Silver and metals watchers should read this.
cladking
Posts: 28,701 ✭✭✭✭✭
Ted Butler commentary
This guy's pretty sharp.
It looks to me as though the regulators aren't acting because they believe the shorts aren't intentionally driving markets.
Chilton has his hands full here.
This guy's pretty sharp.
It looks to me as though the regulators aren't acting because they believe the shorts aren't intentionally driving markets.
Chilton has his hands full here.
Tempus fugit.
0
Comments
"“Those who sacrifice liberty for security/safety deserve neither.“(Benjamin Franklin)
"I only golf on days that end in 'Y'" (DE59)
Knowledge is the enemy of fear
I knew it would happen.
<< <i>Looks like someone trying to find something that is not there, which is the basis behind most conspiracy theories. >>
Oh it's there, and it's been there for years now.
Looks more like someone is trying to ignore the elephant in the living room to me.
It's not theory, Butler has his facts and documentation lined up like baby ducks.
Chilton is just trying to sweep it under the rug.
If Butler is correct, and his track record says he probably is, then we may see silver soar to heights unimaginable in the not too distant future.
For some of us, we've been planning on just this scenario playing out and if and when it does, I'm retired early and comfy.
If it doesn't, well my investments are still up over 300% over the last few years and I'm still in good shape.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
<< <i>If what he says actually comes about, the holders of SLV silver trust will certainly get screwed. Holders of physical silver will do just fine. Correct? >>
Yep!
History has a way of repeating itself.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
positions decide to walk away there will be a lot of people owed
money or silver.. and they will not get it. thus they take a big loss.
is this correct?
The markets appear quite orderly. If this "problem" has been ongoing for years, then why hasnt it reared it ugly head before?
Believe me, I enjoy trading silver more than gold as it is more illiquid(volatile). But I dont see anything in Butlers comments other than promotion.
Knowledge is the enemy of fear
With any or all of those big 4 walking away, I would not even bet on the silver ETF having all the silver it is supposed to have. Barclays runs the gold ETF are they are indebted to GS and the boys. I'm not sure off-hand who runs the silver ETF but the same scenario is possible. Big difference between paper and physical silver.
roadrunner
<< <i>basically this says that the 4 entities that have such large short
positions decide to walk away there will be a lot of people owed
money or silver.. and they will not get it. thus they take a big loss.
is this correct? >>
That, along with the price of silver going through the roof.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
<< <i>basically this says that the 4 entities that have such large short
positions decide to walk away there will be a lot of people owed
money or silver.. and they will not get it. thus they take a big loss.
is this correct? >>
Yes. Exactly.
Worse is that this will occur at a time of exploding prices and some people
who think they're newly "wealthy" are even going to lose their principle.
<< <i>
<< <i>basically this says that the 4 entities that have such large short
positions decide to walk away there will be a lot of people owed
money or silver.. and they will not get it. thus they take a big loss.
is this correct? >>
Yes. Exactly.
Worse is that this will occur at a time of exploding prices and some people
who think they're newly "wealthy" are even going to lose their principle. >>
?? Please elucidate.
Are you talking about the holders of paper silver?
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
force majeure - an unforeseeable course of events excusing a person from the fulfillment of a contract.
What do you suppose the cover story will be? And who might those 4 foreign entities be? Anybody know?
I knew it would happen.
<< <i>
Worse is that this will occur at a time of exploding prices and some people
who think they're newly "wealthy" are even going to lose their principle. >>
?? Please elucidate.
Are you talking about the holders of paper silver? >>
This won't be an orderly transition to bring physical supply and demand into balance.
This will be especially true if the regulators wait for the manipulation to break down
under the weight of increasing demand and short supplies. A lot of industry has no
choice but to obtain metal or halt production. As the paper supplies evaporate and
there is no metal or money to make the contracts good the holders will be left holding
empty bags. Some might even get bills for storing their metal after they've already
lost the entire investment. It is these short contracts which ultimately underlie much
of the paper silver. As they are abandoned the positions and value all evaporate.
A disorederly transition is increasingly probable the longer this continues.
<< <i>that the 4 entities that have such large short positions decide to walk away there will be a lot of people owed money or silver.. and they will not get it.
force majeure - an unforeseeable course of events excusing a person from the fulfillment of a contract.
