Crash Or Correction? SocGen Answers

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Sat, 05/07/2011 - 17:05 | 1251482 Captain Benny
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Equities have yet to "correct" ... If they did, I think we'd be closer to that remarkable  S&P 666 low...  hmm.  We also haven't seen the big muni defaults expected over the next two years... those should start by mid-summer.

Back to the PMs: Someone should tell the CME that they cannot create physical by increasing margins.  The big physical squeeze is on and it will only accelerate through the summer.

Sat, 05/07/2011 - 17:58 | 1251593 dick cheneys ghost
dick cheneys ghost's picture

M. Whitney has recenty said she is more confident than ever about her call. If one is following the news at the local level (states and cities).........one would have to agree with her........the states and cities are absolutly f*^cked. 

Sat, 05/07/2011 - 18:55 | 1251677 PY-129-20
PY-129-20's picture

Your blog is great, dcg. Keep up the good work.

Sat, 05/07/2011 - 20:36 | 1251851 Muir
Muir's picture

3 great posts!

 

Sat, 05/07/2011 - 20:40 | 1251860 Muir
Muir's picture

"We also haven't seen the big muni defaults expected over the next two years... those should start by mid-summer.'

deflationary

Sun, 05/08/2011 - 04:33 | 1252548 Weisbrot
Weisbrot's picture

I wonder if any of the states still have any of the tarp they were foreced to eat... also, I wonder how many quiet back door bail outs are or have been negotiated.  all that out of the way I still go with Merideths call & research. (even if it takes a few months longer to play out)

Sun, 05/08/2011 - 10:22 | 1252796 Madcow
Madcow's picture

Yes - deflationary.  In a deflation, the senior currency - gold - strengthens.

Sun, 05/08/2011 - 00:16 | 1252326 T-NUTZ
T-NUTZ's picture

so equities are going to correct, muni's are going to default, and PM's are going to soar?? This is butt logic.   some of you guys are going to be schooled by a viscious bear market rally in Uncle Buck.

Sun, 05/08/2011 - 01:10 | 1252408 cosmictrainwreck
cosmictrainwreck's picture

yep - am considering x% in UUP just because everybody knows USD is trash

Sun, 05/08/2011 - 09:27 | 1252714 drom
drom's picture

Really do you see China and and India changing their minds and start to save in paper USD over gold and silver all of a sudden.  Get real man the golbal shift is going toward PMs not away, its not like any one of our fiscal problems have been recently solved. 

If you expect the next bear maket to look exactly like the last one we saw here is how you could be easliy wrong: The market now understands that another recession means more QE (and possibly more stimulus).  The markets smart enough to put those two together.  So while we might get a deflationary head fake, no way Mr Bernank will allow deflation to actually happen, he also strongly believes the depression occured due to tightening to quickly.  With this said its easy to imagine PMs going up in the next downturn as we all know Bernanke will not just watch, but if the market sells them off again, well I will buy them again, then when Bernank announces there will be an unknown amount of QE after June then they will prop right back up.

Sun, 05/08/2011 - 10:41 | 1252810 T-NUTZ
T-NUTZ's picture

you do not understand the function that cash plays in panics.  when people get their asses handed to them Sept 2008 style, they do not look for a new "investment" to put their cash into.  They sit in cash and lick their wounds and wait for the smoke to clear.  I for one traded through that hell hole and it's too bad that some people's memories are short.  PM's will be trashed with stocks.

Sun, 05/08/2011 - 15:33 | 1253499 mamba-mamba
mamba-mamba's picture

To me, FWIW, it makes sense that in a recession (with price deflation) cash is king. The catch is Bernanke. He absolutely will not let it happen. He can't. He can't allow shrinking GDP (in nominal terms) because it leads to austerity and/or default. He will print. He will do anything and everything in his power to prevent a deflationary collapse. This is why I remain bullish on PM's. Basically I am in oil, natural gas and paper PM's. I also have about 50% of my "investment money" in cash, just in case we do have a deflationary collapse. I'm not trying to get rich. I'm just trying to position myself for financial survival.

I'm also trying to buy a rural property right now. Then I will probably sell my house in the city. I don't actually have a lot of money to invest. So maybe you shouldn't listen to me anyway. ;-)

 

By the way, I wouldn't touch US stocks or treasuries with a 10-foot pole right now. I have a small short position on treasuries. And a small long (pre-tsunami) position on the Nikkei.

Sun, 05/08/2011 - 04:29 | 1252546 Weisbrot
Weisbrot's picture

if ponzi can not pay his silver today - then force majure is on the way.

Sun, 05/08/2011 - 09:28 | 1252729 Oh regional Indian
Oh regional Indian's picture

Nice rhyme Weis.

