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Guest Post: Some Thoughts On The Recent Commodity Correction

Tyler Durden's picture


Submitted by Brad Schaeffer

Some Thoughts On The Recent Commodity Correction

The recent correction in the commodities markets may be providing Bernake, Geithner and their easy money acolytes with a sense of relief given the relentless run up in prices of raw materials  since the announcement of QE back in 2008, but they should not sleep tight just yet.  As anyone in the markets will tell you, when any underlying has a price move so vertical in its trajectory it’s bound to face a correction as the smart money, having gotten in for fundamental reasons much earlier along the trend line now wait for the panic buyers or the Johnny-come-lately’s to give the rally that last unsustainable spike to unload their longs and leave the suckers holding $40.00 silver in their purses.
So one must step back and take a long view.  Although it would appear that those of us who warn that inflation is not just a threat but very much a fact of life now were knee-jerk pontificators jumping on the commodities rally trend for political (read: Fed/Obama bashing) reasons, the analysis is quite sound.  Most important, it is methodical not emotional as price surges tend to make investors and analysts from time to time.
Here are some facts: even with the inevitable correction in commodities, as of this writing crude oil is 35%  more expensive than it was a year ago…advancing with ups and downs along the way from as low as $17.50/bbl in November of 2001 to its current level of  over $100/bbl or around a 19% annual appreciation in a decade since the Fed started giving away dollars.  Silver 93%   Wheat 84% Cotton 100%  Coffee 55% Cattle 10% etc etc.  Gold is up 22% for the year.  More revealing, it is up an astonishing 450% since 2001.  In that same decade the USD index against all currencies shed 40% of its value.
To understand why the Bernake’s and Geithner’s of the world view CPI through rose-tinted glasses we must remember who they are.  They are wonks who have spent their entire careers lecturing and/or fidgeting with economies without actively participating in them.  They are awash in data and are hardwired to extrapolate patterns from the past to predict the future.  But  we have only had a non-gold fiat monetary system in place since 1971 which is hardly enough time to get a handle on repeating macro-economic cycles in such an ever changing and dynamic landscape.  And I want to offer something else.  From the late 1940s to the mid-1980s  the United States was the dominant manufacturer in the world.  The reason?  Of our three main foreign competitors today, China , Japan and Germany, one was mired for much of the third quarter of the 20th Century in a disastrous experiment with Maoist communism while the latter two’s urban centers had been reduced to utter wasteland as their reward for launching the most devastating war in human history.  Indeed, all of Europe was digging out of the wreckage of their mass-fratricide, including a bankrupted Great Britain …once the supreme power of the world.
Into that void poured American made cars, radios, appliances, garments, food, you name it.  By the mid-1950s the US was producing almost half of the world’s manufacturing output.  Now we produce less than 20%.  So when Bernake considers whether or not rising prices will result from printing trillions of dollars he looks back to, say 1987 when the dollar index halved yet CPI was only up 4.4% in that same year.  Ergo: a falling dollar does not cause inflation.  Hence QE I and II should move forward without fear.
But he is wrong on two levels.  First of all, a weak dollar is usually a catalyst to prompt more exports as US goods become cheaper.  And indeed that has happened as the manufacturing sector has been recovering nicely.  But, those US manufacturers that once dominated the landscape are few and far between as we have surrendered our assembly lines to the forces of cheap labor overseas in favor of a service oriented economy.  So now when imported goods are more expensive due to their relative strength (or less weakness) against the dollar, unlike in the past when we could shift our purchases to cheaper US-made goods, we instead are compelled to accept higher prices as we have no choice but to buy foreign-made goods.  Ask Wall-Mart.  (One’s house would be an almost vacant four walls if we invaded it and took away any items that don’t say “Made In USA” on them!) China, for example in 1987 produced less than 5% of the world’s goods.  Now it almost a 20%.  A four-fold increase.  
Secondly, the definition of inflation that most people use, including the Fed, seems to be a measure of the CPI as if the two are interchangeable.  Hence, people believe, if the CPI remains steady, so too does inflation.  But, what is inflation exactly?  Is it really price increases per se?  Or are rising prices just one symptom of a larger event?  “Inflation” is what the word implies: an inflation in the supply of a currency and thus a decrease in its value and eventually its purchasing power.  Consumer prices are not always the best measure for a variety of reasons.  Just to give one example, they tend to be ‘sticky’ in that vendors are hard-pressed to jack them up to account for lost dollar values.  So they may try other approaches to mitigate the inflated currency’s impact on the bottom line such as keeping prices the same but reducing the package size.  Care for some potato chips with your bag of air?  How about a 1.5 pint of ice cream that for the same price (hence no measurable impact on CPI) that used to be 1.75 pints?  There are many ways short of raising prices to compensate for the effects of an ever expanding supply of dollars.  But real costs rise just the same.
The fact is that inflation in its traditional definition is rampant across the globe and it can in large part be attributed to the policy of almost zero interest rates in the form of a greatly expanding balance sheet of the Federal Reserve.  Take China for example.  They are the largest exporter to the United States and as such have a vested interest in preventing their products from becoming too expensive (although they have less to fear from competitively cheap US goods as they once did).  They do this by artificially pegging the Yuan to the dollar at a fixed rate.  When the Fed prints more dollars, in order to prevent their currency from appreciating as it can now buy more dollars for the same price, the Chinese must expand their own balance sheet to print the money used to buy up the excess dollars in the system and maintain their target exchange rate to keep their exports flowing.
As such, China ’s M2 is up 15.3% in April alone in part due to this phenomenon. This is an inflationary policy.  There are more Yuan than there used to be.  So they too are worth less, although not as less as the even more in supply US dollar.  And as you would expect, since they have real inflation, prices in China are on the rise.  Their CPI, in fact, shows a 5.3% inflation rate.  How come their CPI shows a much higher level than ours when our dollar is depreciating faster than theirs yaun?  It all depends on how you measure it.  The answer is that their CPI reflects real changes in commodities prices and ours discounts their impact in favor of finished goods.  So to put it simply, where their CPI places a larger import on the price of raw materials and food ours places more emphasis products like the price of a cell phone.  Considering the first Motorola cell phone retailed for $3,995 in 1983, the price has clearly gone down.
Regardless of CPI though, why would raw materials be impacted by the Fed’s relentless easing?  Well, commodities are traded in US dollars which is the world’s reserve currency so a refiner in, say Japan, who has to purchase crude oil for distillation must first take its Yen and buy dollars with it before going into the market to buy crude oil.  The seller of crude knows that the Yen bought its counterparty more dollars and thus will it charge more dollars for its oil, lest the next time he visits Tokyo and converts his less valuable dollars back into fewer Yen he may be forced to stay in a Holiday Inn as opposed to a Ritz this visit.
To be sure, demand spurned by economic growth in the developing world is still the prime driver of raw materials price action. Complex systems like global markets are an expression of many factors.  But if the supply/demand dynamic is what got dealers into the commodities market from the long-side, the Fed’s policies injected steroids into the rally and has now printed its way into a corner.  It cannot initiate more easing as inflation is here.  (As companies add more to their payrolls too, though good for the country as a whole, this will put ever more upward pressure on prices.)  But should it start tightening by raising interest rates as I think is inevitable, making it more expensive for businesses to borrow, it could threaten the anemic recovery that is already showing signs of slowing if the Q1 numbers are any indication.
Meanwhile the average American is being squeezed ever more by rising prices and diminishing real value of their savings.  The Fed and their enablers in the Federal City will have much to answer for in the years ahead.  “What’s happening in Washington now is destroying the class of people who save an invest,” said investment guru Jim Rogers.  “All the people who did the right thing are earning that much money right now. That’s not how the system is supposed to work.”
But that is how the overrated minds running the Fed and the Treasury, neither of whom have ever run a private business feel how the system should work.  They seem utterly incapable of understanding that the past predicts the future…until it doesn’t.   By the time we realize the world has changed and the old school approach is just that, it may be too late.  


