This is my Tuesday After Lunch Money Memo newsletter from yesterday.  Apparently a lot of people liked it, so I thought I'd share it more widely.  Let me know what you think by commenting below or by signing up!
FF

Bloomberg:  3-19-2009:  John Paulson, the hedge fund manager who was up 37% in 2008 by betting against subprime housing bonds and the investment banks, has purchased an 11% stake in Anglogold, the hefty South African gold miner.  Paulson also disclosed that his fund owns 4% of Kinross Mining, a major gold producer based in Canada. [Just to show that great minds run in the same channel, here's what another savvy investor has to say about gold.]

More on Ignore that Man Behind the Curtain—Buy Gold

Here's an example of life when you're sailing your boat free of rocks.

Financial Foghorn was below decks on this fine craft this weekend, preparing a detailed financial plan for Charlie, the little Yorkie in the life vest you see on the deck.

My local coin guy says the TV-advertising Buy Gold guys are paying out only 13% of what your gold is worth…"on average."
And if you complain, they'll give you another 13%.
The Onion has noticed the slight underpayments to the rubes as well:

"Given that the stated amount of gold in the GLD Trust has grown to over 850 tonnes, it appears that a lot of investors believe that investing in GLD is the same thing as buying physical gold bullion. "
–Dave Kranzler, www.lemetropolecafe.com, Little Bear Table, 2-10-2009

1.  I'll start with the Opening Sentence of the gold ETF (GLD) itself and work outwards to you. The opening sentence of the November 2004 gold ETF prospectus said, "This ETF is intended to track the performance of the price of gold."  Note that it doesn't say it will own gold, or anything so prosaic.  This Exchange Traded Fund that promises easy gold ownership for America is only going to track it.  You know, like your cat tracking a crow in the back yard.  And if GLD or your cat never quite gets there, well, it was an interesting exercise.

A careful reading of the first sentence should tell you that this is a document written by lawyers, and it is intended to be read by other lawyers who might be thinking of suing the guys represented by the first group of lawyers.  The opening sentence is nothing if not defensible.

2.  GLD Share Price: the current price of the ETF is said to be 1/10 of the price of gold.  Yet, GLD's price is usually below the actual price of gold even as priced on the COMEX.  Well, when GLD sells new shares that's the amount of money they get to buy gold.  And they buy ounces of gold with it.  This means that somehow, by some secret method, the guys managing a gold bullion ETF, while always behind the market, manage to pick up tonnes of gold at a discount to the COMEX price.  This is not possible.  The gold market is global and operates 24/7 all over the planet.  If gold is under priced somewhere, it will be arbitraged like a Tanya Harding knee chop.

Think about it.  Gold is currently very difficult to find under the earth.  It's tough to mine profitably, much less mill and smelt, and insure, transport and store.  Why would anybody be selling a bar of gold even near or below the price of an historically suspect pricing mechanism like the NY COMEX?  Why is there no premium on these shares?  The Central Fund of Canada (CEF) trades at a premium, but then, they go to some lengths to actually buy and own gold bullion.

Only if there's some other "form" of gold being purchased, such as a derivative "promising" to deliver gold, can the pricing mismatch begin to be explained.  (See #9 below, Jim Turk says there are only gold "deposits" involved here.  And Jim Sinclair says gold derivatives are being used.)

Or perhaps the disparity of price could have to do with the shorting of GLD shares by those nefarious short sellers.  With shorted shares, at the very least, you have two potential claims to ownership to a GLD share.  If the shares were shorted naked, who knows how many claimants there could be.  Want to go there?

You've gotta play this!

http://www.thebailoutgame.us/

This article was on www.lemetropolecafe.com from today. Maybe some of the dollar-bugs will see it, and start to change their minds about whether gold is rigged or not.

The Gold Anti-trust Action Committee (GATA) has long petitioned the federal government through FOIA (Freedom of Information Act) requests to reveal information about how it secretly manipulates currency and gold transactions to support the dollar. The government has consistently refused to respond.

Meanwhile, writer and researcher Elaine Supkis found an important document buried in the Federal Reserve's archives, marked Confidential. It comes from the papers of William McChesney Martin Jr., and is held by the Missouri Historical Society. It is written by a high level administrator out of the Federal Reserve Bank of NY [in the early 1960s] and describes in considerable detail the techniques the government is about to embark upon to manipulate foreign exchange markets to halt the ongoing outflow of gold.

The US dollar was still redeemable in gold at that time and foreign nations drained US gold rather than hold onto the ever-increasing flood of paper dollars coming out of the US Treasury. This is the smoking gun the Gold Anti Trust Action Committee researchers have long sought after, and now it is open for the world to read.

Even more interesting is the version by James Turk [at his site, www.goldmoney.com ], where he inserts his very astute analysis of the document to help readers understand the technical aspects that may not be clear to ordinary people. This is an historic find. Here is the link: http://www.gata.org/node/7095

The Wall Street investor who survived mustard gas and pepper spray this year is now a seasoned veteran. —Anonymous

42% of all Americans make New Year's Resolutions.  (Or 42% of all statistics are made up on the spot, I can't remember which.)  Anyway, it's time to say good riddance to what was a really, really crummy market year.  I thought I'd report on a few of the  Wall Street's New Year's Resolutions that you might have missed.

Generally for each new year, Wall Streeters promise to steal better and less obviously.  That may not be possible in 2009 because the big 5 Wall Street investment banks are now regular commercial banks (or they're dead), and stealing is slightly more frowned upon at the Office of the Controller of the Currency.  (It's still not punished, but at least it's said to be frowned upon.)  For 2009, Da Boyz resolve to do some serious new rule making to get things back to their liking.

