Thursday, March 29, 2012

Never Judge a Book By It's Cover

Efficient Markets Hypothesis (EMH) and its founder Eugene Fama will always tell you that at any given time, security prices fully reflect all available information. Well, before you walk away take note of the piece ZeroHedge carried from Chris Martenson entitled How Gold is Manipulated (But That's Okay). It was in Chris's piece that he cited some extremely compelling evidence via the blog SK Options Trading. That piece Revisiting Our Proposal for an Overnight Gold Fund makes for quite the read.

Check out some of these tidbits from SK Options:

"For example a hypothetical gold investment fund starting with $100m in 2001, and using it to buy gold at the AM fix and sell it at the PM fix would now be left with just $31 million, almost a 70% loss in just under ten years. Over the same time period gold prices have risen over 590%."

"If a hedge fund or even an individual trader were to have sold gold at the AM fix and covered that short position at the PM fix, for each day of this terrific bull market run in gold, that fund would have almost tripled their starting capital."

"Consider a hedge fund starting in 2001 with $100m, with the strategy of being long gold from the PM to AM fix, and short gold from the AM to PM fix. That hedge fund would be worth $5.26 billion today, before any fees and expenses."

So an asset rises 590% over a period and you have a 3 fold increase the opposite direction intraday? Kinda shocking, no? Eyebrow raising, maybe? Do you think anyone at the SEC of CFTC has noticed any of this? Some might say defend their ignorance as it's much easier to surf porn that dig into the inner machinations of our crony capitalist system. So rather than go after something like this or the criminal class likes of a Cassano, Paulson, Raines, Mozillo, Geithner or Dodd we instead get the when they're not too busy porn surfing tough guys at the SEC chasing down sacrificial lambs Griffiths and Steffes. Pathetic.

The gold article has some great charts showing all the internal disparities. Tends to give new meaning to the phrase never judge a book by it's cover. But wait a minute, didn't we learn that lessson from the uber-respectables Madoff, Stanford, and his excellency Corzine?

Fraid not

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