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Wed, 05/11/2011 - 19:02 | 1265659 lolmao500
lolmao500's picture

I'm waiting for QE3.

Wed, 05/11/2011 - 19:09 | 1265686 NoBull1994
NoBull1994's picture

Hard to take a post seriously that refers to "Wall-mart" and "Bernake."  This guy is a clown - does not belong on ZeroHedge.

Wed, 05/11/2011 - 22:18 | 1266242 Sophist Economicus
Sophist Economicus's picture

Wood it make yew feel beter if yew new he waz drunk wen he rote it?

Wed, 05/11/2011 - 22:24 | 1266274 Sqworl
Sqworl's picture

Please leave and don't let the ZH door hit you on the way out.

Wed, 05/11/2011 - 19:13 | 1265688 NoBull1994
NoBull1994's picture

Hard to take a post seriously that refers to "Wall-mart" and "Bernake."  This guy is a clown - does not belong on ZeroHedge.

Wed, 05/11/2011 - 22:23 | 1266270 Sqworl
Sqworl's picture

Tyler: please remove this a$$hole from Zerohedge.  Thank you.

Wed, 05/11/2011 - 23:02 | 1266361 Keri at Bankste...
Keri at Bankster Report's picture

Then you'll be interested in this video, because so is Edel Tully at USB.  She was on with Tom Keene today, and she seems to be expecting QEn (n=interger).  We can add her to the list which already includes Jim Grant, et all:  (5:01 minutes)

Her observations on seasonality are interesting, too, if indeed the market is "becoming less seasonal that it once was."  


Wed, 05/11/2011 - 19:11 | 1265679 mynhair
mynhair's picture

Too visual, and sad, about what's in a house.  Don't even know if that NC valve maker still exists.  (Give the name, but it's deep in the bowels of the boat.)

Meanwhile, AVL held the 7.42 support, which surprises the shit outta me, as it was very weak.

Wed, 05/11/2011 - 23:42 | 1266492 ZapBranigan
ZapBranigan's picture


Wow, "sad" seems to be the emotion of the week.  It is truly depressing when the “sale comes first and the truth comes second” (I seriously hate quoting a Brit, but it's applicable and fitting at this juncture)


But, I'm even more depressed from the general consensus of the board.  How easily you forget the strategy that Ward employed to defeat Gatti: STAMINA.


Be comfortable being pinned against the turnbuckle...taking a beating, because the law of energy dynamics still applies regardless of what any troll whispers in your ear.


Make no mistake gentlemen, you are witnessing a second late-stage preservation campaign.  And don't fool yourself, they already have the third and fourth preservation campaign blueprinted.  So, please remove yourself from the game immediately, so that us true men can savor the pain of their uppercuts while we strategize, whilst being brutalized against the turnbuckle.


Character has to start somewhere.


Thu, 05/12/2011 - 00:41 | 1266603 Dantzler
Dantzler's picture

Nice reference.

That was one of the better fights I have had the pleasure of watching.

Wed, 05/11/2011 - 19:12 | 1265685 kengland
kengland's picture

Correction? This contradicts prior posts on the CME. This is an outright terror story playing out on speculators. It's become "retarded" for sure. A correction occurs in a somewhat normal market.


Why would anyone put money to work with the government armed to the hilt against them

Wed, 05/11/2011 - 21:27 | 1266090 jaffi
jaffi's picture

Yes, correction is the wrong word.  Consolidation would be a better word to describe this phenomena; even if it is a CME-forced consolidation.  The fact is that you can game markets to a point to force a pullback, but if the fundamentals are all there then you cannot force a correction, you can only force consolidations; the overall trend-line still goes positive in the longer run (as opposed to daily/weekly noise).  

I must say that I saw silver's trend go parabolic for a minute there and knew that it had to consolidate.  I had an auction bid that closed at $40 an ounce last Friday.  While it is true that it is a few bucks below that right now, that is where I saw silver being valued.  I don't pay any mind to the spot price on a day to day basis, because I know that $40 is a fantastic price for silver given the dollar market.  


