Finansiella Insikter

Den högt ansedde Ted Butler kom med ett smått chockerande besked till sina prenumeranter i helgen. Efter att ha studerat de senaste Commitment of Traders (COT) och Bank Participation rapporterna för silver noterade Ted att JP Morgans korta position i silver, som fallit från 30.000 till 19.000 kontakt de senaste tre månaderna, stigit med hela hela 6.000 till 25.000 kontakt motsvarande 125 miljoner uns silver eller drygt 25% av världsproduktionen.

Ted noterar att de mindre kommersiella spelarna (som Ted kallar raptors), som tjänat stora pengar genom åren på att blanka silver tillsammans med JP Morgan, verkar i panik ha sålt tillbaka hela den korta position om 4000 kontrakt som man tagit på sig för bara två veckor sedan. JPM var den enda säljaren till denna panikslagna grupp investerare, vilket låg bakom den stora ökningen i JPMs korta position.

Ted’s slutsats från att ha studerat rapporterna är att JP Morgan nu står ensam som säljare av papperssilver på Comex och att de troligtvis kände sig tvingade att drastiskt öka sin korta position eftersom priset på silver sannolikt annars hade stuckit iväg till över 40 eller kanske 50 dollar.

Ted skriver vidare att ökningen av JPMs korta silver positioner inte automatiskt är negativt för silver, även om denna typ av manipulation har resulterat i kraftigt fallande priser historiskt och kan hända igen. Han noterar mycket riktigt att silvermarknaden har förändrats totalt från hur den betedde sig tidigare (nedgångarna är inte långvariga och inte djupa) och att det i slutändan kommer att sluta mycket illa för JP Morgan.

Här är ett par utdrag från Teds analys:

If the silver COT was a surprise, then the Bank Participation Report was a shocker. There was a net increase in the US bank category of 6000 contracts to 25,000 held net short in silver. JPMorgan’s net silver short position, which had decreased by 11,000 contracts over the preceding three months to 19,000, had suddenly ballooned to 25,000 contracts (125 million ounces).

The big surprise was in the silver COT, where the big 4 increased their net short position by 3000 contracts on the previously mentioned reduction of 1300 contracts in the total commercial net short position. This increase in the big four’s short position broke the pattern of a reduction in the concentrated short silver position that had been in force for months. The increase in the concentrated short silver position was so unexpected by me that I thought, at first, it must have been a mistake.

Two weeks ago the raptors (the smaller commercials away from the big eight) increased their net short position to 4000 contracts, the highest level in four years. The raptors were selling to the smaller unreported category traders who were buying. This week, the raptors bolted from their entire short position, buying it back completely and leaving them flat (not net long or short). JPMorgan was the sole seller to the raptors’ buying, resulting in the big increase in JPM’s short position.

My own guess is that the JPMorgan silver trader thought he had no choice but to sell many more contracts short in order to control the price and protect their existing short position. That’s because there was no one else left to sell. If JPMorgan didn’t sell, no one else would have (at prevailing prices).

This is the key point – what would have happened if JPMorgan hadn’t sold short the additional 6,000 silver contracts (30 million oz) when they did? Asked differently, in the current market conditions, what price would have been required to induce other market participants to sell the 6,000 contracts if JPMorgan hadn’t sold? My guess is that would have taken a price over $40 or $50 to attract that much legitimate selling. The fact that JPMorgan was the sole seller is the clearest proof possible that silver has been manipulated.

So egregious was this latest increase in JPMorgan’s short position that I am inclined to think that it may have been done on an unauthorized or rogue trader basis. Perhaps JPM management and the CFTC are not yet aware of it, seeing how recently it occurred.

Please don’t assume that the sharp increase in short selling by JPMorgan is automatically bearish for the price of silver. Yes, such manipulative short selling in the past has led to sharp sell-offs and could again. But things do change and current conditions in silver are vastly different than they have been in the past. While we must be prepared for a sell-off (by not holding on margin), this situation could (and should) blow up in JPM’s face.

