Friday, May 6, 2011

Have we seen this show before?
The overture sure sounds familiar.

You may have heard that this week, especially yesterday, was a big shock for several commodities including the three that Matty Boy, Investment Advisor to the Stars* follows closely for no good reason other than habit, gold, silver and crude oil. Silver in particular took a massive blow, from about $48 an ounce to slightly less than $36 an ounce, losing roughly 25% of its value in the space of 24 hours. The percentage hits that gold and crude took were much smaller, about 4.5% for gold and 14% for crude. All three still are trading at prices higher than they sold for on New Year's Day.

I bring this up because there was something like this at the end of March 2008. All three commodities were riding high but then took a big single week bump, with silver taking the biggest hit. This was the beginning of the end of the party for the metals, while crude oil rallied back and went to nominal high price records of over $140 a barrel just before joining the other prettier but not as important commodities in free fall. Within six months, we found out that the world economy had been secretly married to degenerate gamblers for several decades, and like all degenerate gamblers everywhere, they eventually hit that very bad streak, bankrupting the world's economy as well as themselves.

Here's my theory. I cannot vouch that it is anything like the truth, but it does sound plausible, which I must advise as Matty Boy, Mathematician is a very long distance from the actual truth. In 2008, the margin calls in the derivatives market were being cashed in, and the losers needed to pay their bad bets in Credit Default Swaps (CDS) and Colateralized Debt Obligations (CDO), so they started cashing out other successful bets, the profits they had seen in the commodities markets. These successful bets weren't even close to covering their losses, so over the next six months a hell of a lot of investors were moving off their positions in silver and gold, some handing it over straight to their creditors, others speculating in the only winning game in town at that time, crude oil futures. When crude hit the high end of its roller coaster ride and began to fall precipitously, the last slot machine in the casino that was paying off went bust and it was a flat out panic, which the public was informed about when Bush and Hank Paulson told us they need $700 billion like RIGHT THE FUCK NOW or everything would simply stop working.

Again, I have no idea if that is the case right now, but I am certain of one thing. The problems in the derivatives markets have NOT been fixed. There is still no limit to how much credit the big banks can get in this insane casino, and some may be in the stinky position Bear Stearns was in when it died, $30 of bets on the table for ever $1 of actual assets they had on hand.

The people running the show these days, followers of that disgusting homonculus Alan Greenspan, himself a follower of an even more disgusting homonculus Ayn Rand, tell us there is no way to regulate the markets. Recall that 30 years ago, the Hunt brothers tried to corner the silver market and took a beating. They didn't take the entire world economy with them, but Paul Volcker, who was then head of the Fed, thought the situation was serious enough to institute a rule that banks weren't allowed to lend money to speculators.

Now it's the banks themselves that are lending money to speculators on their own payroll and the free market fetishists in charge of the world economy see nothing wrong with this.

If you are the sort of person who prays, now would be a good time to start.


Fran said...

I *have* already started... and if one is not the sort of person who prays, this could in fact be an excellent time to start.

sfmike said...

Thanks for the heads up.