Tag Archives: fisher

Analysts’ Predictions on Gold; Readings


forecasts-forecasts-everywhere  (A good post on psychology)

So the gold price drops, so the gold forecasts drop. Some recent calls in order of bearishness:

Towards the end of 2010 I (Bron Suchecki)  started recording forecasts in a spreadsheet, as I noticed many analysts revised their forecasts frequently in response to moves in the gold price. By 2012 I had given up as it was a lot of work to make one point – that in general analysts were just following or projecting the trend.

The chart below shows the forecasts I accumulated from late 2010 to early 2012 (the clustering around July are yearly average forecasts) and I’ve added in the recent ones above.

Continued….on recent gold “smash”

When the gold price has a big move the news agencies ring up traders for a comment. When I read these articles I’m looking for two things: why do traders think it happened and what do they think about gold going forward. Understanding these consensus narratives around gold is useful as they control large amounts of money and their views influence others.
Before I go on to discuss the comments, please note that narratives (see Ben Hunt) are not about truth, they are about what everyone thinks is the truth. For many finance professionals, the truth is less important (if at all) than being in the herd – most are not interested in the career risk of taking a position contra to the consensus view.
In terms of the why, here are some of the more sensible comments:
  • Ross Norman: They choose the optimal moment in the early morning and when Japan was closed for a holiday to get the biggest bang for the buck. It was clearly ‘short’ traders using leverage to trigger (technical) stops” he said. The price later regained some of its ground, allegedly as the profiteers cashed in jackpot gains on options that they also had. “It was a trade within a trade”. (link)
  • Marex Spectron: no coincidence that this happened in the quietest, thinnest period of the week … they deliberately want to move it in a big way (link)
  • “Traders”: Gold also fell in the Chinese derivatives market, which, traders said, added to the impression of an orchestrated attempt to push the price down, triggering others to sell their positions. (link)
  • Martin Armstrong: many rumors floating around from China off-loading because wrong storage figures were released, to a large spec investor who sold 6 tonnes and has taken a huge loss on a leveraged trade! (link)
  • “Traders and Analysts”: attributed the massive move to high-frequency trading algorithms as well as stop-loss selling. (link)
  • Societe Generale: It was just a bit of a bear raid and there was nobody on the other side to mop up the selling (link)
  • Chuck Butler: maybe the gold sale on the SGE was “margin influenced,” which would mean that large investors use gold as collateral on stock trades, and as the Chinese stock market has dropped the margin calls have come in (link)
  • “Market Participant”: The fact that it was done in Asian hours and in a loud, messy manner suggests it may be done by people not directly under European and US regulation (link)
The general view seems to be that it was a deliberate tactical move to push the price down, trigger stops, and try to get gold down to the technically important level of $1080, but with the real objective of making money on another derivative position.
On to the narratives around gold after this price smash. Here are a selection:
  • Singapore-based trader: “We do see a lot of people in China selling gold to get fast cash to go back into the equity market” (link)
  • Phillip Securities: “It looks like the end of an era for gold, China has been grappling with oversupply after importing a record volume in 2013.” (link)
  • Societe Generale: “We have breached significant support levels, we know U.S. rate hikes are coming, there is no inflation and there is no catalyst to hold gold when other markets are doing better” (link)
  • Momentum Holdings Ltd: “With low global inflation and an improving U.S. economy, I doubt we’ll see big economic shocks, which is not good for gold” (link)
  • KBC Asset Management: “Gold is a hedge against everything that can go wrong. But at the moment it appears that not a lot is going wrong. We have an Iran deal, a Greece deal and we have good news from European and U.S. economies. There is no real reason for us to invest in gold and gold companies.” (link)
  • Deutsche Bank: “the “fair value” for gold is around $750. … “All the ducks are now aligned for a gold slide: real interest rates are rising, the dollar is getting stronger and the risk premium on equities is going down” (link)
So no change in the “improving US economy” and “Fed raise rates” story, indeed I feel that market participants see this price smash as confirmation of this narrative. That is not good for gold as it will give them confidence to test gold again. I’m not as confident as they are that everything is looking rosy and all the problems have been solved so I find myself agreeing with Adrian Ash that just like in 1999, this is a case of “peak hubris of policy-makers thinking they had abolished the boom-bust cycle” and that “gold continues to do what it does, rising when you need it and slipping when the financial world thinks it’s just a useless commodity”.

Former Gold Bug Turns Bearish: Http://www.armstrongeconomics.com/archives/35556

No Matter What Book You Read Do Not Buy Gold

Current Sentiment (note small specs INCREASING their shorts as price moves sideways this past week).


