Diary of a Financier

All in All It’s Just Another [Gold] Brick in The Wall

In Capital Markets on Tue 19 Apr 2011 at 08:10
  • University of Texas endowment increases its Gold allocation to $1B.
  • UT Boardmember Kyle Bass cites central bank “printing” as the catalyst, but that story is waning.
  • Such magnanimous, public events like this mark major market reversals.

A lot of people are talking about equities “climbing the wall of worry” lately.  While theirs is a relevant concern, I’m ready to retire the phrase by filing it away with the “new normals,” the “greenshoots,” and the “race to the bottoms” that came & passed before it.  [I’m getting ready to stomach this quarter’s next new catch-phrase, “we don’t have a revenue problem, we have a spending problem.”  It’s a boarderline truism, but you’ll see it used as an original, penetrating notion in all sorts of research henceforth.]  It’s not that the wall of worry isn’t worth discussing; it’s just that I’m exhausted by the token phrase and the jawboning, which has been accompanied by the same planks for the past six months.  The commodities/precious metals party is the greater story for me, because it’s not about what’s already happening, it’s about what’s going to happen.  Like I keep saying, I’m an early contrarian party crasher, and I’m happy to wait patiently until the money is just sitting in the corner.  I’ll be the first one to walk over and pick it up.

Here’s another straw to break the Gold bull’s back; another brick in the Gold wall of worry; and other clichés. The second largest US academic endowment with $19.9B in assets, the University of Texas, has increased its physical gold allocation by 50% to $1B, after recently taking delivery on $500M in new bullion.

Local hedge fund manager Kyle Bass is a boardmember of the UT Investment Management Company. Having garnered accolades in profiting $500M from shorting subprime in 2008, Mr. Bass has since plugged gold as his next big trade. As a result of his subprime stardom, his conviction already spiders through markets like that crack on your windshield. With his hand in controlling the UT endowment, Mr. Bass’ direct influence has now spidered beyond the confines his own AUM.

In regards to the UT Gold addition, Mr. Bass relates:

Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services… I look at gold as just another currency that they can’t print any more of.

It’s like the complete opposite of Gordon Brown capitulating with England’s sovereign gold.  In 17 auctions between 1999-2002, Mr. Brown sold 395 tonnes of gold at an average price of $275.60 (compared to today’s price of $1,492.90).  His pre-announcement of the auctions sent gold to 20-year lows, ensuring the worst possible execution for his constituents, the English taxpayers.

Mr. Brown’s folly marked the bottom of the modern Gold bull.  Perhaps ballparking the top, Kyle Bass’ Gold soundbytes could win a place in history alongside Mr. Brown’s, Chuck Prince’s, and Irving Fisher’s. “Central banks are printing more money than they ever have,” he said this weekend.  But the Fed is the only one left printing, and its QE2 ends in June.   With the True Finns winning their way into the Finnish parliament over the weekend, the pending National Coalition between Finland’s anti-EU factions would trounce the likelihood of bailouts for EU laggards like Portugal.  The Euro (EURUSD) enters this week closer to dissolution than debasement.

As always, ZeroHedge astutely notes:

The only open question is who was the broker with enough gold to deliver to the UofT. We hope to find out soon enough. We also hope that the UofT is smart enough, and that Kyle Bass advised it, that if they are getting “delivery” in a Comex vault in New York, the gold has likely already been leased out at least several times to various entities demanding paper allocations…

Leverage, misincentive, assets with multiple claims upon them.  I’ve heard this story before.  Gold has gone parabolic of late… wait until it goes vertical.  COMEX’s hand will get shaky at the controls.  Just wait.

–Romeo (hattip Tyler Durden)

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  1. […] were reminded not to fight the Fed.  (We played virtuoso through every subsequent dip.  We rode Gold to the tippity top, we let go to let Silver drop, we were all over the precious metal/commodity […]

  2. […] 4/19- Kyle Bass’ very public Gold purchase “mark[ing] a major market reversal… Leverage, misincentive, assets with multiple claims upon them.  I’ve heard this story before.  Gold has gone parabolic of late… wait until it goes vertical.” […]

  3. […] Correct (although that wasn’t a very bold call, I later punctuated it with this call for the precious metals collapse via parabola) 5. Emerging Markets: Bonds (EMB) have already […]

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