Det har snackats en del om Kinas eventulla inblandning i JP Morgans jättelika korta position i silver den senaste tiden. Ingen vet med säkerhet om så verkligen är fallet, men faktum är att fler ‘auktoriteter’ såsom Ted Butler, Professor Antal Fekete och Harvey Organ har uttalat sitt stöd för denna teori, som många tycker känns hämtad från en fantastisk bestseller novel.

Men faktum är att teorin inte är så otrolig om man tänker efter och studerar historien. Döm själva.

Teorin går i korthet ut på att USA lånat fysiskt silver av Kina för att kunna fortsätta sin manipulation av guld. För hur skulle det se ut om priset på silver steg men inte guld? Skulle inte funka, då det skulle bli alltför uppenbart att guld var manipulerat. Problemet uppstår bara när Kina vill ha tillbaka sitt fysiska silver och det inte finns kvar eftersom USA sålt det i samband med sin manipulation. Men genom att sälja massiva mängder silver kort (via JPM) för att pressa ner priset kan Kina ändå köpa silver till ett rimligt pris på den fysiska marknaden. Problemet uppstår igen när de som köpt silver av Kina vill ha fysisk leverans. När Kina inte kan leverera mot dessa korta positioner kvittar man helt enkelt dessa mot sitt utestående krav mot USA genom att säga till dessa investerare att begära sitt silver av USA istället. Och eftersom USA har sålt slut på alla sina silver reserver tvingas man till en kontant ersättning, vilket är att likställa med en sk ‘default’ på Comex.

Här är den längre versionen, via Jesse:

Imagine you are China.

At some point, probably shortly after the year 2000, a large US bank comes to you via the US Treasury discreetly and asks to borrow 300 million ounces of silver. The deal is that the Treasury/Fed will provide you with US Treasury bills as collateral. The US sweetens the deal by granting the unrelated negotiating point of most favored nation trading status, and explicitly but verbally guarantees the deal with its full faith and credit. The Bank, with explicit US backing, promises to return your silver on demand after four years.

Some six years later you come back and ask the Bank for your $300 million ounces of silver. They say that the silver is gone, having been sold into the physical bullion market.

So you ask, well, what did you do with it?

And the Treasury answers, we lent it to the bullion banks and JPM, who sold it in the markets as a part of our plan to keep the prices of gold and silver from rising, in order to sound a warning about our monetization of the reserve currency using Treasuries.

So you approach the US Treasury and complain, asking them to honor the agreement. The Administration says, “we are sorry, but we no longer have the silver and we do not have any in our reserves. So you can keep our paper IOUs we offered as collateral instead.”

You are very angry as you do not wish to own more paper, but instead the bullion which is a legacy asset. You, as China, consider the situation, and start selling silver short on the Comex, using HSBC and JPM as your agents. They sell the entire 300 million ounces of silver short. On the side and through other sources, you are using other agents to buy this same silver in the form of physical bullion for your own reserves. You consider this an equitable return of your bullion at a relatively neutral price compared to that at which you lent it.

When JPM and HSBC need the silver to cover the pledges on the short sale as more people demand delivery and existing supplies become tighter, you as China offer the pledge of the US for your 300 million ounces of silver as collateral and says “collect it from your colleagues at the US government.”

Technically the short sale is ‘hedged’ because the US offers little counter-party risk, and it is their IOU that is the basis of the short sale. The problem is that the collateral is in dispute between two sovereign nations.

But in point of fact the US does not have and cannot obtain this quantity of silver without severely disrupting the silver market, or demanding the output of its own silver mines which is unconstitutional. They do have the power to force a ‘cash settlement’ for the short positions, but this would be viewed as precipitating a major default on the Comex and with the Fed’s “house bank” JPM. Not exactly a trust builder in already shaky markets tainted by scandals of fraudulently valued paper.

And so the market remains at an impasse with a tremendous undeliverable short in silver with the US and JPM in a very embarrassing position of being entrapped in what China considers their own scheme by one of the few entities capable of standing up to them – their major creditor China.

En fascinerande teori minst sagt och oavsett om det är sant eller inte så kan vi vara mer eller mindre säkra på att silver kommer att explodera uppåt när sanningen väl kommer fram, vare sig det är Kina, JP Morgan eller USA som ‘står med brallorna nere’.

