Monday, May 31, 2010

Greece - Preview of the World to Come

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The chart says it better than I can, but let's be clear: Greece is simply the first stock market to reflect reality. It is not the exception, it is the canary in the coal mine. Here's a 4 year weekly candlestick chart of the Greek stock market ($ATG) thru Friday's close with a plot of the Euro currency index ($XEU) below:

As Spain, Portugal, Italy and others get set to follow the same path, the contagion will be as contained as subprime mortgages were. Ignoring the message of the Greek stock market is the same as ignoring the Kreditanstalt bank failure and England leaving the Gold standard in 1931. Cash is king if you're not into speculating on bad outcomes. However, no paper debt-backed currency is safe when desperate apparatchiks and central bankstaz seek a way out of the debt morass. Currency devaluation by market forces or by government decree is coming to every major economy in the world. Get some real cash - get physical Gold held outside the financial system.

My prediction is that the second half of 2010 is going to be ugly for paperbugs and that the carnage is going to begin before June ends. Gold may or may not correct 10-15% or so this summer, but if it does, buy it! I am holding out for better prices in Gold stock indices for now as I focus on scaling into large short positions on the stock market. I already own puts on commercial real estate but holding out for a slightly higher short-term high in the $RMZ index (695 level) before adding more. Waiting for the 1110 level in the S&P 500 before scaling into puts against it, but if we get to this level, I will start loading up aggressively. In my opinion we are on the threshold of a scary return to the secular bear market in debt-backed financial assets, which is far from over. Be careful out there.

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