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Crash Or Correction? SocGen Answers

Tyler Durden's picture


Following last week's crude drubbing brought about by correlations gone wild, following the 5 sequential margin hike-inspired collapse in silver, many are wondering if the silver correction is over, or if the crash is just starting. Here is Soc Gen joining in a very schizophrenic Goldman (a month ago: sell; yesterday: buy) telling clients the coast may be clear now that all the weakest hands have been purged (following SLV 88% share turnover on Thursday any latent mania elements have been exorcised).

From SocGen:

Oil prices experienced a huge sell-off this week, plunging by $12 /b on Thursday (11% over the week). Other energy prices followed but the extent of the move was much less limited (between –0.6% and -3.5% over the week). This can be explained by a number of reasons – most of all it seems market participants were finally convinced by the economic newsflow that downside risk have become dominant and it was time to take profit. The question now is obviously if - after the usual technical rebound - this will continue next week and translate into a crash, energy markets in Europe following oil with a lag. Or if prices will stabilize close to present levels, in what should then be considered as the correction of excesses. Our view is that the correction, a violent one, could be over as overall fundamentals remain sound. Hence some prices will stabilize (coal and power), at least temporarily. Further drop for gas is however expected, coming from the continuing seasonal adjustment for which gas is late as compared to the other components of the power complex. Carbon should suffer from this gas movement, with limited downside risk.

Full note:

Energy prices collapsed this week. Brent month ahead contract dropped by a staggering 11%, moving from $125.89 /b to 112 /b, of which almost $12 /b in a single session (Thursday), a rare fact. Following this dynamics but with a much lower amplitude, gas prices (NBP month ahead) lost £p2 /th and closed on Friday at £p55.8 /th (-3.5%). For coal, power and carbon prices, the pattern was slightly different. They started the week with an increase. German baseload Cal12 and CIF ARA Cal12 reached €59.82 /MWh and $133.25 /t respectively on Monday and Tuesday, continuing on previous week’s momentum. Then they followed the oil prices and strongly retraced from Wednesday to Friday. On the whole, German baseload Cal12 and CIF ARA Cal12 lost €0.9 /MWh and $3.75 /t, closing today at €58.2 /MWh and $129 /t. For carbon, the early week increase was strong with Dec11 EUA closing on a  new high €17.42 /t on Monday, at a level not seen since November 2008. The contract fell only by 0.6% over the week and finished
today at €17.04 /t.

So the energy markets brutally turned eventually. This comes after two quiet weeks marked by long breaks and holidays across Europe, delaying decisions – which might partly explain the brutality. Last week had finished on a rather bullish note, encouraging our view for this week that prices would still hold to high levels, and even increase for some of them (coal in particular). Fundamentals indeed had turned more supportive for prices, but sentiment made it all in the last four days.

What happened? The market had become nervous over the recent weeks on concerns that the emerging countries would see their growth reduced in H211 due to the difficult fight against inflation, which is leading some of them to tighten their monetary policy. China has been in a tightening cycle for months – without much success on inflation readings so far. When India surprised this week by raising interest rates by 50 bps instead of the expected 25 bps, the concerns heightened. As the most liquid commodities (oil, precious metals) have largely become a macroeconomic play, and an EM play in particular, these concerns had lead investors to consider commodities as increasingly risky assets, whose potential for appreciation had turned quite limited in the short run. The good Q1 corporate results in the US and in Europe, very often beating analysts’ expectations, had temporarily appeased these fears  as they sent equity indices up to levels unseen since mid-2008 (for the US stocks at least). The enthusiasm over, operators have  started to take into consideration the bad news again. And realized the dark cloud has been getting darker and bigger over the recent weeks.

Western economies remain fragile. In Europe the lingering risk of the sovereign debt crisis is in the news again, through the Portugal bailout and the talks of Greek debt restructuring. In the US, the debt rating downgrade is still in the memories and the end of QE2 in  June leaves the market wonder if this means the end of ever more cheap liquidity around, hence the end of the golden period for risky assets. The rising topic of oil demand destruction due to high prices, the bad unemployment figures yesterday in the US (jobless claims increased to an 8-month high while they were widely expected to drop) and the bad German factory order figures exacerbated the worries on the state of the developed economies.

At the same time the threat of inflation is also getting more precise in the US and Europe, which eventually is no good for growth either, as it will lead to rate hikes. For oil, the bearish inventory report mid-week (see our US Petroleum Report dated 4 May) showing unusual stock builds even as the Driving Season is coming near, combined to news OPEC was considering raising formal output limits when it meets in June, pushed in the same direction.

Much has been made about the impact of Bin Laden’s death. While it might reduce terrorist risk, it is not completely clear why this would lead to lower risk of oil cuts in the Middle East – for this, the less commented demise of one of the Libyan leader’s son over  the same week-end could actually bear more impact. The big “Abbottabad news” was for us used more as a pretext to the first profit-taking, which was actually short-lived on Monday. But the date will for sure be remembered as the turning point for the oil market, even if the real fall in oil actually trailed losses in precious metals later in the week. The bearish reaction was compounded by the ECB’s press conference yesterday, during which Mr. Trichet dampened the expectations for a rate hike in June. This sent the Euro rapidly down, EUR/USD retracing from 1.48 (up to now seen as a pause before 1.50) to 1.45, which is also bearish commodities.

It is to be noted however that the astounding drop in oil prices fails to be reflected into other energy commodities, which fell only by 2% to 5% so far. This for us stems from two main reasons: barring oil, energy commodities are little invested by non-commercial players, whose behavior is evidently fuelling the movement for oil; and the stronger fundamentals for thermal coal or power in  Europe also helped limit the downside compared to oil.

