Dave admits it. He looks at things backwards. I never was smart enough to figure things out the way really smart people do. I’m just not that smart. Don’t get me wrong, I’m smart but I have had the pleasure of knowing some really smart people, so I know I’m not one of them. They’re different.
I remember this one guy I went to college with. This was just before the personal computer came out. You could go to the computer lab at the university but nobody had their own computer. This guy, the super-smart one, had a Texas Instruments calculator and it had these little magnetic strips that were programmable that you could slide in and out of the calculator. It was the strips that were programmable, not the calculator itself.
One time I’m hanging out in his room and I’m looking at the calculator and asking him how it works. He tells me how he just made 100% on an exam. He was a dual degree engineering and finance at U Penn. He said he programmed all the formulas into the calculator before the test. I asked him if that was cheating. He said “You’re allowed to bring a calculator to the exam, but none of the professors even know that these type of calculators exist or that they’re programmable.” At that point, I didn’t even know what a “program” was.
This same guy went on to be CEO of numerous tech start-ups and made millions in initial public offerings. He was that smart. Dave’s not. What Dave is good at is pattern recognition and not by using a computer program. Dave just uses his eyes and his brain and looks at stuff and sees patterns. A big part of my career has been in the fashion business (clothing, textiles, home fashions) and all that is pattern recognition. You notice trends emerging before they emerge. Probably the best thing I ever read about fashion was the saying “Fashion is merely the education of the eye.” What that means is educating your eye to notice pattern recognition.
Dave’s definitely not “fashionable” but Dave’s job is to know what’s becoming fashionable and what’s going out of fashion. Like blogging. Dave noticed a pattern. There were websites that were growing (like Amazon and E-Bay) but their growth was requiring massive amounts of capital. They were growing like Sear or K-Mart grew fifty years ago and they were making money but they were sucking up money too. Then there were other sites that were growing because they had fresh material everyday. These sites (the blogger ones) were killing the newspapers because of what Clay Shirky calls cognitive surplus. So Dave started blogging and you started reading. Dave’s thankful for you and your emails, but Dave didn’t have a plan. Dave’s not like that guy in college with the programmable calculator. Dave just tries to answer the question with what he knows, not what the computer tells him.
That’s why Dave stuck his neck out the past couple of days suggesting that the price of gold would retract temporarily. Dave didn’t have any technical basis for his claim. It was a wild guess. Dave doesn’t like doing that, but it’s what he does and can’t seem to stop doing it, but it has worked out great so far. Back to the gold guess. So Dave is feeling that awkward feeling when you climb out on a limb with a handsaw and start sawing, so he starts digging around to find the objective justification for the subjective feelings he has… and I think I found it.
ETFs. Exchange traded funds and the CME Group. Dave’s been writing for a couple of years and had my share of posts about gold and the possible rise to $7,500+ as measure in USD. Then why would Dave come out and say gold is going to have a correction back to $1,500? That’s when it hit me. There needs to be a very thorough campaign to support the price of gold as the holders of the ETF move out of the ETF and into physical. If not, the price of the ETF will collapse before the sellers of the ETF can get out, thereby having a negative impact on the value of their paper gold holdings.
Dave’s written extensively that he feels that the CME Group is a ticking bomb. The arrangements that have been made via the CLS Banks for LCH Clearnet to by-pass Dodd-Frank when combined with the power of the Depository Trust and Clearing Corporation to invoke a flash crash at will (with your Cede & Co. street name brokerage account by the way) have the potential to impose an intra-day counterparty nightmare scenario for the Comex. At least that’s the way Dave sees it and when websites like the Motley Fool come out with articles saying the CME is potentially “the perfect stock” that just adds to Dave’s pattern recognition: http://www.fool.com/investing/brokerage/2012/03/29/has-cme-group-become-the-perfect-stock.aspx
If the plan is to move out of the GLD and leave the CME holding the BAG, the one thing you need to do is to support the price of gold whilst you unload your paper gold ultimately resulting in the collapse of the paper gold price while exploding upward the physical price. I guess you could call that the bifurcation of the gold market. How do you feel exactly about buying a U.S. mint gold eagle coin for say $5,000 while the price of GLD is say $500?
If you have 100,000 units of GLD, Dave thinks you can probably redeem it through the trust via one of the bullion banks for actual physical. That would equate to $16 million+ dollar holding to qualify for a withdrawal. That is assuming you can get one of the bullion banks to cooperate and that you’re not calling on one of the days when there’s a run on the gold vault.
To summarize, Dave believes the price of gold is going to go down for two primary reasons; untenable counter-party risk at the Comex and the general liquidation of GLD units. Dave believes the coordinated public relations campaign on everything from Jim Rickard’s Currency Wars and Matthew Bishops’s In Gold We Trust to the most recent release of John Butler’s The Golden Revolution is a coordinated effort to get the masses interested in buying gold (of the paper variety) in an effort to provide price support for the re-hypothecated precious metal as those in the know unload their paper.
The thing about this that has been bugging Dave the most is GoldMoney.com. The GoldMoney.com model really highlights this issue and somewhat provides the convenience of the ETF while being structured as a bailee/bailor model rather than a creditor/debtor model. Last year when the regulatory folks in the Netherlands decided to shut down GoldMoney.com under a premise that their product was an “investment object”, the result was that GoldMoney closed all their accounts in the Netherlands.
Could the same thing happen here that happened at Kitco when they were raided by Revenue Quebec? How about what happened when MF Global collapsed? Dave may not see dead people, but he does see a pattern and the pattern is one of dead companies that got in the way. Is there a mass financial funeral planned in conjunction with the June 4 extended bank holiday? Who knows. Maybe so. If there’s one other thing that Dave has noticed about patterns, its that anytime there is a holiday or an options expiration or any other opportunity to game the system, the system is gamed. If gold is going to these outrageous levels as predicted, then the opportunity to take big losses to get out of the paper is all the more compelling. I was the one who wrote right here that silver would fall $15 from $50 to $35 due to the great opportunity that JP Morgan had due to their Bear Stearns position. How much more GLD if the full monetization of the CME is now in play courtesy of Dodd-Frank and the CLS Bank quarantine.
GoldMoney.com shut down in the Netherlands: http://www.scribd.com/nick_derks/d/66528750-Untitled
With the ballot set, is it time to hit the reset switch?: http://tradewithdave.com/?p=9901
Is the CME Group next in line for the butcher shop: http://tradewithdave.com/?p=9344
Pump With Dave: http://tradewithdave.com/?p=9358
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