What do you suppose the cover story will be? And who might those 4 foreign entities be? Anybody know? >>
It's hard to say in the absence of evidence but the Chinese probably have the most to gain from low silver prices.
Further he states: "That’s because we are very close to a silver shortage and the four large shorts are managing prices and supplies. " Ignoring for the moment whether we are "close" to a shortage, how does he reach the conslusion that short sellers of futures contracts are managing supplies, unless the short sellers are also producers? Yet he never claims that the short sellers are producers because that would infer that they may be hedging and in any event would be in a position to deliver sliver rather than just make a cash settlement to close out their short. In any event, the COMEX is not the place that end users go purchase physical supply, so while a defalut in the futures market would have financial ramifications, it would not necessarily leave industrial users without a source of supply--though their hedge positions could fail.
CG
<< <i>that the 4 entities that have such large short positions decide to walk away there will be a lot of people owed money or silver.. and they will not get it.
force majeure - an unforeseeable course of events excusing a person from the fulfillment of a contract.
What do you suppose the cover story will be? And who might those 4 foreign entities be? Anybody know? >>
Pick 4 or a Group of 4 It's a member list of the LBMA. Some
of the members are involved with the The London Silver & Gold Fixings
The London Bullion Market Association.
Jerry
<< <i>Butler jumps to a lot of conclusiions without any factual support. For example his statement that 51% is a controling interest is based upon equity ownership rights in corporations and similar entities but has no realtionship to markets where one's market holdings bear no voting rights.
Further he states: "That’s because we are very close to a silver shortage and the four large shorts are managing prices and supplies. " Ignoring for the moment whether we are "close" to a shortage, how does he reach the conslusion that short sellers of futures contracts are managing supplies, unless the short sellers are also producers? Yet he never claims that the short sellers are producers because that would infer that they may be hedging and in any event would be in a position to deliver sliver rather than just make a cash settlement to close out their short. In any event, the COMEX is not the place that end users go purchase physical supply, so while a defalut in the futures market would have financial ramifications, it would not necessarily leave industrial users without a source of supply--though their hedge positions could fail.
CG >>
I don't think we're close to a physical squeeze on supplies barring investor action.
But herein lies the real danger. As we get closer to physical supply constraints spec-
ulators will jump on board. Keep in mind that there are large numbers of people who
believe they are long silver and their demand alone would tip the markets if they were
aware the the real situation.
At a mere 14.25 per ounce it would take only a few billion dollars to stand these mar-
kets on their heads. At the time the Hunts were active there were very few in a pos-
ition to corner the market. Today there are many dozens of individuals who could do
it with relative ease. More importantly is that this amount of money is a mere drop in
the bucket of currency flows now days. Something like this can appear suddenly and
simply swamp supplies.
Greatly higher prices would have little effect on industrial demand but industrial demand
will still reduce supplies 50,000,000 ounces annually no matter the price or the availability.
Either that or factories will shut down.
I've read too many half-truths on the Internet to believe that that the four major shorts are speculators. In many commodity markets, shorts are commercials locking in prices for a portion of their production. This is what the futures markets were made for, for producers to be able to lock in prices where they can make a profit, and for users to lock in prices where they can buy supplies and deliver their end product, also at a profit. Silver is such a thin market, with a low total market cap, that I doubt there are many shorts or longs with huge unhedged positions.
<< <i>Pick 4 or a Group of 4 It's a member list of the LBMA. Some
of the members are involved with the The London Silver & Gold Fixings
The London Bullion Market Association.
>>
Hmm. Barclays is on that list, and Barclay's owns the Ishares SLV trust. I looked up their "strategy" for profit and it goes like this:
"Our Strategy
Barclays Group strategy overview
...Our strategy follows a simple premise: anticipate the needs of our customers and clients, then serve them by helping them achieve their goals.
It is based on the principle of earn, invest and grow. We know that our owners expect good short term profit performance. But we also know that they want us to invest for the future. In 2006, we invested £2bn capital back into the business. We have a clear view of the sources of growth in the financial services industry over the next decade and will continue to align ourselves in terms of capability and geographic footprint to capture the opportunities presented by these trends.