ORI

Sat, 05/07/2011 - 17:05 | 1251484 FOC 1183
FOC 1183's picture

"our view as a team" = danger will Robinson, danger; and 9 times out of 10, 1x2 put spreads = might as well write a check to charity.

Sat, 05/07/2011 - 17:14 | 1251507 Sudden Debt
Sudden Debt's picture

+10 :)

Sat, 05/07/2011 - 17:08 | 1251491 falak pema
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twin fork to the edge of the world : what happens when the QE stops momentarily as of July 1. It gives the speculators the jitters. Deflation runaway or will the inflationary dyke hold fed on commodities? The world holds its breath all the while the currency war rages on...

Sat, 05/07/2011 - 17:47 | 1251569 Auricle of Omaha
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I don't often speculate, but when I do, I prefer physical silver and gold... Bitchez

Sun, 05/08/2011 - 11:55 | 1252877 jaffi
jaffi's picture

"what happens when the QE stops..."

I personally expect a fall in equities, a move to liquidity, a fall in commodities, and rising treasury yields.  Yes, I know that a rising dollar and increasing yields seems counterintuitive, but we all know current rates are insane, that market rates should be much higher, etc.  The fact is that many other currencies are beginning to rise and there is not enough buyers for treasuries right now to fill up the gap, so yields must rise even if the dollar gets a little strength; though, I wouldn't expect the dollar index to rise quite so dramatically (maybe low 80s).  But, I see this all as short-term noise, as the Fed will have no choice but to implement QE3 in order to facilitate coupon payments from the treasury, as well as institutional recapitalization.  After that, the presses will hum, and we'll be right back to a commodity bull market.  

Basically, I expect a short, but rapid consolidation across the board (as well as some corrections), and then right back to the trend.

I agree with speedy to BTFD, but it depends on which dip you're talking; definitely take advantage of the short-lived rally in the dollar.  Commodities-yes (PMs-most certainly).  Equities-maybe (depends on the stock).  Treasuries-not until QE3 is ready to roll.  Dollars-makes sense, just so long as you get out of liquidity in time.  Personally, I am buy and hold on commodities, and play the exchanges on currencies and equities.  In either case, we'll definitely find out, won't we?

Sat, 05/07/2011 - 17:12 | 1251501 speedy
speedy's picture

I think I will BTFD.

 

Sat, 05/07/2011 - 17:20 | 1251520 AG BCN
AG BCN's picture

I did, pulled the trigger on some Libertado's this afternoon. If I am wrong then I am wrong and so be it.

Sat, 05/07/2011 - 17:57 | 1251590 achmachat
achmachat's picture

I did twice yesterday. Once in the morning, then, when I wanted to get more, my usual "dealer" was dry so I found another one and ordered a test batch of 100 Philharmonics.

Sat, 05/07/2011 - 18:03 | 1251599 AG BCN
AG BCN's picture

good man, we will rise or fall together.

Sat, 05/07/2011 - 22:07 | 1252059 takeaction
takeaction's picture

Just bought another 300 Buffalos on Ebay.  If you use the new IE9 promotion you get 10% back in Ebay Bucks...so if you pay attention you can get close to spot with this discount until May 18th.

http://pages.ebay.com/rewards/IE9BucksFAQ.html

Sat, 05/07/2011 - 17:42 | 1251555 speedy
speedy's picture

WTF? Junked for BTFD!

 

Silver Bitchez!

Sat, 05/07/2011 - 19:24 | 1251720 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Please increase your current vocabulary by one word and replace one of the two words in your current lexicon.  (The one which starts with a "b".)  Listening to a man use the b word is like seeing a tatooed lady.

 

Tuco Benedicto Pacifico Juan Maria Ramirez

Sat, 05/07/2011 - 19:43 | 1251753 Spastica Rex
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Lame.

Sat, 05/07/2011 - 20:07 | 1251796 dogbreath
dogbreath's picture

Douchebag.  I do not want to know who you are.

Sat, 05/07/2011 - 17:18 | 1251515 el-greco
el-greco's picture

Sorry, but i think this report is utter rubbish. I hope nobody is paying for it and i'm glad i dont bank with these guys.

Sat, 05/07/2011 - 18:53 | 1251670 CrashisOptimistic
CrashisOptimistic's picture

It's not utter rubbish.  It's flawed.

Rule #1.  FORGET EQUITIES.  They reflect nothing more than cash on the books borrowed hand over fist by CFOs whose lifetime of training told them to borrow big when rates are low.  Earnings derive from taking bad loans off the books of the banks, and that imaginary money buys products.  So just forget them.  

Rule #2.  Only Oil Matters.  Sorry PM guys, you are not vital to the food supply.  Only oil is.