Seen in retrospect – as usual – we can see the energy prices had to go down! What was doubtful before becomes so clear afterwards… Hence, the real interesting question for next week is: will prices stabilize and rebound, or continue falling? Was this a  correction, or is this the beginning of a crash, the explosion of a “bubble” that will take off the classic 30% off the (oil) prices? In each case, which levels will the prices reach?

Our view as a team was that a correction was to be expected but that Brent prices should for now remain in the $110 /b - $125 /b range. See for instance our Commodity Strategy - Brent 1x2 Put Spread at zero cost to benefit from tactical correction dated 4  May, where the following paragraph appears: “In conclusion, there seem several reasons to expect a correction lower in Brent prices over coming weeks. The key question is then how deep and long lasting such a correction is likely to be? We believe that any correction is unlikely to drop below $110 and any drop below $115 is likely to be short-lived.” We also think that solid fundamentals do not warrant a full-fledged crash (the -30% guy who would take oil back down to $85 /b), and that energy prices had not reached a “bubble-like” level. Hence the room for downside exists but is not massive. Economic fundamental first, are not that bad. H211 will  be weaker, which is what the market is rapidly pricing now. However according to SG Economic team central scenario the theme of double-dip is behind us and the economies are recovering for good.

More precisely, on the energy commodities we follow two views are possible. Either the more inert, less investor-driven coal, gas,  carbon and power markets will more heavily come down next week, after a 2-day lag. Or they are close to finishing their correction, even if it can seem limited. In this case they would stabilize next week. Actually our view is that they have probably finished the part in their consolidation that corresponds to the unavoidable sympathy with oil prices. But that they have not finished their seasonal adjustment, at various levels. Hence some of them will stabilize next week (maybe temporarily as there is still some time for the season to play before summer), while other will continue coming down due to a higher gap with what seasonal conditions would justify.

For coal, prices are undergoing the spring adjustment we have been expecting, but could be supported in the short run by continuing Chinese buying. Low inventories and Chinese domestic prices come closer to international ones are the main reasons behind this resurgence. For gas on the contrary, the market (wrongly we argued in our 19 April European Gas Special: five reasons for NBP gas price to go down this summer) thought lots of LNG would be diverted from UK to Japan to make up lost nuclear supplies but on Thursday the UK was in fact receiving more LNG than could fit in the pipelines at MilfordHaven, home of SouthHook and Dragon LNG. Dragon and South Hook were together flowing over 70 mcm /day into the national transmission system, about the maximum combined flowrate that has been seen in recent months. The high LNG supplies should continue to compensate for any other problems that could arise in Norway. Please refer to our equity Statoil note explaining that Statoil production in Q1 11 has been lower than Q1 10 and that Q2 and Q3 11e should also be below 2010 levels. We remain bearish for next week, especially in light of the rising temperatures. For carbon, our view is that the drift of gas prices lower will weigh downward, and that prices could suffer a bit. However there is little in the present price dynamics that could herald a significant departure from the €17 /t – its new average. For power, we think that coal prices are still price-makers in the German system, so that power prices will be relatively supported. However we think that NewC will be more resilient than CIF ARA (see our Thermal Coal trading idea dated 5 May Long NewC /Short CIF ARA) so we see risks more biased to the downside.

Overall, we expect coal (CIF ARA Cal12) and German baseload Cal12 to remain above $128 /t and €57.7 /MWh. On the contrary, gas (NBP month ahead) should continue its consolidation to £p54 /th. Finally, carbon should to be traded in a range €16.7 /t - €17.2 /t. Given this configuration and without strong downward move of the EUR/USD, German dark spread should remain stable while German spark spread will continue increasing (see our European Gas and Power Strategy dated 3 May Long German Spark Spread). We anticipate slight steepening of the CIF ARA forward curve with Next Quarter – Next Year spread decreasing to $-4 /t. For the NBP forward curve, the seasonal adjustment will weigh on the shortterm maturity contract and timespread will accentuate their drop.


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Sat, 05/07/2011 - 17:05 | 1251482 Captain Benny
Captain Benny's picture

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) 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.'


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.


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
falak pema's picture

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
Auricle of Omaha's picture

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 if you pay attention you can get close to spot with this discount until May 18th.

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
Spastica Rex's picture


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 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
RockyRacoon's picture

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
StarvingLion's picture

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; . 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
Waterfallsparkles's picture

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
Rusty Shorts's picture

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

Sat, 05/07/2011 - 23:57 | 1252284 Hephasteus
Hephasteus's picture

And have a nice chant once in a while.

Sun, 05/08/2011 - 07:20 | 1252611 Bendromeda Strain
Bendromeda Strain's picture

Yes - as of the weekend there appears to be two camps, which Eric King did a nice job getting their respective points aired. The Eric Sprott/Ben Davies divide over whether enough physical silver accumulation has occurred to make COMEX intervention self defeating. Apparently the $48 price did bring a lot of scrap and physical sellers to the market, but silver seems to have caught a solid bid at $33. If we see the double bottom next week or a solid rise back towards $40, I would bet you will never see silver in the $20s again. At least not in FRNs. Poor mans gold means just what it says. Smart enough to want physical, too cash deficient to get into gold in a meaningful way.

Sun, 05/08/2011 - 16:41 | 1253665 Keri at Bankste...
Keri at Bankster Report's picture

What would need to happen this week for a move towards $40?  Mind you, the last (for now) margin increases are coming online tomorrow.

Sat, 05/07/2011 - 18:37 | 1251650 cossack55
cossack55's picture

Certainly glad I don't own any imo silver. I like .999 silver.

Sat, 05/07/2011 - 18:38 | 1251656 cosmictrainwreck
cosmictrainwreck's picture

rusty, you're my hero, but I have to agree. can you give me the monthly closes between now & then? 5/31=$32, 6/30=$29, 7/31= $27 ?

