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Harry Fotopoulos is a semi-retired accountant with a focus on income oriented portfolio strategies

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  • Chairman Says Nothing, Gold Collapses...and More Important Stuff 2 comments
    Mar 1, 2012 9:00 AM

    OK, so the title of this morning's post is a little tongue in cheek, but the point is that Chairman Bernanke said nothing in his Congressional testimony yesterday that was news. Gold investors immediately hit the panic button, we are told by the pundits, because of what he didn't say - no clear signal of another round of QE. We'll see what today brings, but I don't expect to have to deploy my sock tethers.

    Nevermind that the Chairman doesn't need to signal anything. His colleagues across the pond took care of it with a 529 billion euro 2nd round of LTRO, which also supports the macro case for gold. Liquidity is liquidity, whether it comes from the Fed, ECB, BOJ, etc. As we are in one of our rare periods of having an open position in gold, I am forced to pay attention, otherwise this would have been a passing note. My current outlook: gold has not violated the uptrend or the 200 day MA, which is positive, but has taken out the last four weeks+ of trading on huge volume. Our long position is now slightly underwater so I am keeping a close watch on it. Expect a bounce today and then we'll see what happens. If there is no bounce, I go from vigilant to worried and quite possibly out of the position.

    Elsewhere, and in my view the far more important bit of news, we note this morning's ruling by the International Swaps and Derivatives Association that last week's Greek bond deal does not constitute a "credit event." Of course, reasonable observers are asking how a 70% PV haircut can not constitute default, but it was entirely predictable; triggering the default swaps is something nobody wanted to see - save speculative buyers of said swaps. This may also put a bit of downward pressure on gold. Small price to pay, I suppose, for the benefit of the world being saved from ruin by its heroic central bankers.

    Disclosure: I am long IAU.

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  • thechaser
    , contributor
    Comments (761) | Send Message
    "heroic central bankers"; i'll presume that is a little tongue in cheek


    there are a number of posters on SA today getting this wrong on the website announcement for the greek default QUESTIONS;


    The ISDA EMEA Determinations Committee issued no ruling. They said that the two questions AS PRESENTED did not, in their unanimous consideration, meet the criteria established in the Definitions to warrant FORMAL ADMISSION TO REVIEW by their committee.


    This is not just semantics. This is important because readers should not have the false impression that CDS will not be activated. My presumption is that shortly after March 20 and ipso facto, the greek situation will be recognized by the Committee as a default.
    1 Mar 2012, 02:54 PM Reply Like
  • The Simple Accountant
    , contributor
    Comments (357) | Send Message
    Author’s reply » Thanks for the clarification chaser; agree that this has importance beyond semantics. There is a line of thought that if the swaps get triggered there will be a ****storm to follow. Not sure myself, and there are smarter folks than me tracing out the consequences...but I would rather not find out one way or the other.
    1 Mar 2012, 04:16 PM Reply Like
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