CFTC (Commodity Futures and Trading Commission), den myndighet som reglerar råvaruhandeln på börserna i USA, har nu presenterat nya striktare regler för att bl a komma åt manipulationen på silvermarknaden, som representanten Bart Chilton tidigare bekräftat.

Många silverinvesterare har sedan en lång tid tillbaka sett fram emot dessa striktare regler, då man hoppats och trott att det skulle innebära slutet för JP Morgans, HSBCs och andra bankers manipulation och bedrägeri.

De investerare som varit med ett tag, och som dessutom vet att bankerna skapar spelreglerna eftersom de köpt i princip alla politiker, har dock ställt sig mycket skeptiska till varför bankerna inte skulle komma undan även denna gång. Det faktum att bankerna sett till att Gary Gensler, från ingen mindre än Goldman Sachs, blivit ordförande för CFTC har inte direkt gjort dessa investerare mindre skeptiska.

När de nya reglerna nu presenteras så visar det sig att denna skepticism varit välgrundad. Här är nämligen de tre viktigaste punkterna från den nya regelboken, med kommentarer från Chris Martenson, som visar att JP Morgan och andra banker inte behöver vara det minsta bekymrade:

1) Bara den sk spot-månaden omfattas av de nya reglerna. Terminskontrakt för leverans längre fram i tiden kommer att omfattas först långt senare, kanske ‘tidigt nästa år’.

Chris Martenson: Watch out for crazy out-month behaviors as JPM, et al. seek to skirt this rule.

2) Begränsningarna för spot-månaden sätts till 25% av vad CFTC kallar ‘deliverable supply’ för en given råvara och för de som inte har för avsikt att ta leverans (som JP Morgan) tillåts en position som är hela 5 gånger så stor.

Chris Martenson: That’s just horrible. For anybody like JPM that has no intent of taking physical delivery, they will be prevented from accumulating a position that is more than 125% of the total deliverable supply. What sort of a limit is that?? That’s like trying to limit the damage from auto accidents by ‘limiting’ freeway speeds to ‘no more than’ 175 mph. Also, anybody who might want to actually buy the physical is limited to 25%, so any potential Hunt Bros. need not apply. The outer limits of this game have been exclusively reserved for speculators and manipulators.

3) Undantag ges för transaktioner och positioner som har gjorts innan de nya reglerna träder i kraft, eller som CFTC uttrycker det “exemptions for bona fide hedging transactions and for positions that are established in good faith prior to the effective date of specific limits adopted pursuant to the proposed regulations.”

Chris Martenson:

Translation: “JPMs silver position is in complete violation of even these generous new ‘rules’ so we’re just going to let them keep it.”

Impact: Just check the price behavior of gold and silver for the impact. The gold and silver markets have traded upwards of late in part because of the thought that JPM would finally be forced to play fair and reduce their outlandish precious metals short positions. Nope. Guess not.

Det skulle förvåna mig om silverauktoriteten Ted Butler, som länge velat ge Gensler en möjlighet att visa att han menar allvar med att ta tag i manipulationen, nu öppet visar sitt missnöje med Gensler och erkänner att denne aldrig kommer att göra något som inte är godkänt av JP Morgan och de andra bankerna.

Nedan är Chris Martensons utmärkta genomgång av de nya reglerna:

JP Morgan Wins: CFTC Position Limits Do Not Apply (To Them)

Friday, January 14, 2011, 12:17 pm, by cmartenson

Speaking of changing the rules…

Gold and silver are now down hard over the past two days, and the reason may have something to do with the fact that the CFTC utterly caved to JPM in their long-awaited decision on position limits in a 4-1 vote.

While position limits will eventually be set, maybe, someday, the course of action taken by the CFTC grandfathers in JPM’s (and HSBC, et al.) current outlandish positions.

Here’s the background (emphasis mine):

On July 21, 2010, the Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, the Dodd-Frank Act amended the Commodity Exchange Act to:

• Require the Commission, as appropriate, to limit the amount of positions, other than bona fide hedge positions, that may be held by any person with respect to commodity futures and option contracts in exempt and agricultural commodities traded on or subject to the rules of a designated contract market (DCM).
• Require the Commission to establish position limits, including aggregate position limits, for swaps that are economically equivalent to DCM contracts in exempt and agricultural commodities (collectively, economically equivalent swaps). Such limits must be imposed simultaneously with limits on DCM contracts.