Sat, 05/07/2011 - 19:18 | 1251709 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

If so, premiums over spot for Silver American Eagles will be double digits.


Tuco Benedicto Pacifico Juan Maria Ramirez

Sat, 05/07/2011 - 19:41 | 1251743 Keri at Bankste...
Keri at Bankster Report's picture

You make a good point.  It is interesting that the premiums on many products have departed from their historical norms, and I would agree that it indicates enthusiasm on the part of buyers.  The other side, though, is that it betrays increased risk for the sellers (or maybe more accurately, increase volatility).

But another point is that paper silver holders don't care what the premiums are because they don't care about physical.  As long as they vastly outnumber us (which they currently do by huge numbers and which they will continue to do unless we cut off their cheap paper money supply--that is, the Fed), they will control the spot silver price.  Of course, its another story if they all try to take delivery at the same time, we know that, but we also know as evidenced by last week, that they have the paper exchanges on their side (of course), as well as the largest banks in the world.

In my opinion, the premiums on silver products are bullshit, anyway, and have been for quite some time.  If we had a real physical market, we wouldn't have "brand name" silver any more than we have "brand name" futures.  Buying AES's at a 15% over spot is BULLSHIT.  If you believe in silver, buy 15% more silver, not 15% more "brand name."  I know I'm probably going up against a wall of people who won't agree with me at all on this, and I know that historically AES's have always had a nice premium to buy or sell, blah, blah, blah.  But what I'm saying is that we shouldn't tolerate it: that is effectively a downward pressure on silver prices, because of the very fact that people are spending 15% or more on some brand name instead of increasing the demand and holding the supply by buying 15% more freakin' silver.  Buy silver--not names.  Put your money where you mouth is.

What would happen to prices next week if instead of everyone paying some dealer (and really, the US government) an extra 15% for fancy bullion, they just bought 15% MORE bullion?  Am I the only one who sees premiums as stealth price suppression?  Why do we support it?

Sat, 05/07/2011 - 21:14 | 1251823 RockyRacoon
RockyRacoon's picture

Many people factor in a confiscation scenario where silver becomes a "strategic" commodity.  The gov't can take your bulk, common, generic, bullion silver but will not take numismatic, circulated, or legal tender coinage.   That does play into the premium equation.

Sat, 05/07/2011 - 22:44 | 1252130 Dimeboy
Dimeboy's picture

Hey Rock, I had it figured the other way 'round.

Soveriegn Legal Tender is Govm't property, thus subject to siezure much more easily than generic bullion.  That's why Americans should be holding Maples and Canadians should be holding ASE's, and Mexican nationals should avoid Libertads, etc .  The gov cannot sieze a foreign legal tender as it's "property" which is the easiest way.  Outright bullion confiscaction would require a bill through Congress or Parliament, whereas Legal Tender can be recalled by Treasury or Executive order alone.

Sun, 05/08/2011 - 01:11 | 1252409 Keri at Bankste...
Keri at Bankster Report's picture

Oh yes, that is true right now, but we know that the government can take whatever it wants.  There was no precedent for the '33 confiscation.  You can't trust crooks to follow even their own "rules"--they don't have rules.  I believe that if it came down to that, which it could, they'd take whatever they want.

Sun, 05/08/2011 - 18:27 | 1253924 RockyRacoon
RockyRacoon's picture

Well, then it really doesn't matter what you hold does it?  Except for perhaps some lead and a way to deliver it swiftly and accurately.

Sat, 05/07/2011 - 19:31 | 1251722 Pegasus Muse
Pegasus Muse's picture

imo silver will be back over $50 by the end of the year. 

@Keri.  Your commentary might make sense in the Anglo-European world.  However, in China and India and much of the ME gold and silver are the only form of Real Money.  Real People want it as they see their fiat trashed.  Therein lies the unprecedented demand for silver in particular as it is the metal the poor and middle classes can afford.

Sat, 05/07/2011 - 19:52 | 1251763 Rusty Shorts
Rusty Shorts's picture

“Write drunk; edit sober.” ~Ernest Hemingway

Sat, 05/07/2011 - 21:12 | 1251765 Rusty Shorts
Rusty Shorts's picture


Mon, 05/09/2011 - 04:40 | 1254794 falak pema
falak pema's picture

EH's greatest epitaph to literature : a shot fired straight up his own throat.

He always saw himself as the strong silent type...even when he wrote. Drunk or sober it was pithy.

Sat, 05/07/2011 - 20:05 | 1251785 DeadFred
DeadFred's picture

In my admittedly low value opinion the drop will be sharp until they can't manipulate silver any lower, then the rebound will also be sharp.  When that will occur who knows maybe yesterday maybe in a month but I don't see a slow drop.  The dollar has rapidly moved from the overextended bottom of its channel to the overextended top of the channel this week. Will it break into a new channel and continue upward?  If so silver will continue to get its hind-quarters handed to it.  If the dollar continues in this channel it only has a bit of time until we hit uncharted waters and silver will then break 50 very quickly. If silver hits 20 to 25 it will do it in May not later since those levels are sustainable only in the dreams of the trolls. I have no physical beyond decades old purchases but at 20 I will have more.

