Not sure if anyone caught this yesterday, I know I did not, but read it in Fleck's recent commentary. It goes to the heart of a scenario I mentioned to Todd yesterday that needs to be considered. First the summary of Barney Franks latest proposed legislation:

Barney Frank, who wants to propose legislation to strip the regional Fed presidents of their FOMC voting rights For those who don't know, three of the dissenters at last month's FOMC meeting were regional presidents. Thus, Frank's legislation is the democratic establishment's shot across the bow to get the Fed to become even easier.
Source: Fleckenstein Capital

When you combine this, with the comments yesterday from both Geithner and Merkel:
Geithner: "Europe’s situation needs to be met with overwhelming force."
Merkel: "I will not allow another Lehman to happen."

What does this mean? First, how can you avoid another Lehman? Close the markets and/or the CDS market? Or is there a massive coordinated effort in the works for the buying of troubled loans or massive injection of liquidity. Either way, there are far too many comments swirling around from those with influence, not necessarily intellect (sorry, could not avoid a political comment). Regardless, they hold the levers, not us. And while the technical backdrop looks bearish, I am concerned that a liquidity driven rally could ensue.

Conversely, Austria upped the ante, as its parliament did not approve the EFSF upgrade. I have noted here over the last few weeks that at some point German citizens might get tired of their pockets being picked and say no to further EFSF injections as well.

The bottom line is that that situation is fluid and messy - equally probable outcomes are on the horizon, i.e. selling if nothing can be done to thwart default in Europe or an 'everything is just dandy' rally courtesy of more stimulation. While gold has been trading in a funk lately, I am beginning to think that under either scenario, gold may be the beneficiary.

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