Gold Goes Bass Fishing
By Kevin Brekke
As a member of the pro-gold community, I am routinely forced into educating those that would lump me into the category of gold bug, and for no other reason than that this group can be so damn embarrassing. For a group that prides itself on being on the right side of history, they are regularly on the wrong side of the headlines.
Once you grasp the reality that the majority of today’s news generators are just another entertainment appendage of Hollywood, it will all begin to make sense. As an investor, you can either be on the consumption side or the analysis side of the incessant stream of infotainment that barrages us daily.
One day’s headline, like any news of the status of the Fukushima nuclear power station, can turn untold numbers of news consumers into Chicken Littles, grabbing their guns, canned beans, iodine and Krugerrands and heading for the bunker. The next day’s news that a university investment fund bought physical gold can reform our Chicken Littles into alpha roosters, airing out the compound, enjoying the endless blue sky, and strutting around the blog-o-barnyard with puffed chests and atta-boys all around.
"Texas University Buys $1 Billion of Gold Bars" screamed the headlines in a steroid font. Talk of "new eras" and "turning points" for the gold market ran viral among the bugs’ blogs. You could almost hear the metaphysical bell ring, signaling that it was time to go all in.
Meanwhile, over on the analysis side of the headlines, things looked a little different. Let’s take a look.
The decision to purchase and store 664,300 ounces of gold was made by UTIMCO, the University of Texas Investment Management Co. that oversees funds held by the University of Texas System and Texas A&M University.
Seated on the board of UTIMCO is J. Kyle Bass, managing partner of Dallas, Texas-based hedge fund Hayman Capital Management LP. Bass is credited with successfully shorting the U.S. subprime mortgage market and walking away with a $500 million profit. His resume includes stints as a salesman with Bear Stearns and Legg Mason.
Bass is also a graduate of Texas Christian University.
Bass had been advising the board in early 2010 on the merits of owning gold and how to ladder into the gold futures market. He was named to the endowment’s board later that year in August. The board subsequently voted to convert its paper contracts into physical gold by taking delivery. Bass was asked to assist with the storage of the gold, now held at a Comex-registered vault in New York owned by London-based HSBC Holdings.
About the decision, Bass remarked, "I simply voted as a board member to approve the storage facility and concurred with their decisions."
Uh-huh. Right.
Now, do not hastily tag me as a gold SINO (supporter in name only). I, too, am encouraged to see a large fund not only take a position in gold but to take a large position in physical gold. A smart move in my book.
But let’s not get carried away with reading too much into this. Bass is far from your typical voting board member on a university investment fund. I mean, really, how many wildly successful hedge fund managers, alumni, local boys, and former Wall Street players are there on other university funds’ boards? I don’t have the answer, but I suspect it is a small number.
And to the claims circulating that this purchase will put further pressure on the availability of gold bullion, I offer a thousand words:
This photo shows how gold is stored in a bullion bank’s vault. Not a velvet lined cedar box in sight. Odds are that the UTIMCO purchase did not entail the movement of any gold or even cause a forklift operator to break a sweat. A change in ownership was noted in the appropriate ledgers, and that was that.
Throttling back on the sarcasm, though, the purchase was certainly a welcome move by a large institution, a move the metals team at Casey Research has been expecting. But unlike the histrionics, theories, and conclusions drawn by the media consumers, the editors at BIG GOLD have developed and follow a measured approach to gold and gold stock accumulation. We recommend you do the same.
[Try BIG GOLD risk-free today, at only $79 per year and with 3-month money-back guarantee. Click here to go directly to the order form, or read more here Mom’s IRA about Editor Jeff Clark’s portfolio-boosting strategies.]
Ed, I agree with you. But there is a flip side to that coin. Just as we have irrational gold bugs in our camp, those that ridicule gold ownership conveniently choose to debate just the points made by the extreme gold bugs. That is, they try to portray all gold investors as extremist gold bugs that have one monolithic message, in order to make themselves seem more “rational.” To them, we are all Glenn Becks (not that Glen Beck has not made some good points – he has.)
I didn’t write this one. Brekke at Casey Research did. But I agree that gold is a worthy investment in this climate. Gold is less an inflation hedge and more a money debasement hedge. The way to look at gold in my view is through the lens of negative real interest rates. It is not the inflation rate per se that causes gold to rise but the low real return in fixed income asset classes.
https://www.commodityonline.com/news/Real-interest-rates-are-the-prime-driver-of-gold-price-24907-3-1.html
I agree about the debasement. But I don’t think that’s the root cause but a symptom of the root cause. The real issue lies in the extreme global imbalances that exist in the global economy. These imbalances include wage disparities, trade disparities, and the resultant debt disparity. The wage and trade imbalances created a (necessary?) debt situation (private and public sector) to artificially maintain western living standards. This is an unsustainable system, regardless of MMT dynamics.
The price of gold in my view represents the resolution of these imbalances. Will the resolution be a smooth transition, or eventually a chaotic one, that may even involve wars?
I see it as chaotic. The wars already have begun. At the end of the day, money is used to determine who gets what resources. When the money needs to be manipulated more so by some than others to maintain consumption levels, friction develops, which translates to a new geopolitical reality, and can take the current global monetary system down with it.
Excessive expansionary monetary systems and resource scarcity can not coexist for long, IMO.
God commentary. I agree that a resource constrained world and expansionary monetary systems are going to create tension. That is certainly my thesis. At some point those with power and access to money will realize that resources are scarce and move to protect their position, by force if necessary.
Well China have already realised this and are stockpiling commodities in preparation.
Ed, I agree with you. But there is a flip side to that coin. Just as we have irrational gold bugs in our camp, those that ridicule gold ownership conveniently choose to debate just the points made by the extreme gold bugs. That is, they try to portray all gold investors as extremist gold bugs that have one monolithic message, in order to make themselves seem more “rational.” To them, we are all Glenn Becks (not that Glen Beck has not made some good points – he has.)
I didn’t write this one. Brekke at Casey Research did. But I agree that gold is a worthy investment in this climate. Gold is less an inflation hedge and more a money debasement hedge. The way to look at gold in my view is through the lens of negative real interest rates. It is not the inflation rate per se that causes gold to rise but the low real return in fixed income asset classes.
https://www.commodityonline.com/news/Real-interest-rates-are-the-prime-driver-of-gold-price-24907-3-1.html
I agree about the debasement. But I don’t think that’s the root cause but a symptom of the root cause. The real issue lies in the extreme global imbalances that exist in the global economy. These imbalances include wage disparities, trade disparities, and the resultant debt disparity. The wage and trade imbalances created a (necessary?) debt situation (private and public sector) to artificially maintain western living standards. This is an unsustainable system, regardless of MMT dynamics.
The price of gold in my view represents the resolution of these imbalances. Will the resolution be a smooth transition, or eventually a chaotic one, that may even involve wars?
I see it as chaotic. The wars already have begun. At the end of the day, money is used to determine who gets what resources. When the money needs to be manipulated more so by some than others to maintain consumption levels, friction develops, which translates to a new geopolitical reality, and can take the current global monetary system down with it.
Excessive expansionary monetary systems and resource scarcity can not coexist for long, IMO.
God commentary. I agree that a resource constrained world and expansionary monetary systems are going to create tension. That is certainly my thesis. At some point those with power and access to money will realize that resources are scarce and move to protect their position, by force if necessary.
Well China have already realised this and are stockpiling commodities in preparation.