Friday, May 25, 2012


                                                All Aboard

We are fast approaching a moment in Forex trading that can only be described with history.

As we enter my hot tub time machine, I’m setting the dial for October 1992. Let’s review the facts shall we? The British Pound [GBPUSD] is north of 2.00; George Soros is long D-Marks and short the Pound in such large quantities that the Bank of England makes a request to him to stop shorting their currency.

When the Brits decide they don’t want to be a part of the EU, the Pound plunges; 3 days later it’s trading at 1.40. Up until now, this is the moment in history that can best be described as a “nuclear moment” for major currency pairs; a 60 handle drop worth $60,000 on a 1 lot.

Of course, we now know that George had inside information from the Chancellor of the Exchequer that Britain had absolutely no intention of joining the EU currency, but in Forex trading the only rule is there are no rules. A cool $6 billion in profits; but I digress…

We all know politicians lie; yesterday I read over at Zero Hedge how the police in Greece are urging people to leave their money in Greek banks and not to participate in a classic run on said banks. After all, it’s a safety issue don’t-cha-know? [Excuse me I have to puke … OK, better now.]

Everybody should know what this means; collapse is imminent. Sometime, over the next 10 weekends, Greece will get kicked out leave the EURUSD; it will happen over a weekend. You wake up Monday morning and there is a new reality from Sunday night. So, which weekend and what exit scenario?

Our pals over at MS are telling muppets clients that it could get as ugly as 0.80 on the Euro under 1 of 4 scenarios they envision for the Greek exit [Grexit]. That, my dear readers, would be an approximate 45 handle haircut, and eclipse that long forgotten Pound episode from ’92 [forgotten except by those who lived it]. Fortunes made, fortunes lost.

So where does this leave gold?

I have a very hard time, after seeing the Euro slaughtered along with equity markets, seeing gold rally into this. I don’t know how the smartest-guys-in-the-room stop a deflationary collapse like this. Sure, the policy response will be to print untold trillions, thus setting the stage for the eventual hyper-inflation collapse, but the initial knee-jerk reaction is likely to be many dollars / oz. to the downside.

And every Sunday afternoon, when Forex reopens in New Zealand from the weekend, do we get any relief rally when we come to find out this wasn’t the weekend for Grexit? How many weekends do you go home short, only to find out you got sandbagged again, and get to buy it higher on the open? Nothing is a slam dunk here.

But what if everybody is wrong here on the catastrophe? If they happen to get it right, and kick Greece out the right way, wouldn’t that be uber-bullish for the Euro? How about a 10 handle higher open with the Gypsy’s out of the way? What would a $100 / oz higher open in gold do to your juices? Let me repeat: nothing is a slam dunk here; nothing.

But whatever weekend it occurs, and the inevitable rioting and chaos that follow, and you’re sitting comfortably in your easy chair, just remember this: you are looking at the future of Amerika.

“Thank you politicians.”

Meanwhile …. It’s the weekend and we need a chuckle. Without further ado …

 Have a good weekend everyone.


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