We need these corrections

The sell-offs in silver, oil and stocks are necessary for markets to go higher on the basis of reality.

By Jim Cramer May 12, 2011 9:08AM

jim cramerthe streetLooks like total end-of-the-world alert time. Let's spin it: Commodities prices are collapsing because there is a sudden cessation in demand, brought about by skyrocketing commodities prices. Because gasoline (which is going down now) had gone up so much, the consumer doesn't have enough left to spend. And because food prices (which are going to plummet) went up so much, households don't have enough left from their paychecks to buy anything.

 

When we see the prices of the big metals come down, something that the Chinese government has been waiting for so it can stop tightening its economy, then we have to sell stocks, because the Chinese government is tightening.

 

Housing prices, which are being kept down by aggressive selling of foreclosed homes, as the most recent existing-home sales numbers tell you, will keep going down because the foreclosed homes are weighing on pricing. Of course, the fact that even with all of the foreclosed homes being sold pricing is only off about 5% doesn't matter. Housing is crashing!

 

Got that?

 

Yep, the presumption that margin calls and collateral calls have nothing to do with this nonsense and it is all "real" economy-driven is fanciful, especially when you realize that a couple of hedge funds and the U.S. Oil (USO) ETF may have been responsible for as much as $20 in oil price increases and that the former are being slaughtered by the new capital requirements.

Look, the commodities bubble -- and we all knew it was a bubble, as we saw from the oil levitation -- is being pricked with the right tool: higher margin requirements.

 

We know that's what happened to silver. The higher prices never really dampened industrial demand, but it was about to occur, at least in jewelry. But the higher margin requirements popped that bubble and will keep doing it until silver returns to valuations more in keeping with gold, a commodity that is in genuinely short supply.

 

Now oil -- which is not in short supply but was in a "cornered" mode by a few hedge funds, just as it was cornered in 2008 up to $147 -- is bursting, again, but this time before it could wreck the world's economies.

 

The euro, which was an anomaly, given the troubles it was having, did get overheated, and it is correcting.

 

All of these are corrections that needed to occur if we were going to go higher on the basis of reality rather than borrowed money.

 

The only question to me is how deep the correction has to be before the weak hands are gone and we can see the real strength, sans inflation, that the world is capable of. A world that will be led by China, which will not fear commodity inflation so it can go easier on tightening, and the United States, where Ben Bernanke is already being proved right about the temporal nature of the commodity rise?

Lest we forget, we have growing employment. Friday wasn't that long ago. Surely we haven't forgotten that number, right? And we have big retailers like Macy's (M) saying consumers are spending and spending within their means, and it's producing excellent results for a chain of stores that is in 48 states and represents the best barometer of middle-class spending in the nation.

 

So, sell away. It's May.

 

We're looking to get back into the positions we sold into strength -- and looking to do it today.

 

At the time of publication, Cramer had no positions in the stocks mentioned.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Follow Cramer's trades for his Charitable Trust.

 

Related Articles

1Comment
May 12, 2011 3:40PM
avatar
So basically a couple hedge funds can corner the market (i.e. silver or oil) at will. 

Regular everyday people have no idea when or why these hedge funds are making their moves. 

This is all the more reason why original people have no business being involved in the stock market or buying commodities.

Let the hedge funds complete with other hedges funds, its their game now.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

114
114 rated 1
280
280 rated 2
473
473 rated 3
639
639 rated 4
637
637 rated 5
662
662 rated 6
640
640 rated 7
498
498 rated 8
287
287 rated 9
121
121 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
COPCONOCOPHILLIPS9
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
KOGKODIAK OIL & GAS Corp9
CVXCHEVRON CORPORATION8
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.