Sat, 05/07/2011 - 21:47 | 1252022 Keri at Bankste...
Keri at Bankster Report's picture

Muse, I get that and I think that your observation is more important now than ever before, and will become even more collosial over the next 5-10 years.  However, we have 9% unemployment in the US and 75% of the European nations are effectively bankrupt.  Normal people in the US and EU can can nary afford $50 silver, especially if it is coupled with $110 oil.  People in China and India don't have a "poor man's gold," because in hourly-wage terms, silver is many more hours of work than it is here, especially at $50/oz.  ZH just reported a few weeks ago about what was happening there:

But you are right-on in establishing India and China as the huge groundswell of support they are: I would just push it out to 2014-2020, personally.  Both China and India have to diss their dollar peg and semi-peg to quell their domestic inflation fires, and I don't think that happens this year (would be great, though).  And something you probably already have considered but didn't mention is that those same poor/middle class people in India and China also have no DEBT to repay in $ or ? or ¥, so they are in a much better position than the Anglo-Euro-American West is to replace their fiat with real money: we are tethered to the dollar because of debt obligations.  Fiat-based/denominated debt is an effective chain, which is exactly why the CB's use it.

Long term, I see the East as one of the major sources of support for silver because of what you are saying, especially as USD slips; incidentally, the West will be support also because western currencies will lose value, and eventually, popularly-believed trustworthiness.  But I don't see that right now.  Also, China and India represent much more conservative cultural plans (investment wise) on the micro-level because of their general aversion to debt accumulation, and so they are certainly more long-term geared.  The anti-debt people, whether they are Chinese, Indian, American or European, do indeed flock to hard money; it is really all we have and all we want.  This is a major plus for PM' the future.  But right now, things are just CRAZY.  I'm not putting any bets on anything.  Last week we got our asses kicked.

I'd be thrilled to see silver stable (repeat, stable) at $50 by the end of the year, but I'd continue to be cautious unless it was correlated with something other than another steep move up and a huge gold-silver ratio spread.  I think the spread will indeed close to something more like 25:1, but not at the rate we have seen over the last three months. We have to get through the summer before we get to the end of the year, and summers have not been good for silver (until about August).  I can see silver doubling, but personally I see it a lot more likely to occur from $20 to $40, or $25 to $50, than than from $35 to $70.  I'll be a buyer again in the $20's.

I can see the following, sort of like last year.  Last year, we had a 50% move from under $20 to just over $30 from August to New Years.  I think we can see that again, probably starting in August, after silver bounces around at $25-$35, and once it breaks $35, I can see another 50% move up to $45 by the end of the year.

Also, let's keep this is perspective.  If someone would have told you last May, when you just took delivery on a $1000 face bag for $12,200 that you would have the chance to sell that same bag next May (meaning right now) for $24,400 and if they would have asked you to commit to sell, would you have done it?  Would you have taken a gauranteed 100% return on something as notoriously volatile as silver?  Personally, I absolutely would have (and I would have just bought more May-2010-priced silver!).  Let's not lose perspective, even with the 30% slide.  They are mocking us gold and silver bugs because of last week, but we are the ones who are still up 50% on gold and 100% on silver from last year while they are up 18%.  Who's your daddy now?

Now, let's look to next year.  If someone right now offered you a contract for $70 an ounce for your silver that you just bought today at $35 for delivery in May 2012, would you agree to that futures contract?  Or more aptly, if someone offered you a $50/oz contract for December, would you take it?

If you would, then you're showing not price support, but resistance: you're accepting a ceiling, you're showing your cards, so to speak.  This, in my opinion, is what we are seeing here.  There is too much uncertainly right now across the board, and people are more worried (rightly, in my opinion) about locking in gains and taking some profit off the table than they are about possibly loosing out on "another double."  One double is good enough for a lot of people.  We have what I think is going to be a hard march back up not 30%, but 43% to get back to that magic $50 Maginot Line again (a $15 move from $35 is just under 43%).  And we have the Fed, JPM and summertime to deal with.

Again, for all of my fellow longs: let's not get pissed about freakin' 100% gains in 12 months!  I know it was at 190% for an instant, yes, yes, but c'mon!  Let's be grateful and rejoice!  We are landing some serious blow to our nemeses.  We can't expect them to just stop resisting because silver spikes at $50---that only pisses them off.  And for those who got in a little later: you're going to have to be as patient as we were/are.  We have people on this board who have been sitting on silver since you could get a full face bag for $3,500 and a Monster box for $2,700: think about that.  They put their money where their mouth is to give the newcomers a chance, too.  Hold your horses and chill out: this is going to be a LONG (no pun intended) fight.

Sun, 05/08/2011 - 10:05 | 1252734 Pegasus Muse
Pegasus Muse's picture

You have obviously thought about the topic deeper than I.

On trading.  I don't.  I accumulate on dips.  Bought more silver in the low $40s.  Bought again in mid $30s.  If it pulls back (or through) to its 200-day moving average ($28 and change) I will back up the truck bigtime. 

Sure, I was bummed about last week's slam-down like all other PM-bugs.  Instead of being up 150% on physical silver, I'm up a measly 75%.  lol.  I'll get over it.

So long as we have Criminal Banksters calling the shots and worthless, complicit Politicial Hacks doing their bidding we will see a relentless destruction in fiat and rise in gold/silver.     

Sun, 05/08/2011 - 16:55 | 1253693 Keri at Bankste...
Keri at Bankster Report's picture

You have the right attitude.  Early last week I was talking with a JPM broker (yeah, of the EE itself) who was trying to convince me that his 70/30 equities/fixed income JPM porto was the right thing for anyone to do.  He showed me his returns from 2005.  I told him that he gets no credit from me for making money during the helo-drop times, but likewise I won't hold his 26% loss in '08 against him.  So, looking at 2009 through current, he had returns of 25% in 2009, 16% in 2010, and year to date for 2011?  3.7%.  No typo.

Anyone here could have bought silver at $9/oz in fall of 2008.  Even after last week, you'd be up some 400%. We bugs have nothing to complain about (return-wise, anyway), even after last week.  We got our asses kicked, true, but we've been killing 'em and will keep killin' em until their game is over.


Sat, 05/07/2011 - 20:21 | 1251820 tmosley
tmosley's picture

Paper--maybe.  Physical--no way.

