John Corzine, above the law... and gold

Before getting to Corzine, lets look at gold.

Last I wrote, I had commented on the possibility that we might finally break out of the 1530-1630 range that we have been stuck in for months. I had written at a time where we saw a high at the very peak of the range (about 1632), but we then sold off. Still, we managed to make it back to 1628....but again, sold back off, dipping below 1600 earlier this week. We do however sit here now, trading approximately 1620, seeming like the yellow metal wants to test the top of that range again (much the way it repeatedly touched the bottom of the range on the downside). So what will make it move?

John Paulson, whose gold fund has been an utter disaster, and George Soros have both shown in Q2 filings that they are buyers of GLD. They are however buyers of a commodity that has seemed to have no catalyst for the longest of times. While talks of QE3 can fill up the airwaves and help fill our ears during these slow market days, it has all gotten just a little bit old. The real catalyst for movement will likely come down to September 12th. 

SEPTEMBER 12th: Mark your calendars.

It is September 12th that the German Constitutional Court will decide on the constitutionality of the creation of a permanent EU bailout fund. Unlike the "European Summits" which have become code word for "meetings in which European leaders will feign unity to keep their cost of funding lower", this is a court ruling. While I am not familiar with the German court system, I would venture to say that the likelihood of our first concrete indication into Europe's future is far more likely to come on September 12th than at the next Euro Summit.

Handicapping the market reactions to such an event is actually incredibly difficult. In theory, approval for a permanent bailout mechanism should stand to mean more money printing is on the horizon, which should devalue the Euro. But, on the other hand, approval of the bailout fund also means that the Euro's chances of surviving increase drastically, which should enable it to catch a bid. I believe that the perceived future of the Euro currency will have a far greater impact than any "money printing" implications. As gold has tended to trade more or less in line with the Euro, it stands to reason that an upholding of the legality of a permanent stability mechanism would actually be good for gold. That is of course, for the short term. Were pandemonium to be unleashed in Europe... bank runs etc... there could be a mass exodus to physical assets, chiefly gold. Still, the likely first move in gold, were the fund to be deemed unconstitutional, would be to the downside.

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Now to Corzine; The New York Times reported this morning that he will not be facing criminal prosecution. It is such an outrage for any human being with a pair of eyes, ears, and a quarter of a brain to accept (without sounding too self absorbed, I do put myself in that category), that I would not even know where to begin writing about it. Zerohedge, as it usually does, has provided a better outlook than I probably could. 

http://www.zerohedge.com/news/jon-corzine-will-not-only-not-face-prosectuion-may-be-launching-hedge-fund-imminently

We should not need any personal anecdotes to bring forth the absurdity of this lack of criminal prosecution; but here are a few. As I walked onto the floor every morning during the debacle, I had to hear the stories of honest people who had been in the business for years living in fear about their financial futures. Not just because of potential money lost, but the inability to even trade out of their positions. Options positions can go bad...very bad... in a very short period of time. Part of the reason that you rarely see active traders with positions taking vacations here (at the Nymex in New York) is that positions need to be monitored so closely. It is not like stock or futures trading where you can leave your stops in and leave. As such, these traders were not only exposed to cash losses, but also tremendous risk from being rendered paralyzed with respect to their ability to trade out of their own positions.

How is it that Raj Rajaratnam gets 11 years for taking insider tips, without causing anywhere near the loss/harm to individual traders and investors that Corzine did, and Corzine does not even get prosecuted? Even when something as absurd and criminal (the lack of prosecution is a crime in itself) as this takes place, I try to see both sides. On this one though, I simply can't find how (aside from political contributions and the heavily entrenched old boys club) one could "publicly" justify this lack of action. If you haven't read the zerohedge piece; read it. Hubris has reached all time highs.