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Random Thoughts: Greco-Roman Turnaround and Gold Banter

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Turnaround Tuesday is on tap.

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The court of public opinion is rather loud these days. Whether it's the forward fate of gold, overseas austerity, or the performance -- and role -- of government, everyone has a sharp opinion and the media mechanism to share it.

Late yesterday, while wrapping up another session, I came across an article from a Greek newspaper (isn't globalization grand?). The premise is basic: as the Greek government takes it on both sides from foreign creditors and weary citizens, Prime Minister George Papandreou is contemplating calling for a referendum to remove itself from the Eurozone.

That's right, Greece is weighing an option where they would turn to the EU and say, "I'm fired?!? No, no, no... YOU'RE FIRED!"

It's not that simple, of course. The global financial machination is a tangled web of receivables, payables, leverage, derivatives, and trust.

This does, however, introduce an option that most folks haven't discussed. Rather than bend over backwards to satiate a Kangaroo Court (their eyes), the Greeks might opt to roll the dice with a Drachma and a dream.

I don't know how feasible this is but I'll tell you one thing; should this be the chosen path, the Greek Islands likely won't take kindly to vacation crowds from Berlin.

The Gold Exchange!

Toddo,

Is there a price that would get you interested in gold again or do you think the fundamentals have changed?

Thanks,
Minyan Ed

Hey Ed,

If you're talking about a trading strategy, it depends on the set-up, time horizon, and rate-of-change into the set-up (the 50- and 200-day moving averages are at 1737 and 1519, respectively). With that said, technical analysis offers a better risk context than catalyst, in my humble view.

What I've heard a lot of -- from all corners -- is that 'this' is different than other asset class ascents. While others were (real or perceived) supply/demand dynamics, 'this' is a new paradigm -- the basis of currency itself that is being called into question.

My intention is not to reopen this can of worms and it's certainly not to suggest who is right and who is wrong -- Minyanville has been ahead of the curve with regard to the U.S dollar devaluation, that's a different discussion -- it's to provoke thought and demonstrate there are three sides to every story. As investors, it's in our best interest to see them all.

How many hundreds of dollars of gold's value is a Greek default play? How much of it is a Middle East conflict hedge? How much of it is a short-dollar speculation? I don't know those answers but I know enough to ask the questions. I also know that when everyone is looking in one direction (there were 99% bulls in gold recently), it sometimes pays to play for an off-sides.

I will note that the tenor of the emails I received yesterday softened considerably from two weeks ago when the mere mention of a decline was blasphemous. And that's sorta the point; this isn't about "Me vs. You" or "Us vs. Them," it's about winning together and paving a better path, or at least having a more respectable discussion.

-Toddo

And it continues...

Todd,

You got me into gold at 300 and I still have it. I was not looking to trade it, just wanted to know if in the long run 2 to 4 years you could see gold much higher even if we were to go lower, or if you feel deflation is finally upon us and will drag everything down including gold?

-Ed

Ed,

Well then, NICE trade friend! Your decisions are yours and yours alone, for better or for worse. With that said, it's nice to see a "W" notched for the home team.

To your question, yes, and that's not meant to be cagey. There's a scenario where gold trades much higher from here and one that sees it smelt back to triple-digits. How you assign risk across that probability spectrum will dictate your decision-making process.

I'm leaning toward the latter but that's just me. As you're sitting on a 600% gain, it might make sense to make partial sales to lock something in. For example, if you sold half of your holdings and the remainder went to zero (not happening), it would still be a heckuva investment!

-Toddo

Random Thoughts

  • S&P 1250 remains the level of lore for bulls and bears alike.

  • SOX 325-360 was breached to the upside. As such, SOX 360 will be initial support for the chip shtick, if and when.

  • Ditto BKX 35-40 for the financials, which remain stuck in the middle with you. Goldman (GS), Bank America (BAC), JP Morgan (JPM), Barclays (BCS), and Deutsche Bank (DB) remain individual stocks to watch (and note, we've removed UBS (UBS) due to stock specific (unbelievable) news).

  • Tyco International (TYC) is splitting itself into three companies. I wonder which one is getting the Toga dividend?

  • If you're looking for day trading, swing trading ideas or are interested in broader market cycle work, I HIGHLY recommend a free trial to Jeff Cooper's Daily Market Report. He's one of the smartest cookies I know.

  • We're all about the separation of "Church" and "State" in the 'Ville and I've got no axe to grind, so I'll share that after sitting with the management of Personal Capital yesterday, I was impressed with their (free) product that helps folks navigate their financial future.

  • I said to Michael "Blue Steel Jr." Sedacca yesterday, "When I awoke, gold was up almost $20, which is what you would "expect" given the news out of Europe. By the time the market opened, it was flat. That, to me, was the 'tell' that it would trade lower. You won't always "get" the set-up (vs. news) but when you do, it's wise to pay attention."

  • I would be more comfortable "buying the (default) news" in Greece if the market didn't rally 5% last week into it. And yes, I too wish they would arrive at a solution -- or even a decision, one way or another -- rather than bleeding a slow death by 1000 paper cuts. I suppose the trillion dollar question is whether a seismic shift such as that can be orderly?

R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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