But, be ready for a drop in silver for July.  You can sell and take advantage of the short dollar rally, but I'd rather just hold my silver for the next round of monetization. We all know that it is coming.

Thu, 05/12/2011 - 01:14 | 1266647 TraderTimm
TraderTimm's picture

Don't forget the fun the members are having at your expense. Check out this post. Some of the infractions by the NYMEX traders were from 2008 and were only being punished this May.

Backed up by the CME Group's own report on the matter:



Thu, 05/12/2011 - 02:09 | 1266686 jaffi
jaffi's picture

At my expense?  I purchased roughly 90% of my silver holdings when they were going for $5 a troy, and about half of my gold holdings when they were going for $500 a troy.  I am not at all worried.  

Lately, I only pick up a few kilos here and there, depending on the market noise.  Other than that, I don't make any big purchases.  Whatever I save, I put into metal, and have been since '02.  If metals go down in any particular period, that only means that the dollar is strong internationally, in which case I win either way.  

Having bought and sold metals over the past 9 years, I still break even with regard to consumer goods and services, and that is all I really care about.  I work to live better and increase my quality of life, I buy metal to ensure that my savings keep pace with my earnings at any given time with regard to goods and services.  When my metals go down, then I can use fewer strong dollars for my purchases.  When my metals go up, I can use more weak dollars for my purchases.  I don't buy metals to make a profit, I buy them to ensure that my savings are commensurate to my past earnings (i.e. my savings don't lose or gain value with regard to goods/services).  


Now, if you want to talk about investments, that is a different story...  Metals aren't investments in my mind, they're merely savings.

Thu, 05/12/2011 - 04:23 | 1266845 TraderTimm
TraderTimm's picture

Actually, if you follow through to the link I provided, you'll see I'm commenting on a publicly available pdf about NYMEX traders front-running orders and pre-arranging trades. In some cases, infractions from 2008 weren't punished until *now*. I'd call that 'at your expense'.

I wasn't making any comment on silver, or precious metals. I believe in their store of value and the precarious position the dollar is in.


Thu, 05/12/2011 - 07:32 | 1266960 tarsubil
tarsubil's picture

How did you figure this out 9 years ago?

Wed, 05/11/2011 - 19:18 | 1265708 NoBull1994
NoBull1994's picture

Hard to take a post seriously that refers to "Wall-mart" and "Bernake." This guy is a clown - does not belong on ZeroHedge.

Wed, 05/11/2011 - 19:30 | 1265760 lolmao500
lolmao500's picture

And while this is happening, the media is still silent on Fukushima CLUSTERFARK... with 3 reactors in full meltdown...more radioactive water leaking, more radioactive steam being released, building of reactor 4 about to collapse, radiation going even higher...

Wed, 05/11/2011 - 20:35 | 1265983 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

There are a few of us still cognizant of this situation.  I and my loved ones are taking potassium Iodide drops and zeolite and lots of viitamin C.  Other than that all you can do is pray and stay out of the rain.  Good luck!


Tuco Benedicto Pacifico Juan Maria Ramirez

Wed, 05/11/2011 - 21:41 | 1266111 Stormdancer
Stormdancer's picture

Yes, some of us are still keeping track as best limited information flow allows.  When the inevitable aftershock/new system failure finally rips the veil off the presently slow degradation of the situation we'll be around.

Early on I speculated that they'll have no choice but to dump all that radioactive water in the basements directly into the sea.  I've learned nothing since that makes that look like a bad bet.

No word on the "mega-float/barge" that was supposed to be on site late last month.

Maybe it'll show up soon and buy some time, but they're fast running out of storage and can't possibly build enough new containers to hold the mess.

It appears some modest progress has been made at reactor #1, but even that may be more spin than reality.  No mention of reactors #2-4 in days except for another leak into the sea near reactor #3 in the past day or so.  Oh...there was some new footage of SFP #4 a couple of days ago, but still no detailed information about what is happening to any of them internally.

And water levels are still rising faster than they're pumping.  They're still basicly sitting on square one after two months.

Edit:  I'm going to pimp Lapri's EX-SKF blog again.  I hadn't checked it for a day or so and he's got a lot of new info up.  Indispensible resource for those trying to keep track of this mess.  Lapri translates a lot of Japanese language info I can't access due to the language barrier.

Thanks for the time and effort Lapri...I appreciate it!

Wed, 05/11/2011 - 19:32 | 1265766 Smartie37
Smartie37's picture

Fed View ???

RUT = M3 * Consumer Demand

Consumer Demand = 1/CRB * 1/10yr * Consumer Credit

But...........they forgot:

Consumer Credit = Employment% * Avg. Wage !!!!!!!!!!!!!!!!!!!!!!

Wed, 05/11/2011 - 19:36 | 1265774 mynhair
mynhair's picture

Christ, had to go to

Truth hurts.

Wed, 05/11/2011 - 22:21 | 1266249 Sophist Economicus
Sophist Economicus's picture

Was this before or after He rose from the dead?

Wed, 05/11/2011 - 20:35 | 1265781 bob_dabolina
bob_dabolina's picture

Good article. 

I thought this article was not only about the inflation of money and the correction in commodities but it also brushed across the wide concept of the fall of America. 

It is true, that in the post WWII era much of the industrial capacity of developed nations was obliterated, leaving a vacuum that America was ripe to satisfy (with one of the only intact industrial complexes) However, a concept not often talked about relating to the WWII era was the exodus of brilliant minds out of Europe and into America, and this gave us an incredible edge. For example, you had the likes of Einstein, Oppenheimer, Werner Von Braun, Edward Teller, and many others that emigrated to the United States. This gave us an incredible advantage in the space of innovation for a plethora of industries ranging from nuclear science, to rocket science, and hundreds of other industries, which allowed us to create fields of opportunity never before imagined. The technology garnered from these individuals gave us a leading edge in becoming more efficient, innovative, and advanced than any other country. I don't think there was any other time in history where such a concentrated pool of brilliance coagulated behind the same flag. 

