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Fofoa
has just published another thoughtful paper with the title: Red Alert:
Gold Backwardation!!! http://www.24hgold.com/english/news-gold-silv...ntributor=FOFOA.
It raises the question nobody has apparently raised before: “Is the
dollar bidding for gold, or maybe gold is bidding for dollars?” And it
gives an amazing answer: the gold basis has been screwed and it has been
giving bogus signals for more than a year. We have likely had backwardation
all this time but it has been stonewalled. There is no real gold market any
more. Goldman Sucks is playing with itself. Most trades are bogus,
sales as well as purchases. Leases ditto. What Goldman Sucks couldn’t
get away in a falling market, it can in a rising one.
There are other metrics beside the gold basis that the market has developed
in the meantime. One such is GOFO = $ LIBOR – GLR (the gold
lease rate). On the face of it, GOFO cannot ever go negative. If it did, it
would mean that the risk in borrowing gold is greater than the risk in
lending dollars, even though the latter has infinite counterparty risk. But
there is no counterparty risk in borrowing gold! That’s a telltale for
you. Nasty negative GLR, nasty negative GOFO, shut up, both of you!
Fofoa
says that the dollar needs voluntary bids from private physical gold holders
to survive. But the pool of real bids is bone dry and cracking. Dollar
liquidity is just a cheap façade. As the gold price rises slowly,
nervous Nellys, suckers, and other weak hands will relinquish bits and pieces
of the yellow precious which will keep the merry-go-round in motion.
Gold-bidding for dollars can be kept alive on a life support system.
Indefinitely? Pretty well. But Fofoa says that Goldman Sucks has shot itself
in the foot.
I
can add little to these speculations, but I would like to note another
telltale: the fine Goldman Sucks has agreed to pay Uncle Sam. On July 19 The
New York Times carried a story entitled: Goldman Employee Denies Fraud.
Just days after Goldman agreed to pay $550 million to settle securities fraud
claims, a midlevel employee of the bank, Fabrice Tourre, has filed a 13-page
denial and sought dismissal of the case. Smell the stink? Goldman agrees to
pay more than half a billion while a vice president, central to the case,
challenges the charges. To add another little twist, according to the NYT
article, Goldman Sucks released a batch of old e-mail messages of Fabrice
Tourre, who calls himself “Fabulous Fab” for his skills in
selling “Frankenstein bonds” (= bonds going bad fast) “to
widows and orphans” on the tarmac of Brussels airport, designed to
damage Mr. Tourre’s case in the continuing S.E.C. investigations. Who
is fooling whom here? Is it possible that the fine they levy and pay is just
another case of check-kiting? But why would they do such a thing? Why, a
bogus fine could deflect suspicion away from a much bigger charade in
misleading the public, namely, to cover up goldbackwardation!
Meanwhile all we can do is to sharpen our tools in sleuthing to uncover the
contango. I started a Seminar in Australia
in 2008 on backwardation and the secular vanishing of the gold basis. By all
standards, it was a huge success. We continued in 2009 and were making plans
to reassemble in Sidney,
Australia
this year in November. I am sorry to give notice that the 2010 The Third
Annual Seminar on gold backwardation and the last contango is cancelled, due
to the greed of the professional organizers of the event. Rest assured,
however, that the research is going on, and if we get a decent invitation, we
shall make up for the cancelled event, with further revelations!
In
the meantime, here is a hint to whet your appetite. Fofoa should refine his
indicator GOFO as follows. GOFO = LIBOR – GLBR, where GLBR = gold lease
bid rate, i.e., the rate which bidders are willing to pay for leased
gold to the bullion bank. It should be somewhat greater than GOFO as it has
been defined up to now. (Why?) It is true that GLBR is not publicly quoted,
but a little bit of sleuthing should be able to produce a proxy. Then GOFO
will tell you how profitable the gold carry trade is, or is getting. Negative
GOFO tells you that it is making a loss and net shorts in gold are under
water or will soon
be.
But
there is another indicator equally important for successful sleuthing.
(Goldman Sucks, are you listening?) I shall call it COGOFO. Here it is:
COGOFO = LIBBR – GLOR. Here LIBBR = London
interbank bid rate; it is the rate at which a bank in the London
market is willing to borrow from another. Furthermore, GLOR = gold lease offered
rate; the rate at which bullion banks are willing to lease out gold. Again,
LIBBR is not in the public domain, so due diligence is required to come up
with a reasonable
proxy.
Here
are some quiz questions: (1) What is the relation between LIBOR and LIBBR (2)
and between GLOR and GLBR (3) and between GOFO and COGOFO? (4) Can COGOFO go
negative, and if so, what does it mean? (5) How can you make inferences about
movements at large between cash gold and paper gold from the variation of
GOFO and COGOFO? (6) If you plot GOFO and COGOFO, what does a crossover of
the two mean?
