Making Book with Banks

Posted: May 25, 2012 12:01 AM

When I visit my son in Lexington, Kentucky it is always a pleasure to spend a day at Keeneland Race Course. 

Not only is it fun watching the horses run, but the whole environment is very impressive as well. 

Even though I know nothing about thoroughbreds, I always like to wager on every race.  I usually buy a tout sheet that provides insight as to which horses should do well. 

Through the years, I’ve found that listening to the local handicapping professionals can be, on balance, rewarding. 

However, I generally listen only to the pros that have been successful in the past 

because that certainly improves my odds of winning.  Those with a bad track record, I ignore. 

They usually don’t last long as prognosticators.  Most people, including the mainstream media, would probably agree with the way I wager my money and my reliance upon the professional handicappers. 

That leads me to question why the current headlines trumpet the banks of the world for what they are doing when it comes to gold. 

Think about the tremendous success that both world banks and world central banks have enjoyed over the past several years (tongue-in-cheek). 

By the usage of securitization, leverage, and low interest rates, these same banks have created a real estate debacle never seen before in history. 

From ninja loans, subprime mortgages, and robo-signings, the banks’ track record has certainly been less than favorable. 

Based on this past performance, I certainly wouldn’t bet on the banks in the future. 

In addition, the usage of derivatives at multiple leverage levels greater than the world’s GDP is also under the sage direction of these same banks. 

Once again, previous behavior that is not worth a forthcoming wager.  And now we learn that these same banks have been buying gold ever since the Midas metal crossed the $1,900 threshold. 

The rationale sounds right, however, I have one very important question.  Seeing one of the greatest bull markets in gold over the past ten years, why in early 2001 were these same banks sellers of gold at $350/oz? 

At that time, the banks were touting the disadvantages of gold and were not only selling their stash, but were also recommending that others do the same. 

So here we are at the top of the gold market and the bankers are saying “buy.” 

I thought the idea was to buy at the bottom and sell at the top, and not the other way around. 

Not according to these guys. 

I just hope these bankers don’t get into the thoroughbred racing handicapping business.  I don’t think they would last very long. 

You see, I like to bet on a winner. 

Or, at least wager on a horse that has a chance.