Another key issue not addressed was the industrial revolution prior to WWII. The regulatory relaxedness of the time allowed people like Rockefeller, Carnegie, and others to build massive infrastructure in their respective spheres of influence. The fact is, is that in the current environment it is very difficult to build a business from the ground up in many places because of the strict rules/regulations. Also, tying into this concept is the supply/demand paradigm that exists in the input of labor. Can anyone tell me what the labor restrictions are in China? Well of course there are none. So China has the supply of workers and the demand for their wages is reflective of the markets prices. If the FED wants to use hedonics to measure inflation in good/services, it is disengenous at best to ignore the same principles towards wage deflation. With all the laws regarding employment in the US it is a very hostile environment towards employers and thus, the jobs are outsourced. This doesn't really have to do with inflation, yet, it is a deciding factor when considering the abhorrent labor market the US is forced to stare at. 

Obviously the printing of money causes prices to rise but I feel it is equally important to understand the reasons WHY there is a NEED to print money. I have found categorically that when a nation becomes lazy, entitled, and hostile towards it's productive citizens that the preponderance for printing money becomes from the necessity to maintain, and enable, the very citizens that have taken advantage of the fruits of it's labor. 

Wed, 05/11/2011 - 21:08 | 1266070 wirtschaftswunder
wirtschaftswunder's picture

Extend the idea of the post WW2 industrial revolution and a case can be made that the democratization of eastern Europe added as much economic and financial heft to America and the west as did the internet/tech revolution of the same era. Now, one can take these two examples and submit that the acceptance of democracy in the Arab countries and the greater middle east will "buy" a little more time for the economic munificence to flow outward.

Wed, 05/11/2011 - 19:42 | 1265802 legal eagle
legal eagle's picture

The obvious question is "is it better to sell my stockpile of silver and gold now, and buy back after the upcoming correction in June and July, or better off to hold fast"  This is the question that haunts me.

Wed, 05/11/2011 - 19:50 | 1265818 T-NUTZ
T-NUTZ's picture

silver's going to 17 real quick..., so you tell me. 

Wed, 05/11/2011 - 20:12 | 1265892 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

So you are short futures here with a buy stop at 17 huh!?  Good luck with that one!  Ha ha, ha!


Tuco Benedicto Pacifico Juan Maria Ramirez

Wed, 05/11/2011 - 20:29 | 1265949 T-NUTZ
T-NUTZ's picture

you are clearly new to the white metal. it has a history of schooling people like you real bad. hey dude look at a chart for Christ's sake!

Wed, 05/11/2011 - 21:09 | 1266076 wirtschaftswunder
wirtschaftswunder's picture

The gold/silver ratio will adjust to 60:1. For this and many other more technical and supply/demand reasons I'm looking for 24/oz w a shot at 13. Enjoy.

Thu, 05/12/2011 - 09:58 | 1266465 Ag Tex
Ag Tex's picture

By the time "the white metal" hits 25, every physical investment milligram will have been purchased and taken delivery of.  Investors will be lunging to catch falling knives.  Focus on the fundamentals and not the charts.

Wed, 05/11/2011 - 23:27 | 1266440 Ag Tex
Ag Tex's picture

You're supposed to only look into the ether not inhale it.

Wed, 05/11/2011 - 20:02 | 1265867 Quinvarius
Quinvarius's picture

You must make your own decisions and not seek the counsel of trolls.


Wed, 05/11/2011 - 20:20 | 1265916 legal eagle
legal eagle's picture

I get it, irony.

Wed, 05/11/2011 - 21:01 | 1266060 wirtschaftswunder
wirtschaftswunder's picture

No. Stop. Seek the advice of tin foil hatted kool aid providing doomers. Buy silver each and every day and bury it in your local park every night.

Wed, 05/11/2011 - 23:20 | 1266419 Keri at Bankste...
Keri at Bankster Report's picture

I'll take my tin hat and Kool Aid over your magic-symbol-linen-notes any day, thank you.  And if anyone was burying silver in my local park, I'd be the first one to know about it.


Wed, 05/11/2011 - 20:07 | 1265879 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Unless you have a better place to put it, such as your own business or something else "real" sit on it.  Otherwise, you get stuck trying to time the market and most importantly you will be selling wholesale and buying retail as you jump in and out.  The beauty of buying the physical is that you can, theoretically any way, detach yourself from the daily swings that the paper traders lose sleep over.  You don't have the leverage, but you don't have sleepless nights either.  I have been on both sides of the "sheets" and I much prefer the latter.  Buy the physical as "insurance" not as a speculation.


Tuco Benedicto Pacifico Juan Maria Ramirez

Wed, 05/11/2011 - 20:50 | 1266028 sellstop
sellstop's picture

You must decide if your stockpile of PM is a trade or an investment.

Is it your "Ace in the hole" for the end of the world. Or is it just a quick profit.

I think there will be better prices to buy in the next couple years. But that don't mean I will sell my physical. I will look for the opportunity to buy more. But it will depend on what is going on in the world. I don't always buy just because prices are going down. Prices are usually going up when I buy. But it will be a judgement call at the time as to what the future will likely hold.

Wed, 05/11/2011 - 23:18 | 1266409 Rhodin
Rhodin's picture

So you're thinking there will be an actual correction after they are done with the smackdown?

Wed, 05/11/2011 - 19:42 | 1265803 Muir
Muir's picture

And now for your viewing pleasure.
The Mistress of the Macabre. The
Epitome of Evil. The most sinister
woman to dance on the face of the
earth. Lowly dogs, get on your
, bow your heads and worship
     at the feet of SANTANICO



      Blasphemers and apostates of the precious:


                    Bow your heads

        Beg for mercy for your lowly souls.

Wed, 05/11/2011 - 19:46 | 1265816 TheArcangel777
TheArcangel777's picture

Attention all speculators with long positions on any of the commodities exchanges:

Don't fuck with WHOREX!