Anyway, aside from those generic Street promises, here's my review of 2008, and what Wall Street resolves to do about it next year:

Happy New Year!

January 24:  Society General announced that a "rogue trader" cost them $7.2 billion in bad trades.  Later in '08, $7 billion became a rounding error for bank losses.  For 2009. Soc Gen promises to become a smaller bank…Oops, they are already.

February 1: Microsoft got hostile, and bid $44 billion for Yahoo.  Yahoo made a side deal with Google.  Microsoft raised its bid to $47 billion, then got bored, and quit bidding.  Yahoo CEO Jerry Yang later quit.  A Court threw out Google deal, and Yahoo stock collapsed.  Everybody booed.  For 2009, Microsoft promises not to bid, and Yahoo promises not to play hard to get.  Wall Street also promises to try and find more merger business next year, some IPOs, or even some trading.

February 11: The NY Times noticed that home prices were falling, lending standards had tightened, and that people were defaulting on their subprime, alt A, or even prime mortgages.  For 2009, the Times promises, that if this sort of defaulting continues, that they'll actually investigate these matters.

March 16: JP Morgan Chase takes $30 billion of the FED's money to skunk Bear Stearns.  This was NOT a bailout.  Generally, when a company is bailed out, they are left standing, and continue to do business, E.g., Chrysler or Lockheed back in the 1980s.  I don't see Bear Stearns anywhere, do you?
The near-St Patrick's Day massacre was most likely a bailout of JP Morgan who was owed a great number of billions by Bear, and after remembering Bear's stiffing of the financial community in the 1998 rescue of  Long Term Capital Management,  JPM attacked first.  (Bear declined to participate in the '98 bailout for a hedge fund they were the prime broker for, causing the then head of Merrill Lynch, Komansky, to take Bear's Jimmy Cayne outside the FED's conference room to try and punch his lights out.)  For 2009, JPM promises to take over additional financial institutions, swiftly and with even more FED money.

March 31: Treasury Secretary Paulson presented a plan to "overhaul" the regulatory structure for the nation's financial system.  (Why overhaul it?  It's never been used.)  Paulson's plan was basically to give all the regulatory power in the world to the FED.  The FED was and is a corporation whose only shareholders are the commercial banks of the world.  Gee, could giving the banks total regulatory power over the banks be a problem?   In 2009, Paulson promises to do even less for consumers, Congress, homeowners or businesses, and even more for the banks.

June  14: The price of a barrel of oil rose above $144, and gasoline at the pump soared to over $4.00 a gallon.  Then the Republicans noticed that there was an election coming up and the Da Boyz working the Comex drove the commodity index funds from the temple, clobbering them with short selling, margin calls, and deleveraging.  The oil price is still settling downwards.  For 2009, Comex promises to let prices…fluctuate.  Yeah, we've been fluctuated before.

July 12:  The FDIC seizes IndyMac bank, a California bank formerly connected to Countrywide, the busted mortgage lender.  Ultimately, since most of Indymac's $32 billion in alleged assets had already been pledged to Federal Home Loan banks, the FDIC says it will have to cough up $8-10 billion to bail out the depositors.  (And the total FDIC kitty totals something like $52 billion.)  LA papers show pictures of customers waiting outside an Encino Indymac branch - a genuine run of people trying to get their money, not seen since Northern Rock Bank in England in 2007, or It's a Wonderful Life in 1946.  For 2009, FDIC says it will seek to become a bank and get some of that TARP money.

August 8: Russian troops move into South Ossetia, a breakaway region of Georgia.  Russia denies it's about oil.  (Like elections aren't about politics…)  For 2009, Russia promises to jack up the price of natural gas further by forming a gas cartel with all those other Middle Eastern nat gas producers.

AND THEN September, the end of the 3rd Quarter from Hell: On the 14th of September, Lehman Brothers files for bankruptcy after Secretary Paulson said no Federal money was available to bail them out.  Merrill merged with Bank of America for a $50 billion stock deal the same weekend.  (With the fall of B of A's stock price, the price later turns out to be more like $20 billion.  To make up for this shortfall, Merrill's CEO asked for a $10 million bonus.)  For 2009, financial CEOs promise to ask for bonuses earlier in the year, or TARP money.

On the 16th of September: AIG was granted access to an $85 billion cookie jar, which soon became a $150 billion cookie crate, after AIG's credit default swap unit in London really began leaking money.  AIG qualified for such largess, because they've been rumored to be an old CIA buddy from way back, and they know where the bodies are buried.  For 2009, former AIG CEO Hank Greenberg will try to buy back his company.  Hank is the man who said that "all he ever wanted was an unfair advantage."

On September 17: Washington Mutual announced they were "chatting" with JP Morgan.  On the 25th, Wamu was seized by the FDIC, and the winner was - JP Morgan.  Wachovia went under to Citigroup on the same weekend.  Later, Wachovia went to Wells Fargo.  And then on the 29th, the House refused to pass a $700 billion bailout, but later thought an $800 billion TARP plan was just great.  For 2009, the bankers promise to become even more consilidated, and will continue to refuse to talk about whatever TARP money they get.

Gold Chart 3rd Qtr.

November 4: Obama won the Presidential election, resolving some of the uncertainty on Wall Street over industry group recommendations and taxadvice for 2009, but things were down so far anyway (Dow -45%!) that investors produced an avalanche of selling through Christmas.  For 2009, Wall Street promises not to worry about capital gains tax changes, because they'll have carryover losses until 2014.  Welcome to the new world disorder.

Gold began 2008 at $836 an ounce, and is currently close to $870 despite a wretched 3rd Quarter (caused by JP Morgan according to the OCC figures analyzed by Rob Kirby).  For 2009, gold promises to continue as a protector of portfolios.  And the gold mining shares promise to recover too.