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Lola Wants Gold

Written By Brian Hicks

Posted July 27, 2011

Whatever Lola wants, Lola gets
And little man, little Lola wants you,
Make up your mind to have no regrets,
Recline yourself, resign yourself, you’re through,
I always get what I aim for,
And your heart and soul is what I came for.

— Gwen Verdon as “Lola the Devil’s Assistant”
in Adler and Ross’ “Damn Yankees”

With that little ditty running through our heads, it’s time to play another round of “Follow the Memes.”

I don’t think you’ll mind the exercise too much, because last week, I explained as to how the herd would keep driving up gold…

And this week, the shiny stuff hit yet another new high.

I’ll grant that this viral stuff can be pretty darned esoteric. But if you paid attention and bought a ordinary vanilla option contract — let’s say an at-the-money-GLD call — you could have made some 70% within a few days.

How It Works
Gallup Poll
Let’s start with a quick review of a few memetic tenets:

  1. Facts don’t matter until the herd thinks they matter.
  2. We can quantify what the herd is thinking today.
  3. We can use algorithms to process those quantities and predict what the herd might do tomorrow.
  4. We can make a mint off the whole exercise.

With all this in mind, I’ll now toss up the results of a recent poll from the folks at Gallup.

So what does Lola, I mean, the herd want?

Money — as in, free dollars.

They sort of care about inflation, but only in a loosey-goosey absentminded not-MY-fault way.

That is to say, they complain like crazy when they gas up the old, rotting SUV and they whine at the grocery store when eggs and milk cost twice what they did a year or two back. Any sort of doctor’s bill makes them positively cross-eyed. And those tuition, weed and feed bills? Wow, do they bitch about that!

They sort of understand really that free money they want is jacking inflation… but not enough to say no to another fix of same.

Sodom, Gomorrah, and Washington, Too

Here’s what the herd really doesn’t care a tinker’s dam about: excessive government spending.

Seriously, spending and the deficit came in below the Gallup poll margin of error.

This would tend to put the lie to the Tea Partiers’ claim to any sort of grassroots groundswell.

I’m saying they are wrong.

I lived in and around the Capitol for decades, and have personally witnessed arrogance, immorality, and hideous wastage that would blow your mind. Loosen my lips with a bourbon or two at the next financial convention, and I’ll tell you aaaaaall about it…

For now, let’s just say that Sodom on the Potomac doesn’t even come close to the horrid truth of it all.

Mo’ Money!

But right here and now, no one outside the Beltway cares if we have to borrow more dollars or print more dollars…

They just know that they need more free greenbacks sloshing about if they are to have any hope of selling their upside-down houses or buying a car that gets decent gas mileage.

And they really need some more free cash if they want their boomerang children to get jobs and move out of the basement.

And then there’s the whole industrial banking complex that has figured out they can borrow at next to nothing, and lend it back to Washington for twice nothing, and make a small fortune each and every week…

Which really beats actually doing anything useful or risky (like maybe mortgages, small business loans or such) with all that largesse.

Memetic Leverage

Thus we see Internet searches (again, not the be all and end all of memetic gauges, but still a pretty darned handy proxy) for the dollar rising some 50% over the past 12 months.

But interest in gold?

Wow! On average, it’s still running twice as hot as the dollar and current interest is spiking all over the place.
Gold Searches
Wait, where did gold climb into this mess?

Ah, come on — there are no virgins left in this frat house…

Maybe it was outré and mystical back ten years ago, but now I doubt there’s a single body left on the planet who hasn’t caught on to the generalized connection between the falling dollar and rising gold.

Lola wants dollars and gold, because that just makes sense right now the way the game is being played, even if it costs us our souls down the pike.

What Lola Wants, Lola Gets

So allow me to suggest yet again that, as I sit to write to you today, at-the-money August call options against the SPDR Gold Trust ETF (NYSE: GLD) are trading like hot cakes. We are talking open interest of 17,249 and daily volume of over 1,000 contracts. But they still only cost some $2.98, and are sporting a delta of 0.5590.

Brass tax? Every ten bucks gold puts on cranks the GLD a buck and this contract, some 15% or even 20%…

Lola likes!

Good luck and good hunting,

Adam Lass
Editor, Wealth Daily