As
my faithful students will notice, the distinctions I am recommending to Fofoa
are those of Carl Menger, the 19th century founder of the Austrian
School of Economics. The
New Austrian School of Economics that will start its first ten-day course on
August 9 in Budapest will provide its audience with full background on
Menger’s theories, and how to apply them in the present situation where
markets are rigged and governments are lying. Send in your answers to: target="_blank" aefekete@hotmail.com,
and participate in the draw that will take place at the 3rdAustralian
Seminar on Backwardation and the Secular Vanishing of the Gold Basis! Prizes
will include gold nuggets.
IMPORTANT
ANNOUNCEMENT
Thanks to a
recent donation, scholarships covering tuition and college accommodation at
the ten-day course (see below) have become available for students. First
come, first served.
Calendar of Events
THE
ESTABLISHMENT OF THE AUSTRIAN SCHOOL OF ECONOMICS IN BUDAPEST. The first
ten-day, 20-lecture course offered is entitled: Disorder and
Coordination in Economics — Has the world reached the ultimate
economic and monetary disorder? The lecturer is Professor
Fekete, with the cooperation of Mr. Rudy Fritsch (Canada), Peter van
Coppenolle (Belgium), and Mr. Sandeep Jaitly (United Kingdom). It will be
held in Budapest, Hungary, from August 9-20, 2010. Participation is limited,
early registration is advisable. For more information and registration,
contact Dr. Judith Szepesvari at: target="_blank" szepesvari17@gmail.com. Inexpensive
dorm-type accommodation is available for students (shared bathroom, shared
kitchen); a three-star hotel is next door. Extra-curricular consulting with
Professor Fekete can be arranged for an extra fee.
The
school is meant for all students (including beginners) interested in the real
answers to the present economic crisis and misery. Its program plans to cover
the whole spectrum of Austrian economics, with special emphasis on
developments that took place after the death of the greatest 20th century
economist, Ludwig von Mises, including the Real Bills doctrine and social
circulating capital; the theory of money, credit and banking; and the theory
of interest and discount.
Completion
of this course will earn participants one credit towards a four-course,
four-credit program that has been submitted for accreditation to the
Adult Education Accreditation Board of Hungary. Participants will receive a
certificate signed by Professor Fekete. The follow-up credit courses will
cover these areas:
Adam
Smith’s Real Bills Doctrine and Social Circulating Capital.
The
Austrian Theory of Interest and Discount.
The
Austrian Theory of Money, Credit, and Banking.
Some of the future courses may be
offered in Martineum Academy in Szombathely, Hungary, where we have had four
successful conferences already in the past. A special cordial invitation is
extended to all Martineum alumni and their family members and friends!
Eating
and shopping facilities, as well as a swimming pool are nearby. Spectacular
excursions can be arranged in the surrounding hills, and boat trips on the
River Danube.
It
is well-known that Budapest is one of the foremost spas in Central Europe
with a dozen or so medicinal thermal springs. Participants of the course
could stay on afterwards and savor the superb spa and cultural offerings in
the city. Make it a family holiday!
Meeting in Hong
Kong
We have plans for a two-day
meeting in Hong Kong and another neeting in New Zealand in November, 2010.
Stay tuned for further announcements.
Antal
E. Fekete
DISCLAIMER AND CONFLICTS
THE PUBLICATION OF THIS LETTER IS FOR YOUR INFORMATION AND AMUSEMENT ONLY. THE
AUTHOR IS NOT SOLICITING ANY ACTION BASED UPON IT, NOR IS HE SUGGESTING THAT
IT REPRESENTS, UNDER ANY CIRCUMSTANCES, A RECOMMENDATION TO BUY OR SELL ANY
SECURITY. THE CONTENT OF THIS LETTER IS DERIVED FROM INFORMATION AND SOURCES
BELIEVED TO BE RELIABLE, BUT THE AUTHOR MAKES NO REPRESENTATION THAT IT IS
COMPLETE OR ERROR-FREE, AND IT SHOULD NOT BE RELIED UPON AS SUCH. IT IS TO BE
TAKEN AS THE AUTHORS OPINION AS SHAPED BY HIS EXPERIENCE, RATHER THAN A
STATEMENT OF FACTS. THE AUTHOR MAY HAVE INVESTMENT POSITIONS, LONG OR SHORT,
IN ANY SECURITIES MENTIONED, WHICH MAY BE CHANGED AT ANY TIME FOR ANY REASON.
Copyright © 2002-2008 by Antal
E. Fekete - All rights reserved
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