The CME Group

Wed, 05/11/2011 - 19:53 | 1265828 RobotTrader
RobotTrader's picture

"The average American is being squeezed ever more by rising prices and diminishing real value of their savings." 

Apparently not enough to stop them from buying:

- $150 jeans riddled with holes in them from ANF

- Chain-shopping with "One Click" buying from

- Bras and panties from Victoria's Secret (LTD)

- Gambling at Wynn and Encore

All of which have hit highs this week...

Wed, 05/11/2011 - 19:57 | 1265848 Muir
Muir's picture

And that my friend, surely is a sign that this market is topy. 

Same old same old as always, nada changes.

Wed, 05/11/2011 - 20:18 | 1265911 rocker
rocker's picture

Speaking of ANF and their phony all time high. Lets look at it.  Net Income: Expressed in millions

2007...... 422

2008...... 476

2009...... 272

2010...... 0.25

2011...... 150

This is a long way from where the company was.  Best earnings were over a buck a share. This year 30 cents. Enough said. Go watch some more CNBC and listen to their next pump.   I said before: CSCO is a tell that a double dip is on it's way.  It is just a matter of time now when the market prices it in.

Wed, 05/11/2011 - 20:17 | 1265913 Fiat2Zero
Fiat2Zero's picture

Those aren't average Americans doing the buying there (and at Wynn and Encore, maybe not even Americans as these are globally appealing vacation properties).

Recent Gallup poll showed 1/3rd of Americans thought we were in a recession, 1/3rd a depression, and 1/3rd thought "things were getting better".

But hey, we shopped our way out of 9/11, maybe it could work again!  What do you mean my credit is maxed out?

Wed, 05/11/2011 - 20:22 | 1265935 legal eagle
legal eagle's picture

The problem is that the gubermint's credit card is maxed out, now begging for a credit increase.  Boehner should hold tight, let us default and get it over with.  If it is an eventuality, let's get it over with already.  Rome took too long to burn, I am hoping the internet will speed our demise. 

Wed, 05/11/2011 - 23:49 | 1266500 lawrence1
lawrence1's picture

I just learned that "increasing the debt ceiling" is not increasing the debt but actually allowing debts already incurred to be officially acknowledged. To refuse to "raise the debt ceiling" would be to default on debts already incurred. To refuse to do so would be defaulting on US Treasury Bonds, the lynch pin of the world economic system and would bring the whole world economic system down. That's my new understanding.

Wed, 05/11/2011 - 19:58 | 1265845 Quinvarius
Quinvarius's picture

This guy took some really interesting week old information I read in other places and regurgitated it in a way that I am now totally uninterested in it.

Wed, 05/11/2011 - 20:11 | 1265899 VodkaInKrakow
VodkaInKrakow's picture

You are all being played like a bunch of 'bitchez'. Ever get the feeling that you are behing the curve? Taking the contrarian view? Loading up on gold and silver in the hopes of inflation? I bet you are. Suckerz. Buying into commodity inflation that is all too real... like a bunch marionettes whose strings belong to the puppet masters. Thinking you are smarter than the average bear. i like your ego. I revel in your pain and vanity. It gives me pleasure and joy watching all of you twist upon your marionette strings.


Your contrarian view? You read Zerohedge - a most excellent blog. One of the most, if not the most, popular financial blog in ze' world. And that, you consider a contrarian view? Doing what everyone else does? Bunch of fucking lemmings if you ask me and many others. Doing what everyone else does. Reading Zerohedge for the truth and expecting to be different. News for you: You ain't special. You are doing what you are programmed to do... lemmings. Yet, you laugh at the other lemmings as the price of gold and silver and commodities shoot to The Moon. Never mind that those commodities are priced in fiat paper. Never mind, that come a collapse...

All bets are off. You ever think about that? Yeah, you got physical. There is one small, very important matter you forgot about. The application of violence and force. The State has a commodity on it. And if it doesn't, there are companies like Xe, Inc, who are employed by the gub'mint. That is more valuable than your land, gold, silver, or physical commodities. Yeah, some of you may 'Rambo' up... but you're still meat.

What? You are so pathetic that you are looking for an uprising? Look at Egypt... managed from beginning to end. Greece? A backwater. Ireland? About to be bribed into accepting her fate. Iceland? Forget about it. Too far away for anyone to care - even The Brits have written off all those savers who lost, just noise in the background. The black-and-white speckles on an old analog television tuned to nothing.

The World is coming to The End? That may be. Yet you still play the 'contrarian' game. Pathetic. No balls. No ovaries. Parroting what many already know. And you still find yourself on the losing end. Everyman for himself. Fuck your neighbor. Which is what all the peasants do for a scrap from their master's table. Lapdogs to the end. Thinking you are smarter than everyone else.

News for you... you are not. Your complacency in loading up on physicals while endlessly debating The End mean one thing...

You are sheeple that belong in The Camps.

Talking about The Fed's relentless easing. The criminality of Goldman Sachs. The bailout of banks. Etc... etc... etc... boring. You are too civilized to have any testicles or ovaries whatsoever. Talking your facts and figures and how much you loaded up on guns, ammo, silver, gold, or commodities. Watching the Oligarchs, who after all this time, have not failed yet. While you get shafted. Used like a two-dollar (post-inflation) whore.

Blah... blah... blah... blah... blah...

We are all still waiting for the end. Maybe it will come. Have you ever asked yourself the question, "What if it doesn't?" Well, the answer is, "You did exactly what your master wanted." And if The End comes? Well, your master's already have a back-up plan. Meanwhile, you wait for your hoped for revolution.


The Revolution Will Not Be Televised. The Revolution Will Be Controlled.

Wed, 05/11/2011 - 20:22 | 1265932 Smartie37
Smartie37's picture

Psy-Op to demoralize ignores key facets:

1)  Simple math of implosion

2)  Dynamics of bribery post-collapse


What is the motivation to demoralize others ?

Wed, 05/11/2011 - 20:28 | 1265957 legal eagle
legal eagle's picture

Ewww, scary.....So what the fuck is your point?  Lots of words there, not much meaning, a waste of my time reading your garbage.  