COT positions


gold spy

commod to stks

country hubris

Grave Dancing on Goldbugs

From Bloomberg (Bloomberg belongs to a limousine socialist, and is well-known for its pro-central banking/ pro-money printing and anti-gold editorial line. Some of the most ludicrous articles about gold ever published have appeared on Bloomberg):

Gold Slump Not Over as Speculators Go Net-Short for First Time – apparently Bloomberg’s authors have yet to hear about contrarian signals.

Gold Is Only Going to Get Worse (“Our survey shows a majority of traders and investors aren’t optimistic”) – indeed, Bloomberg seems to be blissfully unaware of contrarian sentiment analysis.

Gold Could Fall to the $1,000 Mark (video)

Good Luck Bargain Hunting for Gold Miners – naturally, gold miners are even more doomed than gold itself…

From the Wall Street Journal:

Let’s Get Real About Gold: It’s a Pet Rock – actually, as we have previously pointed out, it’s a door stop, not a pet rock. We should perhaps mention here what Jason Zweig, the author of this WSJ article, wrote in 2011 right at gold’s peak. From Mr. Zweig’s WSJ Article of September 17, 2011:

“Growing numbers of investing experts have been declaring that gold is a bubble: an insanely overvalued asset whose price is bound to burst. There is no basis for that opinion.”

With respect to gold miners (which since then are down by more than 80%) he opined:

“But there is one aspect of gold investing where it is possible to make rational estimates of value: the stocks of gold-mining companies. And, by historical standards, they seem cheap—based not on subjective forecasts of continuing fiscal apocalypse, but on objective measures of stock-market valuation.”

This is really a textbook example of how market sentiment works.

From Marketwatch:

The carnage isn’t over in gold, other metals-mining stocks

Study predicts gold could plunge to $350 an ounce (i.e., here come the extreme predictions, the inverse of the vast bullish consensus and the extreme bullish predictions that were made at the peak by gold bulls)

And all of this was finally crowned with the following pronouncement in the Washington Post:

Gold is doomed

Interestingly the author of this article, Matt O’Brian, actually gets one thing right, although his conclusion remains utterly wrong – he writes:

“When you think about it, a bet on gold is really a bet that the people in charge don’t know what they’re doing.”

That’s exactly what it is Mr. O’Brian. The wrong conclusion he comes to is this one:

”But economists do, for the most part, know what they’re doing.”

Yes, in some parallel universe perhaps. That people can profess such beliefs after the twin debacles of the tech and housing bust and after yet another giant asset bubble has been blown by these “economists who know what they are doing” is truly stunning. How blind and naïve can one possibly be? This article is a good example of statist propaganda. Our wise leaders know what they are doing! How can anyone doubt it!

Meanwhile, the mirror image of bearishness, we see:

Meb Faber ‏@MebFaber  Jul 29

2015 has seen the largest amount ever raised in a biotech IPO, as well as the largest valuation for bio IPO with no drugs. via @IPOtweet.  Can anyone guess how those investments will do over the next five years?

Additional Reading

A reader contributes: http://www.buffettfaq.com/ The blog has questions and answers of Buffett and Munger categorized by different parts of investing.


Also, worth a look: This Blog Analyzes Money Managers

Marty Whitman Classic, Devastating Losses, and More Classics

Book Aggr Inv


and http://www.thirdave.com/ta/

Marty Whitman is an asset based investor who prefers safe and cheap. Unfortunately, the 2008/2009 crash put a dent in his mortgage insurer stocks which turned out to be neither safe nor cheap. Third Avenue Value Fund (TAVFX) tumbled 63% in a year. Humbling.


Vs. S &P 500

Index tavfx



Whitman Takes on Ackman Over Bond Insurers

A respected value investor, Martin Whitman, is going toe-to-toe with another well-known value investor, the hedge fund manager William Ackman, over the future of the bond insurance industry.

Mr. Whitman, founder and co-chief investment officer of Third Avenue Funds, increased his holdings in the two largest bond insurers — MBIA and the Ambac Financial Group — during the fund’s first quarter, which ended Jan. 31. He also increased his stakes in the mortgage insurersMGIC Investment and the Radian Group.

In doing so, Mr. Whitman, has, in effect, put his reputation up against that of Mr. Ackman, whose big bets on share price plunges in the industry have received wide media attention.

There is “much profit to be made in” the bond insurers, whether the companies continue as going concerns or write no new policies and sell off their existing business, in part or in whole, Mr. Whitman said in a letter to fund shareholders.

The 82-year old Mr. Whitman devoted a substantial chunk of the letter to defending his MBIA stake, saying that the company appears to be “very well financed” — a claim William Ackman has disputed vigorously.

