So, what does it all mean anyway? GSE? No doubt, most would argue that it means Government Sponsored Entity like Fannie Mae, Freddie, Farmer or even Ginnie - and they wouldn't be wrong for thinking that way, at least in a narrow sense. In a broader sense, however, GSE could stand for lots of other things. Take the letter "G" for instance. It could stand for Greenspan or perhaps even Gold. The letter "S" is the first letter in submarine or submerged - both of which evoke connotations of sneaky or stealth - a couple of other fine words that begin with the same letter. Then there's "E". E also stands for exposed or it could even stand for exuberance - the rational premeditated kind.

Now I've got to be honest with you, every time I think about Greenspan, Gold, submarines, sneaky, stealth, and exposing exuberance of the premeditated kind - this picture always seems to come to mind:

The man who created this graph, Mike Bolser, describes the relevance of the std. dev. spikes as follows, "The numbered spikes are correlations to other gold-related events as follows: (1) Federal Reserve assumes two board seats at Bank for International Settlements; (2) steadily rising gold price threatens to pierce $400; (3) important change downward in the long-term gold price; (4) failure of Long-Term Capital Management, reportedly involved in the gold carry trade; (5) Washington Agreement provokes sharp rise in gold prices; and (6) Canadian Imperial Bank of Commerce works to resolve Ashanti hedge book failure".

Have you ever heard the saying that a picture is worth a thousand words? In all likelihood, this one might be worth a little bit more than that - I feel that it tells a whole story that goes a little bit like this:

Once upon a time, there was a Democratic President. His administration was mired in scandal [something to do with a real estate transaction that didn't smell quite right], the economy was faltering and his prospects for re-election looked very bleak. He needed a special "something" to reinvigorate or ignite the economy, get the stock market up to give himself a "fighting chance" to get re-elected - but how?

Well, the first thing he does is call in his Treasury Secretary and develops a game plan. His Treasury Secretary just happens to have a side kick who; as a professor of economics, did some academic work on Gibson's Paradox and theorizes that interest rates could be lowered [stimulating the economy and thus stock market] without having the U.S. dollar tank [provided the gold price remained stable or fell [rigged]]. To misdirect and obfuscate his true intentions, he began "spouting off" and advocating his support for a strong dollar policy. Sounds like a great plan eh? Well, it's an even better stage illusion. So how does one go about instituting such a plan?

First, one would have to have access to or unleash a "secret" stash of gold bullion. Everyone knows how secret places like Fort Knox and West Point are, and heck, no one has laid eyes on the gold alleged to be there since the Eisenhower administration. The next thing, as table 1 shows, in July of 94 one launches a "stealth" torpedo at the gold market on the COMEX exchange to prevent the price from going up knowing full well the Central Bank is going to lower rates. One can't have its currency getting "trashed" or the plan doesn't work. The first torpedo measures in excess of a 3 standard deviation move in the pre-emptive selling of gold - a signature that would help serve to identify the perpetrators years later. Standard deviation is literally defined as: the average amount by which scores in a distribution differ from the mean, ignoring the sign of the difference. In layman's terms, standard deviation is a unit of statistical measure that also expresses the probability of a given outcome arising. The higher the standard deviation is, the less likely the event being measured is to happen. Standard deviation of pre-emptive selling is a comparative measure between prices on COMEX and prices the same day in London. Its best literal description is given by Mr. Bolser himself, "Recall that preemptive selling, which is a fraud detection algorithm, measures very aggressive COMEX gold market selling when compared to the London gold market (LBMA). Table 1 displays the percentage of days per month in which the COMEX gold price falls 300% more than the London gold price. The probability of changing macroeconomics being the cause for such extreme New York price drops is highly diminished because the two markets trade the same commodity on the same day. Preemptive selling should not be confused with price volatility or rate of change, which are measures of rapid price fluctuation. In addition, preemptive selling is a measure of relative activity between two markets. Recall also that it does not measure the volume of comparative selling, only its effect as measured by gold market prices."

Well, the first torpedo cripples the golden battleship but doesn't sink it, so, the submariners load torpedo tube number 2 with a nuclear tipped torpedo somewhere around June of 96 - just in time for the "run up" to the fall elections. They fire the nuclear torpedo at the COMEX and score a direct hit, measuring 4.22 on the standard deviation scale. This virtually impossible event [once in every 1,538 years] clearly and utterly delineates the spot where the gold price sinks - just like the torpedo that sank the Lusitania.

To ensure that the golden battle ship remains on the bottom, the next administration fires two more torpedoes at the COMEX in July 00 and June of 01 [both in excess of 3 std. deviations] - after all, why should the new administration get left holding the bag when the dollar collapses and gets exposed for what it really is? You see folks; movements in the pre-emptive selling of gold of standard deviations pictured in table 1 do not happen in "free" random markets or by accident. They are "man made" events. The whole plan is so underhanded, in fact, that the new administration's Treasury Secretary resigns - after all, he doesn't want his sterling reputation sullied by a scandal this large! Then he writes a book which, if you read it a certain way, cryptically sends a message [something like Fed Speak] that "things are not right" in the financial house of the U.S. of A.

So what does all or any of this have to do with real estate bubbles you might ask? Simple! Asset bubbles this size cannot happen without gargantuan amounts of cheap credit. The cost of credit is directly proportional to perceived risk or confidence on the part of the lender. In the case of countries this confidence [measured by interest rates], or lack thereof, is expressed in large measure through the strength of their currency. The strength of currencies is largely dependent on measures such as inflation. Historically, currency debasing - inflationary policies spur a flight to gold as a safe haven to preserve purchasing power. A falling gold price would "mask" inflation. Therefore, a country such as the U.S. could pursue inflationary policies but have the consequences masked by inducing a sell off in the price of gold. The induced sell off in the price of gold took the form of relentless selling [torpedoes], launched by agents of government or Central Banks through recognized exchanges like COMEX. This would create the illusion of a "strong currency" when the underlying fundamentals suggest exactly the opposite.

Without an "illusory strong dollar", we would never have had low interest rates like we do now - because - if the fundamental truth was know about the dollar, no one would buy our debt advancing credit in seemingly endless amounts. A weak or falling dollar prohibits debt bubbles. Debt is the money pump which fuels real estate bubbles - it's all a fraud, get it? The moral to the story: This is why magicians [and submariners] never reveal their secrets.

The math behind this story is here in table 2. Ironically, I learned it from a training program, to become a retail stock broker, at a bullion bank:

Table 2
CI range	Std.Dev. Odds
	0.6826895
	0.9544997
	0.9973002
	0.9999366
	0.9999994

The folks shooting the torpedoes know this math ladies and gentlemen - they measure everything!