Your plan is to ________?  Anyone can demean others, where is your vision Mr. VodainKrakow?  Oh, I know, you werent loved as a child and cant get laid unless you pay for it.....and now you want to spread the pain.  Please, seek counseling.

Wed, 05/11/2011 - 20:41 | 1266005 sellstop
sellstop's picture

He is saying you are a bunch of sheeple.

I would have to agree with much of what he says. Anyone who disagrees with the party line around here tends to get thrashed and trashed. Quite a bit of enforced conformity for a "contrarian" site.....


Wed, 05/11/2011 - 21:15 | 1266079 buzzsaw99
buzzsaw99's picture

Well said. TD plays them like a fiddle. A penchant toward sensationalism, regarding some conspiracies with disdain, while espousing others. It is a fun blog but don't run afoul of the groupthink.

Wed, 05/11/2011 - 21:34 | 1266121 Hephasteus
Hephasteus's picture

Why would you try to call something enforced conformity when it's simply calling people out on lies.

Has RoboTroll in fact confessed that the pumping bullshit everybody ridiculed him for is in fact real.

Is it enforced conformity? No.

Before it was you guys are idiots the run is real get in stocks. Now it's no it wasn't real but get in stocks anyway because uncle gorilla is not going to allow anything else.

Wed, 05/11/2011 - 22:32 | 1266248 buzzsaw99
buzzsaw99's picture

I assumed sellstop was referring to the buzz surrounding PMs. The groupthink is anti-stocks (it's all rigged) and anti-robo too. Gold and silver will go up forever amen.


I will concede that VodkaInKrakow is an asshole but I still enjoyed his/her rant.

Wed, 05/11/2011 - 22:37 | 1266308 Rynak
Rynak's picture

Whenever this topic comes up, people seem to have difficulty distinguishing two things:

1. A common bias

2. Lack of openness to arguments that do not conform to the bias

They seem to think, that whenever there is #1, there also must be #2.

From my observation, the situation here is like this:

- There is a common bias

- Most people do respond fairly to well written and civil contrarian arguments

- A handful of fanboys (per thread usually 2-4 members) blindly trash everything that "looks contrarian"

- A small but very vocal (to the point that it is spamming) minority just flames and trolls around.

- In times when said trolls are very active, the provoke a highly polar atmosphere, that makes intelligent and useful discussion of counterarguments difficult.

Bottom line: The main problem of this site isn't so much the common bias, but rather the trolls that make discussion of both, consensus and non-consesus arguments, more difficult. My opinion is that this site needs an ignore function.

Wed, 05/11/2011 - 21:57 | 1266169 Creed
Creed's picture

The mainstream media has its echo chamber, and Zero Hedge has one too.

You're a fool if you think ZH doesn't have a better grasp on where we are at and where we are going.

You're a fool if you think swimming against mainstream media propaganda is a pussies pursuit.

by VodkaInKrakow
on Wed, 05/11/2011 - 20:11

You are all being played like a bunch of 'bitchez'.
Blah... blah... blah... blah... blah...

Thu, 05/12/2011 - 07:52 | 1266997 tarsubil
tarsubil's picture

I've been around these internets for a while sonny and I'll tell you, you won't find a group with more conflicting opinions anywhere else. Your hubris is misplaced.

Wed, 05/11/2011 - 20:26 | 1265940 ZombieHuntclub
ZombieHuntclub's picture

I need my 60-seconds back from reading that tripe

Wed, 05/11/2011 - 20:29 | 1265960 legal eagle
legal eagle's picture

Yes, I concur

Wed, 05/11/2011 - 22:42 | 1266313 wirtschaftswunder
wirtschaftswunder's picture

You only read the first word?

Wed, 05/11/2011 - 20:26 | 1265948 Stewman
Stewman's picture

Anyone who thinks that the PM rise is over is bonkers.  What I saw this week was a total shakedown, an attempt to force anyone without faith back into the fold.  It was political, and an act of desparation at the same time.

The other day I read where they dug up a coin with Alexander the Great's face on it.  That coin was struck over over two thousand years ago and it still has value.

Why is that?

I' don't really want to play the market after what I've seen over the past few days?  Shit.  Buy Gold.  Lock your doors. And dont come out till the shooting stops.





Wed, 05/11/2011 - 20:32 | 1265961 T-NUTZ
T-NUTZ's picture

faith huh? so this is a religion for you? now i get it bro. all tools will be schooled.

Wed, 05/11/2011 - 20:37 | 1265996 sellstop
sellstop's picture


Tea Party: Deflationary

Low long bond yields: Deflation ahead

Two years of deflation scare dead ahead.

Don't freak out over the price of PM's.

You will have a better opportunity to buy than now!

Be patient Grasshopper.

Thu, 05/12/2011 - 07:57 | 1267010 tarsubil
tarsubil's picture

Okay, so given that the economy has been in neutral for 5-10 years and that the monetary base has exploded, m1 and m2 have increased and m3 is still higher than 5 years ago and is trending higher, how in the world can we have deflation? Just wondering. Thanks.

Wed, 05/11/2011 - 20:36 | 1265974 Stewman
Stewman's picture

Fiat = Faith, bro.  I guess you got lots of it?

Wed, 05/11/2011 - 20:36 | 1265975 sellstop
sellstop's picture

"Meanwhile the average American is being squeezed ever more by rising prices and diminishing real value of their savings."


Until the average American reduces his/her consumption.

But that seems to be an unthinkable event for these American consumers.

I seem to recall many of these same arguments about inflation from three years ago. The debt is still out there. It just belongs to the govt. now. So the governments go broke/default..... inflation?

Not if people don't have jobs. You need money velocity to get real inflation. Scared people buying gold and silver does not velocity of money create.

BUYING precious metals is deflationary. It is the act of SAVING.

Wed, 05/11/2011 - 20:58 | 1266059 Smartie37
Smartie37's picture

+1 for another great reason for Fed hostility to metals

Saving doesn't require credit !   No vig for them !   