Rule #3.  Stop lumping Oil with Energy or anything else.  Coal doesn't get to power plants without oil.  Only oil matters, to life, to society, to civilization, and there is nothing anyone will ever be able to do about this.

Rule #4.  They don't make it anymore, and never will.  It is God's Cap.  It decides if there is to be an economy forever more.  Its decision is no.

Sat, 05/07/2011 - 19:13 | 1251707 Re-Discovery
Re-Discovery's picture

Had to junk you.  If you are going to state a broad investment theory, make sure you at least TRY to have some logical and factual bases.

Oil has been used on the planet as it is currently for about 120 years.  There was a 'food supply' before oil.  There was transportation before oil.  There was a huge demand for Coal before oil.  There are any number fo alternative energies that are being developed to circumvent the need for oil.

And guess what was valuable before oil and will be after oil.  Gold and Silver.

Sat, 05/07/2011 - 19:55 | 1251769 CrashisOptimistic
CrashisOptimistic's picture

You do not understand.

There was never before 7 billion people to feed.  

Only oil gets the food to them to do that.

When 5 billion of them disappear from starvation, and return to ox pulled plows, they will wish they had oil.  They won't care much about gold or silver because it won't pull the plow.

Sat, 05/07/2011 - 20:04 | 1251786 Re-Discovery
Re-Discovery's picture

They won't be refining and delivering oil then either.  Please don't start with an investment thesis and end with what happens at armageddon.  Not a strong argument.

Sat, 05/07/2011 - 20:13 | 1251802 CrashisOptimistic
CrashisOptimistic's picture

That is somewhat the point.  

Oil is everything.

There is not enough of it to go around.

The conclusion is not "price goes up".

It is people die by the billions.

Sat, 05/07/2011 - 20:31 | 1251839 Blindweb
Blindweb's picture

Billions will die, but slowly over decades.  Third worlders will starve, prescription drug junkies will die from their ailments, infants mortality rates will go up, age expectancy will go down,  WW3 will kill many.  The current monetary system will collapse.  But trade will continue.  The world will fall back on older systems...gold and silver. 

Sat, 05/07/2011 - 22:46 | 1252134 Milestones
Milestones's picture

You win set and match.       Milestones

Sat, 05/07/2011 - 20:15 | 1251804 RockyRacoon
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Rule #2.  Only Oil Matters.  Sorry PM guys, you are not vital to the food supply.  Only oil is.

I'm not sure that I disagree with this thesis.  I could swallow an argument that the take-down of silver was a diversionary tactic to get at the real objective:  oil.

And if anyone is a PM believer it's me.  Over the long horizon PMs will prevail, but in the immediate time frame oil is the prime mover.  Politics (looking good in an election season) can be a powerful incentive in the markets.

Sat, 05/07/2011 - 20:19 | 1251810 StarvingLion
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One can use switchgrass from poor land to power farm equipment.  Transportation system has to be changed due to population density anways. 

The real problem is jobs and the enormous # of people who are tied to the automobile industry.

Sat, 05/07/2011 - 21:13 | 1251929 medicalstudent
medicalstudent's picture

great thread.

 

investing in oil has counterpaty risk.

 

investing in physical does not.

 

if we approach endgame, all paper assets will be worth nothing.

 

virtual world>real world for now.

 

real world>>>>virtual world for then.

 

 

Sun, 05/08/2011 - 07:56 | 1252639 css1971
css1971's picture

A doomer! Spotted out in the wild too.

Some things to consider.

1. The peak has taken 100+ years to form. there is still lots of oil. We are going to see decades of inflation and increasing importance of the energy sector.

2: Energy is fungible and electricity is the most fungible form of energy. Internal combustion engines are at best about 30% efficient, whereas electric motors are 90%. Electrical energy transmission and storage systems are improving. For an example of an efficient transport technology see Personal Rapid; http://www.ultraprt.com/ . Already installed at Heathrow Airport.

Don't get me wrong, we have trillions in sunk investments in existing agricultural and transport technologies to replace, but I'm not a doomer, nor a cornucopean.

Sat, 05/07/2011 - 20:19 | 1251809 r101958
r101958's picture

baka yarou

Sat, 05/07/2011 - 17:43 | 1251559 Waterfallsparkles
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The problem seems to be in my opinion.  That the price of oil, commodities like copper, aluminum, soft commodities like corn, soy beans, cotton, coffee, etc. need to come down for the average person to survive.  Plus, the Dollar has to rise.

But, all of the above have been the fuel for the Stock Market.  Every time Oil prices ramp up the Market goes with it.  Every time the Dollar goes down the Market goes up.

