Feeling Golden

 | Oct 31, 2011 | 9:36 AM EDT
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In my Friday post I pointed out that holding hard currencies (i.e., not the euro or the U.S. dollar) and gold are how I am expressing my view on the Greek "bailout," which is a complete joke. Even George Soros is giving the bailout deal "one day to three months" before it falls apart. I guess the only realistic element was the 50% haircut, which at least gets Greece halfway toward what will probably actually be a 75% to 80% loss.

Of course, the issue is, and always has been, whether Greece is the only domino to fall, or just the first. Unfortunately, keen observers can already see the storm clouds forming. The London Telegraph points out that Portugal is already buckling, as M1 deposits are down 10% in the past six months -- a 20% annualized rate of decline -- with September withdrawals being the highest. The "run" on Portugal is already starting.

 Meanwhile in Ireland, the parliament is pressuring the prime minister to negotiate meaningful debt reduction for the government. The political situation there is probably the touchiest, since the burden now born by the taxpayer was put in place to bail out Irish banks. It doesn't seem like a stretch for the populace to pull an Iceland and repudiate the mistakes of the banking system. Irish members of parliament are specifically citing the Greek situation to question why they should pay. I see 100% certainty that Ireland will default, and most likely in a big way. Gerry Adams, leader of Sinn Fein: "Why is it acceptable to write down Greek debt, when the Irish pay private bankers' debts?"

Meanwhile, Italian sovereign interest rates are now 50% higher than they were this summer, and the Italian government could barely pass a law to raise the retirement age by two years -- starting later in this decade! (The government was able to order itself a fleet of armored Maseratis to shuttle about Rome, however.) Rates on the big countries didn't budge after the "news" last week. With the imminent destruction of the market for sovereign credit default swaps, moreover, the appetite for euro sovereign debt is sure to decline even more.

 So the European Central Bank will be forced to monetize most of the sovereign debt of Europe (which raises the question of whether this will drive Germany to exit the union), and the euro is destined to go substantially lower. You can't play this via the long U.S. dollar, because we are debasing our currency as well. Gold seems to be the easiest way to protect the value of your cash and to bet against Europe.

Another reason to go long gold now is that we are entering the best seasonal period for the metal. The chart below, from Hinde Capital, shows the typical trading pattern for the barbaric metal for the last decade. The fourth quarter usually sees the best performance, so here we are. I see no compelling reason why gold shouldn't follow the usual seasonality this year.

Gold Seasonality -- 2000-2010
Source: Hinde Capital

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...



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