Sun, 05/08/2011 - 01:29 | 1252420 Construct
Construct's picture

If you believe silver will be 20 USD then sell all the physical/paper silver you have and go short.

Sat, 05/07/2011 - 17:50 | 1251576 DudeInCanada
DudeInCanada's picture

Totally off topic but what would happen if each time the bankers/gov't lied they got kicked in the nads? Would that motivate them to man up?

Sat, 05/07/2011 - 18:08 | 1251607 New_Meat
New_Meat's picture

duuude: u be makin' assumptions, stop it right now!

a) do they know the truth?  what is a lie?  We'll be needing Loyla for more than this in the not too distant future.

b) do they have 'nads? e.g. Blythe is cute and all, but, under the hood???

c) we know what motivates them. pain avoidance isn't part of motivation.

d) what is this "man up"?  So 1900's. Don't you know that we are much more sophisticated these days?

You are proposing the Carrey solution, in part:

Truly, it would be piss-your-pants-funny. ;-)

- Ned

"Well, Pilgrim, you gonna just lie there and bleed, or you gonna get up?"

Sat, 05/07/2011 - 19:14 | 1251708 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Not sure, but would minimize production of baby bankers being born which would be good for the world.


Tuco Benedicto Pacifico Juan Maria Ramirez

Sat, 05/07/2011 - 20:08 | 1251791 DeadFred
DeadFred's picture

Baby bankers aren't bred they're found under rocks.

Sat, 05/07/2011 - 17:51 | 1251578 Silver Bug
Silver Bug's picture

Learned quite a while ago to not trust these guys. You see on parabolic moves you buy on major corrections. This my friends, was a very major correction, and will be healthy for the overall uptrend, rebuy or purchase more. Good times are ahead.


Sat, 05/07/2011 - 20:28 | 1251832 RockyRacoon
RockyRacoon's picture

33% would be an average correction for silver actually.  I posted a link to the chart a while back.   Look at the silver chart from 2000 to now and you'll see that the recent correction is average.   Silver is just that kind of slippery slut.

Sat, 05/07/2011 - 18:14 | 1251611 Thunder Dome
Thunder Dome's picture

RIP James Dines.  One of the best I've ever come across.

Sat, 05/07/2011 - 18:49 | 1251668 simonsito
simonsito's picture

wtf are you talking about?

Sat, 05/07/2011 - 18:32 | 1251645 Joe Ploppy
Joe Ploppy's picture

From Financial News 5/6/11:

Goldman Sachs is the largest holder of Proshares UltraShort Silver, an exchange-traded product that increases in prices as silver falls, according to data from Thomson Reuters, taking a $2.7m position in the exchange traded product since January, previously holding just $100,000 in the product."


Sat, 05/07/2011 - 18:40 | 1251655 I am Jobe
I am Jobe's picture

GS is doing GODS work. Stop the Squid.

Sat, 05/07/2011 - 18:44 | 1251662 UnRealized Reality
UnRealized Reality's picture

So, wouldn't that mean they want to take profits? If so Silver is a Buy from Fridays action.

Sat, 05/07/2011 - 18:34 | 1251649 Re-Discovery
Re-Discovery's picture

Did he die?

Sat, 05/07/2011 - 18:42 | 1251659 AG BCN
AG BCN's picture

If he's not dead, I hope his family dosen't read ZeroHedge.

Sat, 05/07/2011 - 18:45 | 1251664 Re-Discovery
Re-Discovery's picture

He just did a KWN interview today.  Big on Rare Earths still.  Pumped his book on market psychology.

Sat, 05/07/2011 - 18:39 | 1251657 UnRealized Reality
UnRealized Reality's picture

I did not read the Post, you know, because it is Goldman, but I do agree with them that this correction is over. Silvers action on Friday was a buy signal.

Sat, 05/07/2011 - 18:59 | 1251686 Re-Discovery
Re-Discovery's picture

I would be careful and wait to see what happens overnight Sunday, maybe Monday.  Yes a lot of hands are shaken but there is still value for big players to keep the price low.  A snap back up quickly would not allow their 'Silver Bubble' story to sink in thoroughly.  This is a small market.

Sat, 05/07/2011 - 19:12 | 1251705 UnRealized Reality
UnRealized Reality's picture

I never said it would go up, more like sideways. Small or not The world doesn't revolve around the CME or Comex. I believe they can not fight the World on this. Also Comex is only one small exchange in this world market.

Sat, 05/07/2011 - 19:17 | 1251711 Re-Discovery
Re-Discovery's picture

I agree.  Just an issue of timing.  A market that operated as a proper pricing mechanism would have sent the price up much higher years ago.  And it will at some point.  I just think the bad guys want this price level or lower for some period of time.  I want to buy now, I am still short term cautious

Sat, 05/07/2011 - 19:49 | 1251755 Pegasus Muse
Pegasus Muse's picture

Wonder if this will mark the start of a terminal disconnect between phony (soon to be irrelevant) comex-manipulated prices and the true market price for physical metal. 

So far, despite the sell-off, we still see the premiums for physical holding the prices up quite nicely in some markets: 

If we see strong BTFD Sunday night in Asia, it will help confirm we're at/near the bottom for last week's trashing of silver.

Sat, 05/07/2011 - 18:45 | 1251658 Silverhog
Silverhog's picture

When I first got my driving license in 1968 you could buy a gallon of gas for 25 cents (Silver quarter) Now a Silver quarter is $6.00. So what's wrong with this picture? Silver needs to go down or oil needs to go up. Take your pick.

