Conspiracy for Sale $831M

COMEX gold inventory on November 8th was 19.9 tonnes which amounts to $830M at $1,300 per ounce.  So if someone purchased $831M of gold futures and stood for delivery of all 19.9+ tonnes the COMEX would be forced to settle some of those futures in cash.  When the COMEX paper gold market is shown to have no physical gold backing it the price of physical will jump and reveal the gold price suppression conspiracy.  Cash settlement will likely be at 'before' prices.  But the buyer will realize a nice gain on the physical gold that they were able to receive and get their money back on the ounces that are cash settled.  

Surprisingly no ambitious hedge fund has tried this yet.  Since most hedge funds have about 4:1 leverage it would take them only $170M of equity.  Didn't Steve Cohen of SAC Capital just sell some artwork for a couple hundred million?  What is keeping George Soros, Kyle Bass, John Paulson, Carlos Slim or some other 21st Century version of the Hunt Brothers from giving it a go?  They've thought of it - or I charge only a small finders fee, just enough to wet my beak!*

Financiers looking at cornering the COMEX gold market must think that 1) the COMEX can get more bullion quickly and/or 2) cash settlement of COMEX futures would not send the physical price skyward and/or 3) selling their recently purchase 19.9 tonnes would tank gold prices when they try to cash out.  Could cash settlement already be built in to the price?  I doubt it.  And, if it is purchasing the last of COMEX's bullion at paper prices would be a fantastic investment.  Where could the COMEX get more bullion?  GLD?  the US Treasury?  The GLD ETF self-reportedly has 866 tonnes of gold.  And GLD's gold is conveniently stored at the same bullion banks who warehouse the COMEX's registered and eligible gold.  Selling 19.9 tonnes of gold without depressing prices should be easy since China is purchasing over 100 tonnes per month these days.  

What am I missing?  Perhaps anyone and everyone who can come up with $831M is not greedy enough to upset the apple cart.  LOL!!!!!


*The Beakwetter.  JP Morgan should hire whoever produced this video to manage their Twitter presence;-)

Large Hedge Funds' Leverage exceeds 2.5X.

The typical large hedge fund would be insolvent if they lost 28%.  That's the risk of levering up 2.5 times.

This article describes data recently collected from large (over $500M in net assets) hedge funds by the SEC.   In aggregate the funds have $1.47 Trillion in net assets and $1.06T in debt, which leaves $0.41 Trillion of equity.  Of course hedge funds are looking at the other side, which is if they achieve 10% growth of net asset the return on equity would be 36%.  

http://www.bloomberg.com/news/2013-07-31/sec-says-largest-u-s-hedge-funds-debt-tops-1-trillion.html

Investors in hedge funds are usually very sophisticated, professional money managers, such as pension fund managers.  Why would they pay a hedge fund 20% of gains to take on leverage and the inherent risks with their equity.  Do they believe that hedge fund managers have an edge so that gains are more assured?  Is this their way to buy in to high frequency trading, market manipulation, and insider trading? 

Hedge Funds up only 1.4% Year to Date while S&P 500 is up 12.6%

Who is making gains?

Seems that I have a lot of highly compensated company in grossly under performing the S&P 500 so far this year.  

The more interesting aspect of the hedgies performance is the other side of their trades.  Who has been making money?  It must be the central banks and their proxies the global, too big-to-fail banks.  Or are the central banks errand boys for the banks?

http://www.businessweek.com/news/2013-07-05/hedge-funds-post-biggest-declines-in-one-year-amid-market-rout

Most of the money hedge funds manage is for pension funds.  Pension funds for regular folks such as fire-fighters, teachers, employees of large companies, etc., etc.  The funds are under performing the S&P because the central banks continue to inflate the markets (stocks, bonds, real estate) with new created money.  This new money, created by the central banks adds to national debt which must be paid by higher taxes some day.  Therefore, right now your pension fund is likely losing money and you will be paying for it in the form of higher taxes.  Insult to injury.

Good Company in Underperforming the S&P Year to Date

This article by Zerohedge shows that the S&P is up 15.4% and the average hedge fund is up 5.4% YTD.

http://www.zerohedge.com/news/2013-05-22/ben-bernanke-crushes-hedge-funds-average-hedgie-underperforming-sp-65-2013

Tyler Durden's observations are, as usual very interesting.  He points out that since the market has been steadily increase in 2013 because central banks have been buying stocks directly.  The hedge funds tend to make their gains on volatility which has been tampered by the central banks buying.

One can infer that the hedge funds have been forecasting a market decline.  Their forecasts have proven wrong.  So far . . .

Anecdotally, many hedge funds were invested in Apple at the end of 2012 which has dropped from $532/share to $439/share in 2013.  The John Paulson funds have been famously invested in gold which has taken a beating so far this year.  And, Philip Falcone's Harbinger Capital's infamously lost big in telecommunications.  We hear a lot about a few famous funds regularly.  So its good to see how the entire 'we deserve 2 and 20' industry is performing.  That is hedge funds typically charge clients 2% of invested capital annually plus 20% of gains.

Shutting down fraudulent hedge funds that achieved their gains with inside information must be hurting the industry average.  Both, by removing the cheating fund from the average and scaring others straight, or at least straighter.