Thu, 05/12/2011 - 08:07 | 1267026 tarsubil
tarsubil's picture

I'm not an economics person but I figured this out all on my own by thinking about it. I was thinking, hey, buying PMs is deflationary and combatting the inflation of the money printing. As currencies continue to fail, the increased demand for real currency will take over and the dollar will tank in the transition. Buying PMs helps draw out the collapse and prepares you for life after. Maybe, we'll see.

Wed, 05/11/2011 - 20:39 | 1265999 PulauHantu29
PulauHantu29's picture

Wait until the dollar plunges 50% overnight....he he he.

Wed, 05/11/2011 - 21:15 | 1266081 mynhair
mynhair's picture

Can we ban Muir's AV, or make it bigger, please?

So what is hiho silver doing?  With Asia open n all.

Damn, coffee is taking a beating.   Dud-Frank cover that?

Wed, 05/11/2011 - 21:19 | 1266085 mogul rider
mogul rider's picture

The repatriation of jobs play is maybe what this is all about. The western world has millions of jobs to BRIC countries.

20 years ago when the fascist corps were yapping like dogs about free trade they used free trade to move this work abroad using the easing of trade sanctions as their nuggets.

It very well could be a silent paly on the part of the US government to get these jobs back.

No one ever knows the end game.

But I believe this is some kind of Clauswitzian spinnerama play. Who the hell knows what it is but the incessant need to compete with cheap dollars is in this equation somehow.

Some of you guys may have an idea. But if the average laymen knows the chairsatan printing of toilet paper is wrongheaded then somehwere somehow there is another reason for this insanity.

Wed, 05/11/2011 - 21:24 | 1266092 mynhair
mynhair's picture

Somebody shoot Andy Stern?  That dick from the AFL-CIO die of a Mcheart attack?

Repatriate jobs?  Please don't bogart that joint.

Insanity by it's nature, knows no reason.  Is it so hard to realize these morons are really morons?

Thu, 05/12/2011 - 07:09 | 1266933 overmedicatedun...
overmedicatedundersexed's picture

mogul says"

"Some of you guys may have an idea. But if the average laymen knows the chairsatan printing of toilet paper is wrongheaded then somehwere somehow there is another reason for this insanity."

there is: without it the kleptocrat bankers would be other reason is needed, and the laughable part is they said so from paulson on down to timmy it is simple so simple people miss it.

Wed, 05/11/2011 - 21:17 | 1266091 wirtschaftswunder
wirtschaftswunder's picture

Conditions for an asset bubble:

1-An easily understood asset

2-Easy credit to fund purchases and leverage the asset

3-Wide media encouragement to acquire the asset

4-Banks creatively assist in the enhanced supply of the asset

5-Wide public aceptance of the wisdom and safety of ownership


Wed, 05/11/2011 - 21:20 | 1266098 mynhair
mynhair's picture

6-access to leverage, the more the merrier.  Ask ES.

Wed, 05/11/2011 - 21:37 | 1266126 wirtschaftswunder
wirtschaftswunder's picture

See 2- Easy credit

Wed, 05/11/2011 - 21:53 | 1266158 mynhair
mynhair's picture

Ok, that fits if you are TBTF.

Touchy little bitch.

Wed, 05/11/2011 - 22:00 | 1266186 wirtschaftswunder
wirtschaftswunder's picture

I covered it but you may have said it better. relax.

Wed, 05/11/2011 - 22:29 | 1266287 mynhair
mynhair's picture

Well, I do drink heavily...

Thu, 05/12/2011 - 00:39 | 1266597 Monedas
Monedas's picture

Wirtschaftwunderkind ! Ausgezeichnet ! Gold is a bar of is the "stinky" bubble in the bath tub ! Gold is so much more than another asset or commodity ! If the banks would lend you money at 4% for thirty years to buy Gold (they could even keep it in their vault as collateral) THEN we might see a bubble ! Not one of your "Bubble Conditions" has been met ! Thanks for laying it out so concisely ! Monedas approves your post ! Monedas 2011 I'm the bubbles in your Champagne !

Wed, 05/11/2011 - 21:44 | 1266142 El Hosel
El Hosel's picture

   "correction in the commodities markets may be providing Bernake, Geithner and their easy money acolytes with a sense of relief"

     Yeah, comic relief!

They are laughing as they slaughter the sheep.... The FED "exit strategy" is to cause a panic exit out of everything that makes sense in a corrupt and broken finance system . Push the money flows into the Zombie recovery story, low inflation moderate growth. Get out of the real and into the fantasy.

Wed, 05/11/2011 - 21:53 | 1266165 Rektors
Rektors's picture

"The seller of crude knows that the Yen bought its counterparty more dollars and thus will it charge more dollars for its oil, lest the next time he visits Tokyo and converts his less valuable dollars back into fewer Yen he may be forced to stay in a Holiday Inn as opposed to a Ritz this visit."

Does this make sense?


Wed, 05/11/2011 - 22:18 | 1266253 fswalker
fswalker's picture

There are two prominent groups present here on ZH. The smaller, so called trolling group seems to have a pretty good understanding of how the markets actually operate. They understand supply / demand, market positioning, speculative order flow as well as the presence of heavy footed players in this GAME. Their view tends to be contrarian to an already contrarian site. They are active participants in a zero sum environment and have come to battle against some of the smartest minds in the field. Even though only a select few will eventually survive, the group still holds a collective mindset which is far more dominant than those held by the opposition.


The opposition (hard-core ZH'ers) are true fundamentalists. The type who wouldnt move away from a falling lamp post in hopes of it going back up. They believe in their ability to outmaneuver the market instead of actively participating in it, thus ignoring all signs of possible reversals and strictly focusing on readily available information only. What sets them apart from the rest is their view which seemingly allows them to INTERPRET this information in a way which aligns with their long term expectations. To put another way, whenever someone tries to mention the word 'hedge', 'take profit', 'reverse position', those people get flagged straight away as it triggers an EMOTIONAL reaction from those with a contrasting BELIEF of what they deem to be the absolute truth.  This is a normal human reaction and even ZH'ers with IQs leaping into quadruple digits are susceptible to.


