Turkey: Will Be The Single Largest Default In Financial History

Talking Turkey: “This will be the single largest default in financial history” Capital controls are like Hotel California… You can’t leave. Will Turkey, Iran, Russia, Germany abandon the West & turn to China? Gold: Massive “Short” paper market now needs to be covered. Thanks for listening to this week’s McAlvany Commentary, if you enjoyed please subscribe for more.

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q2 hedge fund letters, conference, scoops etc

Talking Turkey: "This Will Be The Single Largest Default In Financial History" McAlvany Commentary


Welcome to the McElvaine a weekly commentary given Orrick along with David McAvaney. David if there were 100 people in the room right now and we were to ask how many of you are bullish on gold. Six of them six of them would raise their hand. Now the markets they're not giving us any encouragement right now. Can you address right off the bat. The gold market since she talked so much about it.

Well I mean and it seems kind of counterintuitive when that sentiment is this negative how can he say anything positive that the gold market. But that's exactly the point the way markets trade regardless of the asset in question is when everyone is very very excited about something. It's generally the time frame when you should not be excited. And when everyone is is at peak pessimism the point at which you just say well nothing good can happen. That's generally the point at which you should be very interested because prices are about as good as they're going to get in so far as cheap prices are to the advantage of the long term investor.

Well and you're not just coming up with something off the top of your head. There is a mathematical reason why gold has to go up when you've got so many people shorting the market. You know when bullish sentiment gets down below say 8 9 percent we know that there's going to be a turn in the market because frankly they just have to go cover the short bets the bet down on gold those paper contracts have to be covered.

Yeah. And so part of that is a sentiment issue and a part of it is just you know how many people have stacked in on the paper side of the trade pushing the price lower so there's more shorts today. Those are people who are hoping to benefit from the decline in price and particularly those in the hedge fund community. What we would call the Managed Money section if you're looking at the commodity traders report the CO2 report more of those shorts today than there was in December 2015 which was the bottom down at 10 50. That's right. That's right. So the net position has gone past forty two thousand five hundred short contracts and I guess the paper markets that are driving the price. And there is this strong correlation between the price of gold and the management positions that's a very strong correlation and they drive the short term trends because they're using a tremendous amount of leverage.

These are temporary bets. This is not a long term trend. But I think the fascinating fact is that they're always the most committed either long or short at exactly the wrong time. So you see the biggest short bets when the market is getting ready to head higher and you see the biggest long bets that is people who've bought gold with great enthusiasm them and vigor just before the prices getting ready to head lower. And again I mean that may sound counterintuitive but that's just the way it is. I think they'll have a diminished impact on the price as time goes on. But right here right now the short positions have certainly driven the price lower. Very small consolation I know. What makes that a good news story is that you have to buy the asset back to cover that short position. So you're talking about a lot of pent up buying just to close out the position. And I think that's just around the corner.

I think it's worth looking back at history just a little bit. I remember we all remember April 12th 2013. That was a huge day down for gold. Gold dropped to almost 100 dollars on that Friday and then that next Monday. Tax Day April 15 2013 It dropped almost another hundred dollars. What had happened was Goldman Sachs and Merrill Lynch should come in in a couple of hours. They had dumped the market on Friday with 400 tons of paper gold contracts. What was interesting about that and you and I were talking about this the other day that doesn't represent physical gold but it forced physical gold selling out of theU.S. OK. And the ETF it came about that we saw about 700 tons of physical gold because of leverage forced to sell out of the swap China ended up accumulating about 700 tons of extra gold.

About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and three kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own 2.5 grams of Gold