As gold takes another hit, the Great Escape from stock markets begins

In September 2012, The Slog posted about the rush among the cynical savvy to buy top-end ‘glitz bricks’, and to by-pass purchase channels and grab gold direct from the miners. Gold never took off as expected, because it wasn’t allowed to. I also posted later that ‘for as long as it’s legal, gold is to have and to hold’. It’s still true, but nobody expected such a concerted, mind-blowing effort to hold back market realities such as we have seen since then. As I write, Gold is at $1204 and showing only weak resistance to devaluation. But quietly at first, the stock markets are starting to choke. We are now in the last quarter of Crash 2.

The property rush continues (the top end in fashionable central London is still steaming ahead, with 90% of buyers non-UK nationality) and despite what the trackers say, gold has been in as much demand as ever. For this reason among others, it was vital for the sovereign and central bank manipulators to devalue gold prior to collecting hoards of it for their banking systems. Once safely tucked into the vaults, it will be revalued…and (almost certainly) there will be a ban on trading in it. Some sections of Basel III make it quite clear that a ‘reassessment of gold’s worth as a banking asset’ is on the cards.

As support for this, you probably noticed yesterday – if you’re sad like me – that despite their product taking another Ingo’s bingo to the chin, the gold miners held steady. This is smart money sussing that, come what may, the miners are assured of two things: a ready market for their product at higher margins in the long term; and the certainty that, as gold’s ‘manipulated’ value comes down, supplies of gold will dry up…because the real cost of getting the stuff out of the ground nowadays will make new mining uneconomic. When the ‘reassessed’ price of gold is set at some point, miners will effectively have the world’s CBs and sovereigns doing their marketing for them…and a steady outflow of newly mined ‘expensive’ gold with which to stabilise banks and/or back currencies. They think they’re are sitting prettier than a butterfly on a ceanothus. I’m not so sure, but we’ll see.

The point is this: we are now seeing élite duck-row organisation bigtime. Sovereigns are recalling their gold before some edict nationalises it. They’re also depressing its price in readiness for the next move. The top end multi-millionaire/billionaire sector are buying property and trying to hoard such gold as they can.

And now, those who’ve been benefitting from these ludicrously overvalued stock markets are starting the quiet process of dumping the assets they have there.

I think they’re doing this for a number of reasons. I think in the last 24 hours, gold has fallen so much, they’re being forced into making margin calls – in English, that means ‘cut their losses’. The Feds and ECBs know this well enough, which is why gold may well have some way down to go yet: they need to force private money out of the ball-game…and of course, the  effect of rich folks making major margin calls will be to drive down the price still further.

Second, Bernanke’s white flag-waving on the subject of QE is the biggest sell-signal in history. The only way from here, pretty much, is down.

Third, they’ve done the leverage-to-turnover sums in American companies where they invest, and concluded that 20,000 gilders for a tulip is no longer tenable. I’m sure they’re right.

Fourth, they want to convert paper into Things – buildings, cars, houses, land, agricultural equipment – ready for when Crash 2 finally arrives…and while there are still some glitz bricks left. (In that process, by the way, Minister without Shame Kenneth Clarke will do very nicely thank you…as I posted ten days ago).

There’s an interesting take on this at Testosterone Pit – posted three days ago, but pointed out to me by a Slogger late yesterday. It offers some interesting (and very blunt) quotes from the asset-sellers:

“We think it’s a fabulous environment to be selling,” said Leon Black, CEO of PE giant Apollo Global Management. With stock markets having more than doubled since their 2009 lows, average prices for leveraged buyouts have jumped to nine times earnings, he said. His firm had already dumped about $13 billion in assets over the last 15 months. “We’re selling everything that’s not nailed down,” he said.

Apollo Investments already dumped eight portfolio companies through IPOs this year alone. A ninth, Athlon Energy, filed for an IPO earlier this month. Also this month, EP Energy sold off three of its entities, raising $1.3 billion. Other PE firms are selling as well, including Warburg Pincus, which is hoping to unload Antero Resources in a $1 billion IPO.

Remember the Slogpost earlier in the week about three legs missing from the four-legged stool? I now see the fourth leg – the stock markets pumped up by taxpayers’ money – about to split under the strain of supporting obese buttocks.

Unless, of course, the Draghis and Goldmans and Paulsons and all the rest of the by now panic-stricken bozos at the top have another cunning plan, my Lord. Consider: we already have gold collapsing in a slump, stratospheric share prices in a slump, low bond yields in a chronic Sovereign debt pit, and no real signs of any climb out of either the slump or the pit. And all this from those wonderful people who gave you ‘The market must decide’.

The four legs on the stool are morphing before our eyes into the Four Horsemen of the Apocalypse. Crash 2 is coming: prepare for stock slaughter on a hitherto unprecedented scale.

Last night at The Slog: How Radical Realism means putting People first