Now which group is right and which one is wrong? I think while they both present a pretty compelling case for themselves it is safe to say that the so called "trollers" will do better should eighter stances be proven right or wrong. You see what this evil little group has that most ZH'ers dont seem to grasp is their ability to stay with market movement.  If they are wrong, they admit it, close the position and move onto the next one.  This adaptibality makes them less prone to holding onto a fundamental point of view which could lead to a great devaluation of their total assets held.

You see the same system ZH is fighting the others are playing. They understand the systems arent perfect, far from it, however they also understand that rather than sitting on the sideline waiting for them to collapse, there is a way to profit from it. 

Wed, 05/11/2011 - 22:43 | 1266322 penisouraus erecti
penisouraus erecti's picture

By George, I think you've summarized it quite nicely. It does make for entertaining reading though.

Wed, 05/11/2011 - 23:11 | 1266392 Robslob
Robslob's picture

Very well put.

Maybe some just refuse to support fraud and corruption or even to profit from it...hence you confuse "their" way of "playing" versus the trolls.

You are indeed crazy but not wrong either.

Wed, 05/11/2011 - 23:22 | 1266423 KickIce
KickIce's picture

The "trollers" will win as long as QE produces it's desired results and fiat currency can be traded for food (or ipads).

Thu, 05/12/2011 - 00:32 | 1266581 longorshort
longorshort's picture

Buy Silver bitch, just kidding :).

Thu, 05/12/2011 - 00:53 | 1266616 Monedas
Monedas's picture

This fundamentalist Hoarder steps aside for the falling lamp post, throws it in the back of his pick up with the gun rack and naked lady mud flaps, drives it to his junk yard and throws it on the pile ! His PMs are buried in plastic pipes under the junk ! Bring your metal detector the next time you come over ! Monedas 2011 Junk Yard Pit Bull Breeder

Thu, 05/12/2011 - 04:36 | 1266853 Urban Redneck
Urban Redneck's picture

In the actual marketplace quants, are the only purely non-emotional players.  However, they are just as often wiped as their non-quant professional counterparts.  Any rigid orthodoxy in a fluid market is a stopped clock, regardless of whether the approach is quantitative, fundamental, TA, etc.  That does not, however, mean that the laws of physics, geology, politics or economics can be entirely discounted.  Experience or happenstance can result in correct identification current market drivers, but time is the great equalizer. 

Thu, 05/12/2011 - 00:35 | 1266593 AldoHux_IV
AldoHux_IV's picture

The fed and the enablers in the federal city have much more coming to them than to answer for their actions-- that I can assure you.  By the way, you can include the IMF/World Bank, and all other central bankers/centrally planned regime participants.

Thu, 05/12/2011 - 04:16 | 1266844 bothsidesnow
bothsidesnow's picture

Who will get the blame for today's drop, I vote T Mosely. LOL.

Thu, 05/12/2011 - 05:17 | 1266846 sbenard
sbenard's picture


A chart would have helped to make the case. A picture is still worth 1000 words. If I was adept at html, I would post one.

I suggest people look at the weekly chart for any of the major commodity indexes, and the magnitude of the current correction will become clear. It is thus far only a minor one. I prefer the NYBOT Cotinuous Commodity Index (CCI). Either this is still just a small correction, or this dip in commodity prices is only just beginning!

The CCI, after hitting a recent high in the past two weeks of 690, has dropped to about 632. In December 2008, it was just 322. It is currently nearly double that value.


Yesterday, I was listening to CBS radio. During the news break, they announced that consumers have earned a 40 cent drop in gas prices due to the wisdom of their cut-backs in consumption recently -- a new entitlement! Goody, goody! A new entitlement!

They didn't mention the weekly (read, short-term) EIA report that comes out each Wed. morning. They didn't mention the impact of world events like production cuts in Libya, the new emerging radical government in Egypt that will endanger the Suez canal, global consumption patterns, flooding in Louisiana, the tumult of new margin requirements, rising demand in China, Fed monetary mayhem or QE2, or any of the other variables that currently impact the availability and price of gasoline. They must keep it simple for the stupid sheeple, after all!

They lead listeners to believe that it was solely attributable to consumers cutting back on consumption, as if the emerging new collectiv(ist) wisdom is bringing relief at the pump. That fits conveniently well with the whole green tyranny agenda that CBS actively promotes, now doesn't it!? More MSM misguidance from the propaganda press!

Unfortunately, there are too many Americans that take the propaganda press at face value, and will be expecting their new "price break entitlement" very soon. And if they don't get it for some reason, they will have ready-made (implied or explicit, named or unnamed) scapegoats in the offing to blame if their fantasty isn't realized.

I hope we see a price drop soon, because my wallet is begging for relief at the pump. But the propaganda press is so utterly incompetent, or worse -- complicit -- with this agenda, that they actively seek to deceive the less-informed (than ZHers) public with talk of new entitlements that are only marginally, and most likely, temporarily, connected to reality!

Thu, 05/12/2011 - 08:18 | 1267065 virgule
virgule's picture

There is something less than right in this article. The Chinese MAY have expanded their own balance sheet, but HOW they used the newly printed the money to buy up the excess dollars in the system is a mystery to me.

US Gov accepting RMB for USD? Private citizens and businesses? Hem, let's see, other central banks? Doesn't sound right, does it? And as far as I'm aware, the RMB isn't exactly freely convertible and exportable, so all this exchange fixing with fiat currency would have to take place in China - a huge international forex market as everyone knows.


Personally, I find it more plausible to think that Chinese don't spend lots of earned dollars on US-produced goods, and instead put them right back on US soil, on Treasuries, thus creating severe imbalances in flows of fiat capital and hard assets.

Not sure what kind of change in conclusions this brings to the article ;-)

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