These drivers of change include:
The privatisation of welfare - as welfare provision becomes an unaffordable burden on governments, so citizens all around the world need to take charge of self-provision.
Wealth generation and wealth transfer – our research shows the number of people with a disposable wealth of over US$1m in the G7 countries will double over the next decade.
The explosive growth in demand for banking products in emerging markets.
The securitisation of assets and cash flows - as those who seek to finance their activities increasingly have recourse to the capital markets.
The use of derivatives in risk management - more and more companies (and not just large companies or multi-nationals) will use derivatives to help manage their risk.
The growing global demand for credit cards.
The pressure on capital markets and private equity to fund infrastructure projects around the world.
Barclays is organised into the following business groupings: Investment Banking and Investment Management:
Barclays Capital
Barclays Global Investors
Barclays Wealth
The organisation of Investment Banking and Investment Management gives a single point of strategic direction and control to a group of global businesses which enjoy substantial synergies. Global Retail and Commercial Banking:
UK Banking: UK Retail Banking and UK Business Banking
Barclaycard
International Retail and Commercial Banking
Absa
The grouping of all our retail, commercial and cards businesses under Global Retail and Commercial Banking (GRCB) gives these businesses a single point of direction and control, thereby increasing our capability to drive growth and synergies globally and to enter new markets. "
Securitization of assets and use of derivatives as primary strategies to making money. Sounds like more subprime mortgage strategy. I am wondering if Barclay's is using the silver in the trust as collateral for a large short position or has agreements to lend it to others for the same purpose.
As for China, I think it is clear that China has very deep pockets and could hold the market down via the futures markets to keep the cost of electronics down until available supplies are completely exhausted.
Just trying on the tinfoil hat. I am really not sure I believe this is what's going on.
I do think that a banker's primary trade is passing other people's money from hand to hand until it completely disappears. Bankers want the metals to stay down to increase relative performance of the financial tools the sell (ie stocks/bonds/etc). Banks have also been making contracts to store silver that does not exist. To add insult to injury they were/are also charging insurance on the phony silver. In this way people who are willing to take a piece of paper in the place of real silver contribute to the low POS...
Central banks can also lend silver and gold to others at maybe 1% per year and then that company/individual sells it and puts the money in bonds for an instant profit. This is called the silver or gold carry trade. Gold carry trade (Barclay's is also mentioned in this document). The banks then keep the metals on their books as an asset and it is also booked as an asset to whoever it was sold to. Not sure but I suspect they might also collateralize/roll up the "asset" into a AAA bond or precious metals fund and make even more money.
I think our government has become, to a certain extent, a lapdog for the banks and insurance. There is just too much money to be made in defrauding the public for them to stop. This will end only when we have a true shortage that impacts industry.
As far as holding the metal vs a cert, yes you should hold the metal if possible. If for some reason, the supply truly gets constrained it could be difficult to get the actual metal if you wanted to especially as speculators pile into a rising market.
I am not by any means a metals expert but I do think that there is the potential for a bug jump in the price of silver, more so than gold on a percentage basis.
Just a couple of thoughts!
K
<< <i>I have been reading Ted's commentary's for a couple of years now and he has been railing against this short conspiracy the whole time. He might be correct, but it would seem that holding these very large short positions without them being able to exercise the option due to rising or stable prices would cost a huge amount of money. So if the traders are spending all of this money to hold these short positions what is the trade off? Unless someone is fronting the money to hold down the price...but there are just as many if not more folks who would benefit from a runup in prices.
As far as holding the metal vs a cert, yes you should hold the metal if possible. If for some reason, the supply truly gets constrained it could be difficult to get the actual metal if you wanted to especially as speculators pile into a rising market.
I am not by any means a metals expert but I do think that there is the potential for a bug jump in the price of silver, more so than gold on a percentage basis.
Just a couple of thoughts!
K >>
That makes it extremely likely that the shorts are hedged positions. Who else would want to hold such large short positions when silver has been mostly going up? The common sense answer is no one else. As with most commodities, the most likely candidates to have large short positions are producers.