(Source)

The only wiggle room in the Dodd-Frank bill is for “bona fide” hedge positions, which, I should state, I think is not a good idea because the exact definition of a ‘bona fide hedge’ is elusive.

For example, you and I could decide to engage in a massive short-hedged position where you short a commodity but buy calls from me. Your ‘hedge’ is only as good as my credit. Or perhaps you decide that oil and natural gas have enough negative correlation that you are ‘hedged’ by being equally short and long on both substances. What if your correlation blows out? You’re not hedged, is the answer to that question.

Continuing into the meat of the new position limit ruling, we find these discomforting items:

The Commission’s proposed regulations call for:

Position limits to be placed on 28 core physical-delivery contracts and their “economically equivalent” derivatives.

Establishment of position limits on physical commodity derivatives in two phases:

• Initial transitional phase: spot-month position limits only, based on deliverable supplydetermined by and levels currently set by DCMs.
• Second phase: spot-month position limits, based on the Commission’s determination of deliverable supply, and position limits outside of the spot month.

Translation: Only the front month of any contract will be subject to the position limits initially. Later, at some undefined point “early next year,” out months will be included. But for now it’s just the spot month.

Impact: Watch out for crazy out-month behaviors as JPM, et al. seek to skirt this rule.

Okay, that’s not too terrible.

But this is:

Spot-month position limit levels set at 25% of deliverable supply for a given commodity, with a conditional spot month limit of five times that amount for entities with positions exclusively in cash-settled contracts

That’s just horrible.

For anybody like JPM that has no intent of taking physical delivery, they will be prevented from accumulating a position that is more than 125% of the total deliverable supply. What sort of a limit is that?? That’s like trying to limit the damage from auto accidents by ‘limiting’ freeway speeds to ‘no more than’ 175 mph.

Also, anybody who might want to actually buy the physical is limited to 25%, so any potential Hunt Bros. need not apply. The outer limits of this game have been exclusively reserved for speculators and manipulators.

That’s not even remotely the outcome I was hoping for. This ‘ruling’ tantamount to saying “carry on!”

And what does ‘deliverable supply’ mean? Does it refer to COMEX warehouse deliverables in current storage or can special players receive additional preferential treatment by including ‘deliverables’ available to them via contractual arrangements with the LBMA? Lots of questions are emerging for me here.

But it gets worse:

Exemptions for bona fide hedging transactions (based on the Dodd-Frank Act’s new requirements for such transactions) and for positions that are established in good faith prior to the effective date of specific limits adopted pursuant to the proposed regulations.

Translation: “JPMs silver position is in complete violation of even these generous new ‘rules’ so we’re just going to let them keep it.”

Impact: Just check the price behavior of gold and silver for the impact. The gold and silver markets have traded upwards of late in part because of the thought that JPM would finally be forced to play fair and reduce their outlandish precious metals short positions. Nope. Guess not.

Once again, all sense of fair play has been abandoned in the interest of giving a special handout to a set of large banks that are reporting near-record earnings. When, I must ask, is enough enough?

The message that I receive from this ruling is that US markets are now hopelessly and irrevocably captive to the behind-the-scenes wishes of the banking class, for which “everything and then some” seems to be not quite enough.

Worse, an already-battered faith in the markets has been kicked again.

Here’s my prediction: Someday the US commodities markets will experience a very painful set of failures, big banks will be caught on the bad end of that experience, and they will simply, once again, lobby to have the rules changed in their favor.

To everybody who hopes to make money by being on the opposite side of that trade, good luck collecting your winnings. They will simply be rule-changed right out of your hot little hands.

Thank you for playing sir, and sorry about your luck; would you care to try again?

The CFTC is now playing the role of Lucy holding the football. If you don’t wish to be the Charlie Brown in this story, I’d advise that you take delivery.

Here’s CFTC Chairman Gary Gensler describing the rationale, such as it is, for the CFTC’s ruling [with my reactions inserted in-line]:

Position limits help to protect the markets both in times of clear skies and when there is a storm on the horizon. In 1981, the Commission said that “the capacity of any contract market to absorb the establishment and liquidation of large speculative positions in an orderly manner is related to the relative size of such positions, i.e., the capacity of the market is not unlimited.” [So far, so good!]