Sat, 05/07/2011 - 19:13 | 1251702 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Spurious Correlation



Tuco Benedicto Pacifico Juan Maria Ramirez

Sat, 05/07/2011 - 20:37 | 1251861 Bastiat
Bastiat's picture

Silver quarter was mis-priced at .25 in 1968. There was a reason they stopped making them in 1964.

Sat, 05/07/2011 - 18:52 | 1251676 I am Jobe
I am Jobe's picture

JPMorgan in Talks to Settle S.E.C. Inquiry Into Securities

Sat, 05/07/2011 - 19:07 | 1251694 UnRealized Reality
UnRealized Reality's picture

Our view is that the correction, a violent one, could be over as overall fundamentals remain sound.

This is the same view as all of us, so we all should sell because of this. Maybe they are using reverse psychology on everyone. Wouldn't that be a real kick in the ass. I'm a buyer on Sunday night.

Sat, 05/07/2011 - 19:15 | 1251706 Waterfallsparkles
Waterfallsparkles's picture

So, they raise the Debt Ceiling.  The FED pumps even more money into the system.  At this point, how will that help?

Gasoline now at $4., Food rising every day, clothing costs going up.

So, the FED prints even more money.  Gas prices for consumers go up, heating costs go up, food and clothing go up even more.  Just who do they really think will pay for all of this debt? As Americans squeeze their belts even tighter and tighter, move in with family to lower their consumption and housing costs, just who is going to support all of the Companies on Wall Street?  Think about it move in with family, one less cable bill, one less phone bill, one less utility bill, one less property tax bill, one less property insurance bill, less lawn mower bill, less food waste.  How does this help Wall Street?

People will survive, but with less and will move in with family, cut their cost to the bone and buy nothing but essentials.  Remember in the old days when you were delighted to get a pair of socks for Christmas or a pair of pajamas?

Well, the Banks can rally in all of the glory for now, but when the average American really pulls back their spending and stops buying houses, and anything that is not absolutely essential, it will collapse the Companies on Wall Street.  And that my Folks will in the end Collapse Wall Street.

So, be careful what you wish for Wall Street, as you may actually get it.

Sat, 05/07/2011 - 19:22 | 1251723 Dr. Porkchop
Dr. Porkchop's picture

We are in the final bubble. The government money bubble. Silver and gold for the long term.

Sat, 05/07/2011 - 19:31 | 1251737 RobotTrader
RobotTrader's picture

Funny how each and every "expert" on King World News who were crowing about silver shortages, funnymentals, etc. now claim they correctly predicted the top last week.

And lo and behold, the "little guy" was 100% correct and sold out at the highs.

And now all of them are out of the market in 100% cash, saying another buying opportunity will now come in other sectors, but not silver....

Sat, 05/07/2011 - 19:45 | 1251752 UnRealized Reality
UnRealized Reality's picture

Yea, and it is funny how Obama killed OBL and crushed the evil oil speculator all in the same week. Election strategy completed. I'm waiting for him to come out and take credit for this.

Sat, 05/07/2011 - 19:51 | 1251761 Re-Discovery
Re-Discovery's picture

Do you enjoy being wrong or do you just like the abuse you get here?

I was able to get out of most of my position at 46-47 BECAUSE of the caution expressed on KWN.  And "NO" just because the price goes down doesn't mean the fundamentals have changed.  Have you ever made money trading, or do you just dislike those that have

Sat, 05/07/2011 - 20:35 | 1251846 tmosley
tmosley's picture

Uhhh, they did.  But then, you don't want to think or take in any form of information that if processed logically might cause you to change your worldview.

How does it feel to be a laughing stock?

Sat, 05/07/2011 - 20:38 | 1251863 Zing
Zing's picture


Sat, 05/07/2011 - 19:37 | 1251742 gianakt
gianakt's picture

The shadow banking system has huge correlation trades on in all instruments, and the equity markets will catch up to the huge correction in commodities and currencies. The Fed will have trouble manipulating these markets as they are in the multi-trillions.

Sat, 05/07/2011 - 19:41 | 1251748 RobotTrader
RobotTrader's picture

Like I said, the coin-clutching doomers who are cheering for a hyperinflationary depression are going to be very sorry.

If the S & P 500 ends up "catching up" and we go into a bear market with a USDX rally and a deflation scare, commodities of all stripes, especially gold and silver will be utterly destroyed just like they were in 2008.

Sat, 05/07/2011 - 19:51 | 1251759 bob_dabolina
bob_dabolina's picture

So if you think commodities are going down you must be net-short the SnP....more particularly short XRT

Sat, 05/07/2011 - 20:37 | 1251859 Zing
Zing's picture

or how about not playing in manipulated markets and sitting in cash that is about to appreciate significantly?

Sat, 05/07/2011 - 21:08 | 1251921 Captain Benny
Captain Benny's picture

"Sitting in cash" means that you are playing currency... I think that is far more destructive because that means that you put 100% trust in the Federal Reserve and Treasury... If you look at their "strong dollar" policy, somehow its -97% stronger than it started out.  Yes, thats 3% of the original value.

You are free to "sit in cash" ... I on the otherhand will be an evil speculator.

Sat, 05/07/2011 - 20:03 | 1251781 AG BCN
AG BCN's picture

"If you can make one heap of all your winnings
And risk it all on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breath a word about your loss

you'll be a Man, my son"

Rudyard Kipling (1865-1936)


Sat, 05/07/2011 - 20:39 | 1251856 Zing
Zing's picture

+1.  They can junk all they want.  If you are right, then they lose BIG time.  I have a few "coins" as a hedge, but I don't have a large gold position.  Much better options out there right now.

Sun, 05/08/2011 - 04:01 | 1252527 Kina
Kina's picture

Hyperinflation will send everything through the roof. S&P 36,000,000. Shares will blow through the roof. Which is fine as your percentage ownership of the company remains the same, however the company itself might be totally effed. Demand if iphones and iCrap might tank just a little in the depression that follows a HI collapse. So I don't think holding equities is a good strategy if you expect HI as many companies may have no market or a heavily shrunk market demand for product after that.

