Battle of the Gold Stars

May 21, 2013

  • The 5’s Great Gold Smackdown: Casey and Faber vs. Embry on gold manipulation
  • Dr. Evil’s white cat, the “paper gold” market and a revisit of the Zero Hour scenario: Where our combatants actually find common ground
  • What’s wrong with stocks reaching new highs? Plenty, says Chris Mayer. What to do? Chris draws on two investing legends for guidance
  • Picking through the literal wreckage of a Supreme Court decision… “Today’s prosperity is an illusion”… a novel suggestion for keeping The 5 to five minutes… and more!

  “I’m not concerned about gold being down,” says the inimitable Doug Casey, “because markets fluctuate.”

Let’s get our bearings as we embark on today’s episode of The 5: Gold has taken a wild ride in the last 24 hours. From the $1,360 area, it made a couple of runs at $1,400. To no avail: At last check, the Midas metal fetches $1,362.

“Considering that gold’s been in a bull market for a dozen years,” Casey tells The Daily Bell, “I’m very unconcerned about the fact that it’s come off. All the fundamentals that underlie the bull market are still in place.”

  “I’m a believer in Occam’s razor,” adds Mr. Casey, a Vancouver perennial, “which holds that the simplest explanation of something is usually the correct one.”

Uh… We get the sense he’s about to veer into controversial territory here…

“Many gold bugs (but not all, because I too am a gold bug) seem to think that a coterie of malefactors of great wealth sit around a huge boardroom table, perhaps chaired by Dr. Evil cradling his white cat, and send forth their minions, ‘Da Boyz,’ to ‘smack down’ the depressed and struggling gold and silver markets.

Well, it was a white cat before losing its fur in a cryogenic capsule…

“These people are asserting that the powers that be have been short during one of the biggest bull markets in history. Nobody’s got that much money — not even governments; they’re all bankrupt.”

100  “I’m not a believer in the manipulation theory,” piles on Vancouver veteran Marc Faber.

“I’m a believer that the market went down,” he tells CNBC, “because there was a technical break and also because stocks are so strong. So when people look at their gold and they look at the stock market that goes up every day, they then decide, ‘Gold is dead. Let’s buy stocks,’ because, at heart nowadays, everybody is a momentum player.

“The fund managers who must outperform the index, the hedge fund guys, the high-velocity trading people, the algorithmic people — they’re all momentum players. What moves up, they chase. What moves down, they sell.”

  “I don’t doubt that the powers that be would prefer to have the price of gold lower,” Mr. Casey adds, “but there’s no evidence that I’ve ever been shown other than, frankly, just assertions.

“They point out that large bullion banks are short a lot of gold. But in the past, at the beginning of the bull market, they were long a lot of gold, so this doesn’t constitute a proof at all, from my point of view. Nor does the fact that central bankers have said they have an interest in controlling prices. Of course they do. That’s part of their mandate — and one more reason central banks should be abolished.”

  “Doug is a very smart guy,” says Sprott Asset Management’s John Embry, “and he has some very interesting views on a number of things…”


“…but when it comes to gold and silver price manipulation, he will not go there. And only he knows why he doesn’t go there.”

Hmmm… We sense fightin’ words coming next.

“This is so obvious that a blind man could see it. You’d have to ask Mr. Casey. Just as a matter of interest, a friend of mine is associated with Casey’s firm, and he just shakes his head at Casey’s views at this point, at Casey’s views on what’s really going on in the gold and silver market.

“The paper market has been set up specifically so that it can be manipulated,” Mr. Embry says of the commonly quoted gold prices on the Comex and the London Bullion Market Association.

But maybe not much longer: “I think we saw the first example of what’s going to stop them recently, when the gold and silver prices were pounded far below their real values. And that is exploding physical demand all over the world.

“What I believe is going to happen, probably in the not-too-distant future, is that the pricing mechanism of the gold and silver markets will swing to the physical market, which cannot be manipulated, because, basically, either you’ve got it or you haven’t.”

On this score, it seems Mr. Casey might be in agreement. He invokes what we’ve come to call the Zero Hour scenario: “Maybe [the central banks] leased out most of their gold to commercial bullion banks to collect some interest, and the bullion banks sold it in the futures markets to collect the contango.

“If so, wonderful. If they can’t give it back, that will only serve to drive the price higher.”

What? Common ground? Perish the thought…

We’re delighted Mr. Embry will join us for the first time at this year’s Agora Financial Investment Symposium in Vancouver. Mr. Casey will be back as usual, as will other precious metals and natural resource luminaries like Rick Rule, Frank Holmes and David Franklin.

But because we always aim to be much more than a “gold bug” event, we’ll also be joined by Barry Ritholtz (he of the recent tweet, “Whenever you hear the phrase ‘The fundamental case is intact’ you best run screaming from the room”… Makers author Chris Anderson… Currency Wars author James Rickards, and many more.

Early-bird registration discounts are available for 10 more days. For the dates, a full speaker lineup and other critical details, go here.

  No market-moving data… no big earnings reports… and not much movement in the major U.S. stock indexes today. The Dow’s at 15,340, the S&P at 1,664.