It is true that Bernanke has padded the pockets of the Banks and the Wall Street traders, but he has forgotten the 95% of the average American.  Unfortunately, the people paying the bill for this ramp in Stock and the depreciation of the Dollar are the average Americans.

It is evident in the earnings reports for most Company's that the higher costs are killing revenues.  They have to raise prices which puts the Consumer in an even greater bind, trying to survive, potential foreclosure, paying their credit cards, paying their car loans. 

This in turn weakens the economy and the Company's on Wall Street earnings.

As more and more people have less and less to spend it will in itself crash Wall Street and all of the Company's listed.  Wall Street can prop these Company's up until tim buck too but eventually it will make its mark with lower earnings, higher debt and no growth.

So, for all of those Wall Street people that think that the hardships of Main Street will never affect their profits, just maybe they should reconsider.

Sat, 05/07/2011 - 17:50 | 1251575 Rusty Shorts
Rusty Shorts's picture

imo silver will be in the low to mid $20 by this fall.

Sat, 05/07/2011 - 18:01 | 1251594 achmachat
achmachat's picture

I know that you're saying "IMO"... but a baseless line like this is borderline trolling.

If you tell us why you'd think this to happen, we might actually have a real conversation here...

Sat, 05/07/2011 - 19:19 | 1251710 Keri at Bankste...
Keri at Bankster Report's picture

I don't know why he thinks that mid-$20 might happen, but I'll tell you why I do, if you're interested.

At the peak last week, the gold-silver ratio was around 1:33.  After this brutal correction, it's back over 41:1, which is still much lower than the usual 55-65:1 we longs have seen over the past several years.  Back in 2008, during the crisis year, the spread was over 80:1, due (in my opinion) mostly to commodity status of silver, and therefore the corresponding position liquiditations when credit dried up and people needed cash.

The Fed has been propping up everything with QEn (n=interger).  There really have been many more than "2."  Supposedly, the spicket is going to be turned off in less than two months.  If gold is going to shine like it should, here is the chance: everyone always makes the "gold doesn't pay a dividend" argument, but no one is going to care about not getting a dividend when all the sudden the support for inflation in "asset" prices like equities and T-bills (and commodities) gets pulled, and instead of increasing or at least treading water every month, these "assets" start to sink.  Like in '08, most people will see it at the same time, and then liquidity becomes an issue (again). As big plays move to gold, they are going to move away from silver, because while silver may be the "poor man's gold," gold is the currency of central banks.

When the rubber meets the road and people start giving a premium to assets that offer wealth preservation over "returns," they move to gold, not silver.  Silver is a wild cat: that's why all of us who bought at $11 or even single-digits love it.  I agree that silver is a monetary metal, but me sitting on my couch leaving comments to that effect are not going to change the minds of the vast majority of people who still say it is solely a commodity.  We went through this with gold: we can all remember when gold was "just another commodity."  Then 2008 and 2009 and 2010 and 2011 happened, and now people understand that gold is not a "commodity."  We're going to have to go through the same process with silver, and it takes time.  And, of course, silver IS more of a commodity than gold (due to its many more numerous industrial applications than gold), which means that with the hit to GDP and jobs and the general outlook for the rest of this year until who-knows-when, it is going to get hit like other commodities.  I don't see copper getting back up to $4.50 a pound, or oil getting back up $120 a barrel.  My guess is as good as anyone's, but on a like note, I think silver will be $25-28 before it revisits $42.  I could be wrong (I'll be glad to be wrong!), but those are my reasons.

And all that said, once silver sees some good support, load up the truck. I don't think $35 is going to hold---not after last week.  I'll be the first to accuse myself if I'm wrong.

Sat, 05/07/2011 - 20:19 | 1251816 Hephasteus
Hephasteus's picture

Rusty sold at 20 so that's his valuation of the product. It's really no deeper or wider than that. That's his price.

Sat, 05/07/2011 - 20:30 | 1251841 Rusty Shorts
Rusty Shorts's picture

LMAO, come on man. I doubled my money and still have a nice stash.

Sat, 05/07/2011 - 20:55 | 1251885 Hephasteus
Hephasteus's picture

Hey. I'm not faulting you man. You do what you think is right for your situation.

Sat, 05/07/2011 - 21:33 | 1251981 Rusty Shorts
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Be as decent as you can. Don't believe without evidence. Treat things divine with marked respect -- don't have anything to do with them.

Do not trust humanity without collateral security; it will play you some scurvy trick.

Remember that it hurts no one to be treated as an enemy entitled to respect until he shall prove himself a friend worthy of affection.

Cultivate a taste for distasteful truths.

And, finally, most important of all, endeavor to see things as they are, not as they ought to be.
      -- Ambrose Bierce

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