The question is what follows a HI collapse? Gold companies did very well in the great depression.

A New currency? Interim period of where PMs only have purchasing power aka Zimbabwe.


Sat, 05/07/2011 - 19:38 | 1251744 RobotTrader
RobotTrader's picture

You can see Goldman's footprints here.  Check out the huge volume:

They are also buying U.S. Dollars:

Sat, 05/07/2011 - 20:31 | 1251751 bob_dabolina
bob_dabolina's picture

I love it when I beat Goldman to the punch, it puts goose bumps on my cock.

Sat, 05/07/2011 - 20:36 | 1251848 tmosley
tmosley's picture

I believe those are called genital warts.

Sat, 05/07/2011 - 22:53 | 1252156 bob_dabolina
bob_dabolina's picture

good one on the back swing

Sat, 05/07/2011 - 19:56 | 1251773 johny2
johny2's picture

If correction means paper price manipulation, that this week was a perfect example of " correction "

Sat, 05/07/2011 - 19:59 | 1251774 mcarthur
mcarthur's picture

If anyone else has read Doug Noland over at prudentbear you will know that the US economy has to create 2 trillion in credit every year in order to sustain itself.  QE1 and 2 filled the void but this is like Enron's balance sheet, it is transient.  This is why I tend to agree with Rosenberg with respect to treasuries getting a 2 handle again despite all logic.  Risk is about to disappear again.

The real losers are obviously the savers but when are they going to rise up against the negative savings rates? Certainly not before the next election.

The US inability to bring the white collar criminals to trial will continue to deny us the final catharsis the market deserves.  Most are now working at BofA, Goldman etc.

Sun, 05/08/2011 - 06:28 | 1252592 css1971
css1971's picture

Who is this mythical "saver"? Does anyone still save? It's been clear since 1970 that the governments will steal any savnings you have and give them to their best friends.

Sat, 05/07/2011 - 20:18 | 1251808 RobotTrader
RobotTrader's picture

I'm not saying that silver can't go back up from here.

In fact, it's possible that silver and gold can both make new highs in 2011.

But that will only happen if retail, banking, and REIT stocks start going parabolic and the Dow goes to 15,000.  Because that will be signalling that the greatest global economic boom of all time will be upon us, and millions of Chinese and Indians brought out of poverty will be buying gold and silver gifts for their children.

Sat, 05/07/2011 - 20:27 | 1251831 johny2
johny2's picture

Wrong. One week of succesful paper price manipulation does not change the reality. The price of Silver is going to $100 in near future.

However, the advice is not to be greedy and play on the markets, unless feeling very lucky. 

Sat, 05/07/2011 - 20:35 | 1251847 bob_dabolina
bob_dabolina's picture

What's the physcial price of silver? 

....if I were to walk into a coin shop

Furthermore, what is the price of silver if you wanted to sell it @ a coin shop? Would it be above or below spot?

Sat, 05/07/2011 - 20:35 | 1251853 johny2
johny2's picture

what would it be if somebody tried to spend 1 billion of dollars on it? 

Sat, 05/07/2011 - 20:43 | 1251862 bob_dabolina
bob_dabolina's picture

lost me

Sat, 05/07/2011 - 20:48 | 1251876 johny2
johny2's picture

OK, if someone decided to exchange 1 billion of their FRN for the physical silver on monday, would they find this amount easily for sale for the spot price?

Sat, 05/07/2011 - 21:29 | 1251971 bob_dabolina
bob_dabolina's picture


Did you have a point? Other than someone buying/selling billions of something....

Sat, 05/07/2011 - 21:48 | 1252019 johny2
johny2's picture

I do, but you are just too easily lost to see it....The price of the physical silver is the price you would have to pay if you were to buy all of it available in physical form. And the price would not be $35...It is going to be like in USSR, where official exchange rate and black market exchange rate varied wildly. The same thing is going to happen with the exchange rate of the dollar and silver.

Sun, 05/08/2011 - 01:32 | 1252422 blunderdog
blunderdog's picture

You know what's could sell your silver for $3 above spot just the other week...

...but that was when silver paper was at a high.


Sat, 05/07/2011 - 20:21 | 1251821 r101958
r101958's picture

Not enough oil around for that Robo.

Sat, 05/07/2011 - 20:34 | 1251845 Muir
Muir's picture


Don't you realize that robo is just another of Tyler's alter egos?

Didn't you see the movie, fools?

Sun, 05/08/2011 - 00:24 | 1252342 New_Meat
New_Meat's picture

it is impossible for you to have an odd number of junks ;-)

How can this be?

- Ned

Sun, 05/08/2011 - 01:23 | 1252416 cosmictrainwreck
cosmictrainwreck's picture

i put one on to even it out....

Sun, 05/08/2011 - 10:55 | 1252826 Muir
Muir's picture

and I junked myself to even it again!!

Sun, 05/08/2011 - 06:21 | 1252590 css1971
css1971's picture

I thought it was you!


Sat, 05/07/2011 - 20:38 | 1251852 Zing
Zing's picture

Deflation is the name of the game.  Not hyper-inflation.  Once the deflationary waves starts it will take all commodities down the toilet, including gold, silver and platinum.  King Dollar will assert himself for a time.  THEN, once deleveraging has occurred, will gold (only) assert itself.

Sat, 05/07/2011 - 20:39 | 1251866 Muir
Muir's picture

yeap that's one possibilty

Sun, 05/08/2011 - 01:36 | 1252426 blunderdog
blunderdog's picture

It's really silly, in my view, to look at dropping prices of real estate and other "speculative" commodities and call it deflation.