Again, for the novice readers, this is what futures markets were invented for, so producers, in this case silver miners can lock in sell prices and sell production forward, while users can lock in their buy prices and buy supplies ahead of need. If a mine sells enough production forward to meet all expenses, then they can let the rest ride for pure profit. This isn't speculation, it is sound business practice given the volatile history of silver prices. Once again, the story is sounding more and more like another half-truth that novices can be told wild stories about so the novices can lose their money. That is really what the big boys like, novice sheep coming in to slaughter, trading on bad information.
Again, don't believe everything you read on the Internet. If it is being written with something to sell, such as a newsletter, or an advisory service, trust the information even less. There are folks that have little talent trading (no track record), but are good at writing stories that entertain and get novices excited. They sell their stories to what I believe is mostly "dumb" money to make their living.
/edit to add: An example of a hedged position would be a miner that produces 100 million ounces a year with a cost of $8 per ounce. That producer may sell enough of their production forward to cover their cost. In this example that would mean selling about 55 million ounces short in the futures market for $14.50 or so. That would cover all their costs for the year and guarantee the producer a profit for the year. The huge short position shows up in the reports, but in reality, the producer is still net long 45 million ounces for the year. This is what I mean by a half-truth.
<< <i>One possibility is that commercials are all of the four major shorts. If that is the case, 250 million ounces is hedged against future production that is still in the ground. Each year 600 million is mined, so 250 million short, if it is against production isn't much. It may be about enough to cover costs for one year of mining, and the balance of the silver can be sold for pure profit. If this scenario is accurate, it is another case, of a half-truth turned into a spectacularly wild story that will only hurt a trader that believes the half-truth.
I've read too many half-truths on the Internet to believe that that the four major shorts are speculators. In many commodity markets, shorts are commercials locking in prices for a portion of their production. This is what the futures markets were made for, for producers to be able to lock in prices where they can make a profit, and for users to lock in prices where they can buy supplies and deliver their end product, also at a profit. Silver is such a thin market, with a low total market cap, that I doubt there are many shorts or longs with huge unhedged positions. >>
That just makes too much sense Someone else said that.
Knowledge is the enemy of fear
<< <i>
That makes it extremely likely that the shorts are hedged positions. Who else would want to hold such large short positions when silver has been mostly going up? The common sense answer is no one else. As with most commodities, the most likely candidates to have large short positions are producers.
Again, for the novice readers, this is what futures markets were invented for, so producers, in this case silver miners can lock in sell prices and sell production forward, while users can lock in their buy prices and buy supplies ahead of need. If a mine sells enough production forward to meet all expenses, then they can let the rest ride for pure profit. This isn't speculation, it is sound business practice given the volatile history of silver prices. Once again, the story is sounding more and more like another half-truth that novices can be told wild stories about so the novices can lose their money. That is really what the big boys like, novice sheep coming in to slaughter, trading on bad information.
Again, don't believe everything you read on the Internet. If it is being written with something to sell, such as a newsletter, or an advisory service, trust the information even less. There are folks that have little talent trading (no track record), but are good at writing stories that entertain and get novices excited. They sell their stories to what I believe is mostly "dumb" money to make their living.
>>
You could be 100% correct about silver but the fact remains that this market
is wholly dislike any other market or any other market which has ever existed.
This is a precious metal that is getting increasingly less common. It is an impor-
tant industrial commodity whose demand is apparently in a parabolic rise while
supply is in a decline.
When speculators or investors move into the market metal is created out of thin
air in quantities not seen in any other commodity. They are often charged stor-
age fees for metal that doesn't even exist. The magnitude of this unreal supply
is unmatched and this is at a time that the importance and desirability of the me-
tal is growing.
There are almost no silver mines in the world and the bulk is a byproduct of cop-
per mining. Generally it's a relatively unimportant part of copper mining. If the
producers are shorting mountains of silver then why aren't they shorting even a
"little" of the copper?
You don't have to wear a tinfoil hat to ask who the winners or losers are here.
But far more importantly is what happens if speculators do get into these markets?
The world's largest private silver producer in Idaho brought up 14.1 million ounces.
These can't be private concerns doing this shorting for production reasons.
The plot thickens....
Only we don't know how many pages are left in the book......we get one page of it at a time.
I believe the climax may be very interesting, and also may only be correctly understood well after it has occurred.