  “The market is giving us the ‘all-clear’ sign as it barrels on to new highs seemingly every other day,” says Chris Mayer — who can’t shake the feeling something’s not right. And he’s finding validation in the quarterly letters published by two investment rock stars.

“Investing, when it looks the easiest, is at its hardest,” muses Baupost Group’s Seth Klarman, he of Margin of Safety fame. Klarman frets over the slowdown in China, the mess in Japan, the crisis in Europe… to say nothing of the Fed’s zero-rate policies.

Chris continues, “Klarman’s letter was all about the importance of maintaining discipline and patience in the face of markets like these. Avoid leverage. Buy only undervalued securities. Hold fewer stocks and bigger concentrations of what you like.”

A similar outlook comes from Paul Singer of Elliott Associates. “We are not whining,” he writes, “just describing an environment beset by thoroughly confused investors, severely distorted by government policy and driven by money flows chasing hyperbolic news reports and brokerage firms ‘themes of the day.'”

Together, Singer and Klarman reaffirmed Chris’ outlook: “I also see the market as too optimistic. I see that bargains are hard to find. I see stocks that I didn’t buy because they were too expensive now soar ahead. But I will continue to be picky in this market and look for low-risk ideas. When I can’t find them, we’ll sit on our hands.”

And be content with his “coffee can portfolio,” we’ll add. You haven’t heard of this lazy man’s road to riches? Check it out at this link.

  A whole lot of nothing is happening in New London, Conn. — ground zero for an infamous 2005 Supreme Court case, Kelo v. City of New London.

“The U.S. Supreme Court allowed New London officials to seize an entire neighborhood via eminent domain,” summarizes John Ross at Reason, “on the basis that the city had a ‘carefully considered’ plan to boost economic development.” Probably not the “public use” envisioned by the Framers when they wrote the Fifth Amendment, but there you go.

“After the initial plan — a corporate campus with hotels, condos and office space — fell apart, officials selected a new developer to build an apartment complex on a portion of the razed neighborhood, Fort Trumbull, in 2010.

“Yesterday, the developer missed a second deadline to show they had secured financing.”

According to David Collins at The Day, the developers, who’ve had a contract for over two years, were unable to prove they had the money or intent to actually start building.

Today, the plot of land remains an eyesore serving only as a landfill.

This what the public good looks like.

Have any heads rolled during this mega-blunder? Heh. Nope.

Michael Joplin, president of New London Development Corp., joked during the agency’s annual meeting about begging on his knees to the mayor to keep his job.

“The mayor,” writes Collins, “who vigorously campaigned on the promise that he would abolish the much-hated NLDC… simply changed the name instead last year and said Joplin would go as president.”

Except Joplin was re-elected president. No ill deed goes unrewarded… or something like that.

[This just in: J.P. Morgan Chase shareholders have voted to keep Jamie Dimon as both chairman and CEO. As we were saying…]

  “It’s a bull market,” writes a reader as if to expand on Chris Mayer’s musings today, “until the Fed’s stimulus pushes the market to the point that earnings are no longer supportive of prices, and as for the $4 trillion in bonds that would need rolling over, they will be.

“Isn’t that the whole point of the QE, to push short-term bonds to long-term 30-year notes and buy mortgages to keep the rate down and pump money back to the mortgage industry to support the housing market, or rather the mortgage companies, the same scenario as the buildup to the housing bubble.

“The whole thing just stinks of pushing the day of reckoning down the road: ‘Let someone else deal with it, I am going to get mine now, screw the rest of you. Vote for me, I have brought you prosperity.’

“Today’s prosperity is an illusion, it is not real, it is not based on a productive vibrant economy. It is an economy just going through the motions. This economic base today has been sustained on government money, printed electronic dollars.”

The 5: You know what the problem is in our country these days? People with bad attitudes like yours. If it weren’t for you, we’d be back to 5% unemployment and 4% GDP growth.

Yeah, we’re being facetious. But we fully expect to hear that line of “reasoning” from the politicos sooner or later…

  “I could not help commenting on KFC in Gaza,” a reader writes after a quirky item we caught yesterday.

“The USA, after World War II, was synonymous with ‘big spender’ and ‘advertising’ — if you

wanted to sell something, let an American promote it; if you were looking for buyers…

“I am surprised that an Israeli businessman has not opened a franchise in Gaza by now, but I will stop there.”

  “Perhaps you should change the name to The 10 Min. Forecast, a reader suggests cheekily as today’s installment of an ongoing debate.

“I am sure the ones who enjoy reading the articles, as I do, will wonder why the change, but still look forward to your new stories every day. It will take something away from those who love to complain, but I’m sure they will find something They always do.”

  “Here’s a suggestion to anyone who doesn’t want to spend over five minutes reading The 5. Stop reading after five minutes. You’ve got your money’s worth at that point. Any further reading is just gravy, so quit complaining. (Tongue in cheek.)

The 5: Now you’ve done it: The speed readers will write in and say they’re not getting their money’s worth.

Except, this being a free publication, they are…

Best regards,
Dave Gonigam

The 5 Min. Forecast

P.S. “More Tornadoes in Forecast for Central U.S. Today,” says the headline at ABC News. Let’s hope it doesn’t come to that. Our thoughts are with everyone in the Oklahoma City area.


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