The Other McCain

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Bubble Bursts? Wall Street Tumbles, as Silver Prices Slump on Margin Hike

Posted on | May 5, 2011 | 16 Comments

DJIA . . . . . . 12,584.17 –139.41 (-1.10%)
S&P . . . . . . 1,335.10   –12.22 (-0.91%)
NASDAQ . . . 2,814.72  –13.51 (-0.48%)

The headline this morning was another one of those “unexpected” bits of bad economic news:

Jobless Claims in U.S. Unexpectedly Jump Due to Anomalies

What’s up with that? The Lonely Conservative:

For the life of me I can’t figure out why the “really smart” people are always so surprised that people lose jobs in a rotten economy.

Yeah, but this is supposed to be a “recovery,” remember? As one of Instapundit’s readers snarks: “What? The MSM can’t say ‘jobless recovery’ anymore?”  The Wall Street Journal reports:

The energy sector led U.S. stocks lower Thursday as crude-oil prices plunged and jobs data disappointed, hurting expectations for the government’s upcoming employment report.
The Standard & Poor’s 500-stock index shed 12.22, or 0.91%, to 1335.10, marking the measure’s fourth consecutive drop. It represents the first time the S&P 500 has been down for the first four days of a month since October 2008.
The tumble in crude oil came as investors rushed to the safety of the dollar after data showed new claims for jobless benefits unexpectedly surged last week to the highest level since August. The report lowered expectations for the government’s report on April employment due Friday.
“There’s a lot of different things that are hitting all at the same time,” said Michael Shea, managing partner at Direct Access Partners. “The dollar is stronger versus the euro, and crude is just getting pounded.”

The phrase “investors rushed to the safety of the dollar” can best be translated: They decided to cash out.

It’s like when a gambler loses a hand of blackjack, looks at his remaining stack of chips and decides it’s time to head for the cashier’s window.

The price of silver, which reached an all-time high of $49.51 an ounce last week, has fallen by 23 percent– “a nearly unprecedented sell-off,” as Reuters calls it — after the CME Group sharply increased its margin requirements. In other words, credit is tightening and speculators now have to put up more cash to buy silver, and this has let the air out of the bubble. Gold has also fallen from its record highs, down to $1,488.50 an ounce, but the decline has been smaller than silver.

Another factor in the decline of precious metals is that the dollar is stronger, and most people will say, “Oh, the dollar’s stronger! That’s good news!” — except that a stronger dollar hurts U.S. exports.

Insofar as there is any really good news, it’s that the price of crude oil declined sharply – except that’s bad news, too: Investors anticipate declining demand for oil because they expect an economic downturn. Which brings us to my favorite bad-news headline of the day:

Double-dip recession is now undeniable

Bad news is good news, because the one thing that could fix the economy is for Obama to be defeated in 2012, and the more “undeniable” the evidence that Obamanomics has failed, the more likely it is he’ll be defeated.

UPDATE: ?Linked by The Rhetorican — thanks!

UPDATE II: Welcome, Instapundit readers!

The Atlantic says that the “double-dip” is now official, and Jeff Goldstein has further thoughts at Protein Wisdom.


Category: Economics

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