Today’s proposal would implement important new authorities in the Dodd-Frank Act to prevent excessive speculation and manipulation in the derivatives markets. The Dodd-Frank Act expanded the scope of the Commission’s mandate to set position limits to include certain swaps. [Still good]

The proposal re-establishes position limits in agriculture, energy and metals markets. It includes one position limits regime for the spot month and another regime for single-month and all-months combined limits. It would implement spot-month limits, which are currently set in agriculture, energy and metals markets, sooner than the single-month or all-months-combined limits. [Okay, spot-month goes first, before single-month and all-months combined. Got that. With the grandfather and 'bona fide hedge' exemptions of course. Left that part out...]

Single-month and all-months-combined limits, which currently are only set for certain agricultural contracts, would be re-established in the energy and metals markets and be extended to certain swaps. These limits will be set using the formula proposed today based upon data on the total size of the swaps and futures market collected through the position reporting rule the Commission hopes to finalize early next year. ["Will be set?" Early next year? Isn't that a year from now? Why so long?]

It will be some time before position limits for single-month and all-months-combined can be fully implemented. In the interim, if a trader has a position that is above a level of 10 and 2 ½ percent of futures and options on futures open interest in the 28 contracts for which the Commission is proposing position limits, I have directed staff to collect information, including using special call authority when appropriate, to monitor these large positions. [For silver, this amounts to some 5,300 contracts. Well above the 1,500 contracts Ted Butler called for based on the 1% of world production limit. It's too high.]

Staff will brief the Commission and make any appropriate recommendations based upon existing authorities for the Commission’s consideration during its closed surveillance meetings at least monthly on what staff finds. [Oh, so this is not a regulatory action, but a fact-finding mission? It's rather unusual to find a government body that takes care to under-interpret a congressional mandate for regulatory power, but we seem to have one in the CFTC. Odd that such a loss of regulatory nerve only seems to occur when the interests of big banks are on the line...]

(Source)

Let’s close with a statement of regret by Bart Chilton, who tried very hard to do the right thing, but couldn’t get the other four commissioners to see things his (and my/our) way.

Statement of Commissioner Bart Chilton at the 9th CFTC Public Meeting on Rulemaking under the Wall Street Reform and Consumer Protection Act

January 13, 2011

As regulators, I think we have one key mission. It is embodied in the Commodity Exchange Act. We have a singularity of purpose to ensure efficient and effective markets and to prevent and deter fraud, abuse and manipulation. Quite frankly, I think we can do better. We can because the new Wall Street Reform and Consumer Protection Act requires that we develop what many of us consider to be some fairly precious parameters.

Today, I am hopeful we will move forward to propose a position limits rule, a most precious parameter that we should have proposed much earlier in a way that would have implemented the provision as Congress intended. That’s not happening.

Yesterday, eight U. S. Senators told us to move forward on limits. That follows two other senatorial letters from last month.

This is a Commission of five individuals, a group of people who make these decisions. That pretty much ensures no individual will get their way all the time. I’m certainly not getting my way on position limits, nor are the Senators who wrote to us.

I am thankful that we will have position points in place as a kind of glide path to position limits. As I’ve said repeatedly, points are not limits. However, they will help us learn more and do better as we go forward in further developing important—and precious— parameters.

(Source)

Thank you for trying Bart. I am grateful for your efforts. I wanted to give Gary Gensler, the former Goldman Sachs executive, the benefit of the doubt, and I did that. All benefit and all doubt now removed. Once a squid, always a squid, I guess.

I am still trying to get my arms around this ruling and its likely impact on gold and silver prices going forward. Long-term this changes nothing, except to reinforce my conviction that I have no interest in playing in rigged markets.

Further, given the opportunity to do the right thing in an open and transparent manner, the CFTC, quite predictably, caved to large interests – the same large interests that are helping to shape, if not drive, current fiscal and monetary policy.

For more on rule changing, please read yesterday’s piece, Don’t Worry, They’ll Just Change the Rules. I guess I should append the following to that title “…or decline to enforce them.”