Home Forums Hunting & Shooting Hunter's Campfire Greece to Default ??

Here's an article on Reuters. Potential market impact of a Greek default

Likely the value of the dollar will increase, so oil and gold prices will drop some. If the European stock markets take a big dip, many investors will have a second chance to make lots of money by getting in after the drop. They only need to look at the drop and recovery of the U.S. stock market to see a tremendous opportunity to make lots of money.

Of course, if they have their money in gold, they'll have to sell it to take advantage of this rare opportunity. As with any commodity, the risk of holding gold is that the market price may drop. Being Gold's value is primarily as a hedge investment, once investors feel they can make a lot of money in the markets they'll get out of gold and they know that once the price starts to drop it will drop fast and far, which will turbo-charge the sell off. Maybe I'm wrong, but you only need to look at housing prices over the last 20 years to see that this is what a bubble looks like.

Be careful what you wish for, as four of our largest banks hold multi trillions worth of CDS contracts. If they-Greece-does default, and I mean a formal hard default, then there's no way that the ISDA can rule that a default didn't happen. If that's the case you have a reprise of AIG, only on a much grander scale.

As to it's effect on gold, the question you have to ask is what is your counterparty risk? If the ISDA rules that Greece's default isn't really a default, or that some of the bonds issued under English Law have seniority over those issued under Greek Law, then you have a defacto abrogation of bond holder's rights, and ALL paper is questionable, no matter the issuer-including US Treasury paper.

Gold has no counterparty-IF you hold physical in possession.

There is nothing safer or better for preserving wealth, especially in these times of moving definitions and thievery being done under the auspices of sovereign central banks and their commercial offspring.

I noticed a .77 percent return on the current TIPS. I guess the object is not necessarily to make money on your investment, rather to preserve capital?

What's wrong with this possibility is that it has what is known as "chained risk". A default in Greece could lead to a daisy chain of defaults in banks within Europe, and trigger Credit Default Swaps (insurance) that four of our largest banks have written against a default in Greece.

Even if the ISDA (International Swaps and Derivatives Association) deems that a default has NOT occurred, the market for debt instruments could decide otherwise, thus causing losses in ALL bonds issued by weaker sovereigns such as Portugal, Ireland, Spain, et al, and would call into question the value of any paper without specific collateral backing it up.

If that happens you get declines in the equities of the financial institutions involved. Since finance is more than half of all the players on most stock markets, a major decline could occur there too. A simultaneous decline in both bond and equities markets is the worst of all worlds, especially for those with fiduciary obligations such as pension plans and insurance companies, especially if they have exposure to any of the players involved either through bond issues or equity holdings.

In essence what you get is a collapse of the world's financial system brought about by a lack of confidence that no paper issued by ANYONE is worth what it's printed upon.

That's what is at stake, and unfortunately, is inevitable at some point.

I noticed a .77 percent return on the current TIPS. I guess the object is not necessarily to make money on your investment, rather to preserve capital?

MacLorry �
I tried to copy the chart but was unable to succeed, so here is a link :




THIS is what a bubble looks like!!!! It is self evident why precious metals have seen such a rapid rise. If you truely believe that the Fed is going to quit printing money, then by all means, short the metals. If not, then start stacking.

I noticed a .77 percent return on the current TIPS. I guess the object is not necessarily to make money on your investment, rather to preserve capital?

MacLorry -
I understand what you are getting at, but you still run much of the same risk because you are buying a dollar based asset. If things really go wrong, I would much rather own Gold or Silver than a piece of paper. I guess it comes down to how you see the likely future of the USD.

What would be the effect on gold prices if the US returned to the gold and silver standard for our money?

MacLorry �
Guess wrong with gold and you'll take a blood bath.

Guess wrong with bonds and you'll take a bath. Not even Vanguard Money Market funds guarantee that your account value won't loose $$$ or fall below a dollar per share.
Guess wrong with stocks and you'll take a bath.
Guess wrong with a fund manager and you'll take a bath.

Stop guessing and start investing. Wait for prices to turn in your favor instead of chasing the Ace irrespective of what the investment vehicle is.
Those who purchased wisely and proportiontely kept a balanced portfolio.

The Food analogy is flawed from my perspective. Investing and being prepared are separate issues.
If you bought Gold at $1800 and ounce and the value falls in half you still have monetary value. If you spent the same $1800 on MRE's and Chicken Little doesn't have his day your loss is 100%.

Placing 100% of your investment in fiat currency is a recipe for disappointment.

What would be the effect on gold prices if the US returned to the gold and silver standard for our money?