"Deflation" should *necessarily* result in a stronger currency and a lower cost of living.  It means that a sufficiently large quantity of money is being removed from the system that it *must* affect all sectors.

I think there's about a zero chance of that happening.

But if the leveraged market continues to collapse, and the "value" of bubbled assets falls, anyone with a net worth in the top .01% is going to be wailing and gnashing teeth about "deflation" and begging the government to do something.

Thank goodness there are so few of those folks.  But alas they wield all the political power.

Sun, 05/08/2011 - 11:10 | 1252847 reachsb
reachsb's picture

You are correlating the events that transpired in 2008 to what will transpire in the near future as the deflationary forces start exerting themselves on the world economy (for eg. Gold sold off too in the deflationary collapse of 2008). But off late, Gold has become unhinged from the USD. Whenever there has been a currency related crisis (whether it be in Europe or Japan), the common perception has been that there would be a rally in the USD because it's a safe haven. But it hasn't happened. Gold has become the new safe haven.

Sat, 05/07/2011 - 20:47 | 1251878 plata pura
plata pura's picture

Remember the code talk; "growth" equals energy consumption and no nation can have growth with prosperity any further. Flat earth free trade will fail and the untended consequences of such shall be death and gnashing of the teeth by many. On a good note peak oil, potable water, air, food and soil have a new friend!

Sat, 05/07/2011 - 21:12 | 1251932 catch edge ghost
catch edge ghost's picture

Those who brought you the correction feel the price of fake silver should be $28.90. -ish.

Sat, 05/07/2011 - 21:24 | 1251960 Zing
Zing's picture

it should be about $10

Sat, 05/07/2011 - 21:20 | 1251954 Lord Koos
Lord Koos's picture

"a very schizophrenic Goldman (a month ago: sell; yesterday: buy)"

Uh, what exactly is wrong with this?  If you had been a long time holder of silver and sold it a month ago you would have sold around $39-40 and could now be buying at $35.  Yeah you would have missed the very top but you would have done OK.

Sat, 05/07/2011 - 21:34 | 1251985 blindman
blindman's picture

fire.... here comes fuel!

Sat, 05/07/2011 - 21:40 | 1251999 Zing
Zing's picture

If you piss on silver will it tarnish?

Sat, 05/07/2011 - 21:53 | 1252029 Captain Benny
Captain Benny's picture


Basic chemistry tells us that silver tarnish is silver sulfide and it occurs when the silver comes into contact with sulfur.

I guess you could do this test to see if Goldman is really doing god's work.  Hell's demons most certainly piss sulfur.  God's angels probably urinate some kind of white creamy stuff.  We here on earth have some mix of the colors yielding a yellowish color usually.  Human urine can contain sulfur, so yes we'll tarnish it... but not nearly as much as Lloyd Blankfein.

Sat, 05/07/2011 - 22:08 | 1252068 Zing
Zing's picture


Sat, 05/07/2011 - 21:57 | 1252037 steve from virginia
steve from virginia's picture

  - The price is what the price is. Nobody can say for sure what sort of 'manipulation' is taking place in any market, if any.

  - There are better reasons for the Fed to buy metals than sell (and they are, btw).

   - The big banks are the exchanges' bankers and as such 'finance' the positions the exchanges take when these exchanges issue new contracts to longs for which there is no natural 'seller' or short. What this means is when there are very large long positions there is usually only one or two sellers which become the only bids when the markets turn.

JP Morgan and Goldman are now the only bidders on the other side of your gold/silver trade. What do you think is going to happen next?

  - If there is more physical demand for a metal such as silver than there is available the exchanges will cheat.

  - Nobody can tell what the price of any market- traded good will be, although it is fair to say the price of crude oil will increase relative to what oil consumtion can support. By this I mean that the nominal price can drop significantly, but the ability to buy crude oil products will drop even faster and farther. If nobody has any money, fifty- cent a gallon gas may as well cost $10 million per gallon.

   - Wage- earning power in the US is declining rapidly as rising fuel input costs eat into profit margins and desperate business look to cut costs elsewhere.

  - The only way the US can shift to a metal- backed currency system is for it to first default on its current debt, which would have the effect of transferring all precious metals into the hands of creditors to satisfy them. Look @ Portugal and see what happens to that country's gold reserves ...

  - If the US shifts to a hard currency regime it is almost inconceivable that any 'small- fry' gold or silver holders will be able to keep control of their holdings. The little guys never win, you should know that, little guys.

  - Gold and silver are fetish objects of the industrial society that engulfs us and is dying. The end of any society renders its fetishes less valuable; what will have value is knowledge and ingenuity along with the ability to work not speculate in precious metals.

Sun, 05/08/2011 - 01:41 | 1252429 blunderdog
blunderdog's picture

Silver's an industrial metal, dude.

Sat, 05/07/2011 - 22:00 | 1252047 dollartheque@ya...'s picture

"douchebag" is da insult par excellence here at ZH

Sat, 05/07/2011 - 22:34 | 1252109 jkruffin
jkruffin's picture

Time for stocks to drop the preverbial 20% to put the overpriced ponzi back into reality with the commodities.  The stock ponzi will be breached and cause massive pain to greedy longs. The attack on stocks is a day away.

Sat, 05/07/2011 - 22:37 | 1252112 dollartheque@ya...'s picture

any thoughts on the scarsity of silver lately?, I understand there MUST be a higher demand now that silver is down 40%, but isnt it logical to believe that miners are holding off their sales to the mints until this crash stabilizes?who can tell us the opposite?

Sat, 05/07/2011 - 22:39 | 1252119 dollartheque@ya...'s picture

@jkruffin, so i assume your shorting the S&P/500?

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