widespread contagion in multiple markets. Thus, logically, the US Treasury is willing to, and is draining physical gold from the US gold reserve to bail it out.

Still, regardless of what the US government is doing, why would these two banks make such a huge long-term investment in physical gold bullion bars? Perhaps, we are seeing a “Big Long,” similar to the “Big Short” Goldman Sachs is known to have taken in 2006/07. There are many who believe that we are soon going to see the collapse of a worldwide bond bubble, just as we saw a worldwide collapse of real estate values back then.”

So ask yourself, what side of the fence do you want to be on? The long or the short? Goldman Sachs and HSBC seem to know the answer and they are screaming long on gold. It might be a matter of time when someone will be writing about the Big Long that happened in gold.

 

Happy investing!

Kal Kotecha PhD

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