Mr. Whitman, who has made a name by buying assets most other investors shun, in January increased his stake in MBIA, the largest bond insurer, at $12.15 a share and now holds about 10 percent of its outstanding shares. Third Avenue also has bought $326 million of the $2.6 billion MBIA has raised in new capital through note sales, which Mr. Whitman said made the company “strongly capitalized.”

“It ought to qualify easily for an AAA rating with a $17 billion claims-paying ability. If so qualified, MBIA would be in a position to underwrite a large amount of profitable new business,” Mr. Whitman wrote in the letter.

But Mr. Whitman noted that among the impediments that might prevent MBIA from winning a stable outlook was the possibility that Mr. Ackman might adversely affect the company.

Mr. Ackman, who has been shorting the bond insurers for some time, has argued that they do not have enough capital to handle a surge in claims.

“MBIA is being victimized by an apparently well-organized bear raid headed by William Ackman of Pershing Square Capital Management,” Mr. Whitman wrote.

Mr. Whitman said that while Mr. Ackman’s bearish views had made it possible to buy MBIA at depressed prices — he noted that the common stock of the four companies has been selling at discounts of about 70 percent from tangible book value — his arguments are “off-base.”

“Ackman believes the bond insurer model does not work because the insureds are able to buy an AAA rating so cheaply,” Mr. Whitman wrote. “The facts are that bond insurance is one of the more profitable P&C businesses.”

Mr. Whitman has proven a master at turning debt bought at distressed prices into something far higher value. For example, he paid about $10 a share for Sears Holdings, some of which he later sold at more than $130 a share and higher.

MBIA activities  http://en.wikipedia.org/wiki/Bill_Ackman

In 2002, Ackman began research which concentrated on challenging MBIA‘s AAA rating, despite an ongoing probe of his trading by New York State and federal authorities. He was charged copying fees for copying 725,000 pages of statements regarding the financial services company, in his law firm’s compliance with a subpoena.[6] Ackman has called for a division between MBIA’s bond insurers’ structured finance business and their municipal bond insurance side, despite statements from the insurance companies that this would not be a viable option.[7]

He argued that the billions of dollars of CDS protection MBIA had sold against various mortgage backed CDOs was going to be a problem. He also argued that it was not proper for MBIA, which was legally restricted from trading in CDS, to instead do it through a second corporation, LaCrosse Financial Products, which MBIA described as an “orphaned transformer”. Ackman bought credit default swaps against MBIA corporate debt as a way to bet that it would crash. When MBIA did, in fact, crash as the financial crisis of 2008 came to a head, he sold the swaps for a large profit. Ackman reportedly attempted to warn regulators, rating agencies and investors about the bond insurers’ high risk business models. The story of Ackman’s battle with MBIA was turned into a book called Confidence Game (Wiley, 2010) by Bloomberg News reporter Christine Richard.[8] He reported covering his short position on MBIA on January 16, 2009 according to the 13D filed with the SEC.[9]

Bill Ackman is a “slick salesman who does not know much about insurance and certainly doesn’t know much about restructuring secure debt”

If you said Carl Icahn you are incorrect.

The previous statement was made by Mr. Martin Whitman – octogenarian and Chairman of Third Avenue Funds Inc.

During the financial crisis, Bill Ackman was short MBIA. Mr. Whitman took a large long position in MBIA and Ambac after the stocks dropped in the crisis and after Mr. Ackman revealed his short. Not only was Mr. Whitman determined to state that MBIA was worth $35 per share, but he also made particular efforts to insult Mr. Ackman’s research efforts and intelligence.

This article on Dealbook summarizes some of Mr. Whitman’s arguments.

What can we learn from this history?

1) Both parties were convinced they were correct.

2) Both parties took significant stakes in the company in question/backed-up their trades.

3) In the end, only Mr. Ackman was left standing.


CSInvesting: So what are the lessons for us, the mortal, individual investors?

  • First, anyone and everyone can err. Don’t rely on a guru. Do your own work.
  • Second, financial firms can be laden with unforeseen risks based on their dependence on outside capital and ratings.
  • Third, Mr. Whitman underestimated the amount of bad debt and the quality of the assets that the mortgage insurers insured. Knowledge of the Austrian Business Cycle Theory might have helped.
  • Ackman challenged the conventional wisdom and saw the flaw in the ratings game.

I hope you study this case further. Ackman wrote a book about MBIA, The Confidence Game. Read more: http://brontecapital.blogspot.com/2010/07/confidence-game-commentary-on-ackman.html

More Classics: Paths to Wealth https://www.hightail.com/download/bWJvTkZ0WkJtUUVVV01UQw

100 Minds https://www.hightail.com/download/bWJvTkZ0WkJEbUlQWWNUQw