That is quite alot for a private company. The top 3 (public) silver producers dug up about 40 million ounces last year---out of the nearly 900 million ounces produced globally. While this is a very fragmented industry, clearly there can be/are some big players in the markets.
I truely believe Butler is just trying to sell newsletters.
Knowledge is the enemy of fear
Repetition of ignorance is ignorance raised to the power two.
<< <i>I wonder which weighs more ..??? The actual amount of silver mined or the amount of paper holdings on the amount of the silver...
Or the BS put out by those looking to sell newsletters and hotline services? <sarcastic smile>
For the first question, the paper holdings are far bigger, if counting all futures, all options on futures, and the like. However, a lot of that activity is hedging one position against another. The dollar value or dollar volume of derivatives can be huge, but that doesn't necessarily mean that the machine is going to break down. Pro option traders tend to be sophisticated and tend to know what they are doing. Those that don't tend to flame out very quickly. It is not a game for novices.
When talking options, for every winner there is a loser, so I have a difficult time seeing what the rational concern is in the newsletter community. Irrational, I can see, as it helps sell fear, and fear helps sell subscriptions, especially to the unsophisticated. In my mind, I may as well be concerned about the dollar amount of betting for NFL football games because, when stripped of all the trappings, options traders make bets, another trader or firm is taking the opposite side of that bet, the exchanges and the brokers make the vigorish.
<< <i>The real question is: Who benefits from keeping silver prices down? Definitely not an investment outfit. Has to be an end user of the raw material. >>
I believe no one knows the real price of the metal.The commodity brokers or traders are influencing and making money on trading paper prices.When there is a physical need for the metal then the market has to react.The more physical need the more reaction.
<< <i>The real question is: Who benefits from keeping silver prices down? Definitely not an investment outfit. Has to be an end user of the raw material. Or somebody secretly hoarding it. >>
I'm sorry if I offend, but to put it very bluntly, the question to me, is what kind of folks trade futures with real money on what I see as a load of baloney for information sources?
Why does everything have to be a conspiracy? Too many people watching movies like National Treasure? Even if it is a conspiracy, those with deep enough pockets and smart enough brains to manipulate multi-billion dollar markets can run rings around folks that peddle newsletters to unsophicates to earn money. If those are the sides, I would rather bet on the smart folks, not those with selling newsletters to what I see as the tin foil hat crowd. Again, I am sorry if I offend, but I see too many people biting into a big load of baloney for information.
<< <i>
Why does everything have to be a conspiracy? Too many people watching movies like National Treasure? Even if it is a conspiracy, those with deep enough pockets and smart enough brains to manipulate multi-billion dollar markets can run rings around folks that peddle newsletters to unsophicates to earn money. If those are the sides, I would rather bet on the smart folks, not those with selling newsletters to what I see as the tin foil hat crowd. Again, I am sorry if I offend, but I see too many people biting into a big load of baloney for information. >>
The Hunt brothers was a sort of conspiracy though most of their actions were
right out where everyone could see them. When they were successfull the rules
were changed to turn them into losers.
There's far less silver in the world now than there was in 1979 and it's at a lower
price. The total value of the silver in the world now is a small fraction of what it was
in inflation adjusted dollars when the Hunts manipulated the market. The very fact
that there is less silver in the world means there is less stability in these markets.
Last but hardly least, the Hunts manipulated the market by taking delivery of LESS
THAN HALF of the amount these shorts have sold. That's twice as much in a world
with much less silver now.
If the Hunts were manipulating then it seems this could be.
Let me guess, he's identified an illegal conspiracy, reported it to regulators, and they didn't listen!
Government regulators only listen after the horses have left the barn and the tornado is long gone.
Buffet was able to squirrel away 120 million ounces of silver (not sure if all physical or mixed with paper) before the PTB "suggested" he bail out. Interesting that pulling out that much silver didn't raise the price more.
Options/futures/derivatives are not always a zero sum game. If the loser in the transaction goes belly up, who is going to pay? The insuring broker? What if the insurer goes bankrupt too as is appearing to happen to several of the larger bond insurerers (MBIA, AMBAC, etc.). We are getting closer to the stage where there might be no winners on these contracts. Each of those companies has seen their stock price tumble by 65-70% this year.
roadrunner