To the
CFTC:
RE:
metals position limits
Regarding
the Dire Necessity of Imposing Metals Position Limits on the Shorts
Others
have written to the CFTC as if they assume the CFTC is made up of good people
who would enforce position limits if only they knew that the markets were
manipulated; and thus, two others have written the CFTC to show the current
manipulation in progress.
I'm
not so gracious, as I have written to the CFTC before, and I know that the
CFTC has always evaded the issues. Therefore, I must assume the CFTC is
made up of people who only think they are doing good, who assume that letting
big banks get what they want is somehow compatible with free market theory,
and thus, not regulating the bankers' position limits is somehow good, and
that hiding the truth is somehow good for the nation.
Thank
you, Bart Chilton, for writing that "he does not think his fellow
commissioners are currently willing to support a move to curb speculation for
metals contracts" so that we can help to persuade them.
http://www.reuters.com/article/ousiv/idUSTRE62L3YP20100322
I
believe that the CFTC commissioners are either deceived by a faulty
philosophical foundation, or willingly in on the manipulation.
Alan
Greenspan admitted his concepts of free market theory were flawed. I
believe that his flaw was that he did not seem to realize that debtors are
like slaves, and that slavery is not compatible with freedom, nor with free
market theory. Futures contracts are like a debt, and require enforced
performance, which enslaves the participants to the margin clerk.
Greenspan
Misapplied Free Market Theory October 23rd, 2009
http://silverstockreport.com/2009/greenspan-misapplied.html
When
the CFTC enforces position limits on longs, but lets "commercial"
banks short unlimited and excessive amounts, that's not compatible with free
market theory! When big banks can use government force against their
trading counter parties, that's not compatible with free market theory!
The
fundamental philosophical problem is that a slave trading market is not a
"free" market, and there should not be a market for slaves at
all. Similarly, the market in futures contracts is not a
"free" market at all, it's a slave market of enslavement contracts,
not a market of products. There can be no such thing as a
"free" market of slaves; it's a contradiction in terms!
The
CFTC must regulate; it cannot sit back and do nothing.
If
nothing is done, it threatens the freedom, prosperity, and way of life of all
Americans.
The
CFTC has a duty to act to prevent the current fraud in progress, that must be
stopped, but it must be done wisely, so as to not suddenly disrupt all
commercial life for all Americans.
In
1980, precious metals prices were running away to the upside, out of control,
threatening the life of the dollar, and the entire financial system.
There were primarily two mechanisms that helped to limit precious metals
prices. The first, was letting interest rates rise in the bond
market. The second, was futures contracts that diverted investment
demand away from physical, and into paper.
Please
consider what will happen as the current bull market in precious metals
matures, and when futures contracts default, and become discredited, and
thus, lose their power to pull people back to paper? A precious metals
default will likely drive people into real tangible physical metals more
fervently than ever before in the history of paper money in the United
States, suddenly destroying the value of the currency, and ruining the entire
economy of the nation, which could lead to a collapse of most commerce, which
could lead to death and starvation on a massive scale. That must be
prevented through a smooth transition back to honesty in commerce.
The
coming default in the precious metals futures markets is extremely dangerous
for all people living in the United States, as it will inevitably lead to the
crashing of the US dollar, or more accurately, Federal Reserve Notes.
The
current state of the futures market in precious metals shows that it must end
in default, which is to say, a failure or inability of the shorts to deliver
the silver, as they have shorted too many contracts.
A
futures exchange for precious metals is inherently manipulative and
fraudulent by nature.
The
public, in the real world, usually would laugh at a precious metals coin shop
offering bullion for delivery "in a month or two", when a coin shop
down the street can deliver immediately over the counter.
At our
coin shops, we only re-order bullion from bullion wholesalers who can deliver
bullion with overnight delivery, or for delivery within a week, at the
most. Thus, we sell most bullion over the counter.
There
is no legitimate reason for a futures exchange for precious metals.
Agricultural commodities have a harvest season, and for them, it might make
sense. But miners produce all year long, and so do refineries, thus,
there is no need for them to lock in a price before any sort of harvest
season.
It is
claimed that miners need to lock in future prices in order to obtain debt
financing. But that's not true, for two reasons. First, if a
miner cannot produce metal without debt financing, perhaps they probably
should not be producing metal at all. There are other ways to finance;
such as equity financing, bootstrap financing, or private capital deployment.
Second,
if debt is bad because it is like slavery and can lead to default, and if the
CFTC is supposed to regulate markets to prevent default, then the CFTC should
prevent the debt and leverage inherent in the futures markets. In other
words, debt cannot be used as an excuse to legitimize debt, as that is just
circular reasoning.
But
furthermore, excessively funding extra gold mining production is what
excessive short sellers would need most, isn't it, so that's a poor
justification for their activities.
A
precious metals futures exchange is not a legitimate market for any major
producers or users, not as long as it is used as a last resort, and not as
long as approximately 1% of contracts result in delivery. Why would I,
as a dealer, ever buy in the futures market, when delivery dates are so
uncertain and over such a long time frame? And our organization buys up
to 10,000 oz. of silver in one order! Thus, a futures market simply
encourages speculation, which is to say, it enables leveraged debt-based bets
on which way prices will move between the present and some future delivery
date.
When
investors feel they are able to get such leverage on price movements, it
distracts them away from investing in the real thing, and thus, the existence
of a futures market diverts investment demand away from real metal, thus
depressing precious metals prices.
Bart
Chilton wrote that "Three of the five commissioners -- Democrat Michael
Dunn and Republicans Jill Sommers and Scott O'Malia -- have expressed
concerns the energy proposal could drive trade to markets outside the CFTC's
jurisdiction."
TOO
LATE! According to the Bank of International Settlements, the LBMA and
other "over the counter" precious metals markets are already over
10 times larger than the COMEX futures exchange.
The
BIS notes that "over the counter" "other precious metals"
derivatives have exceeded $203 billion of notional value, which, at $17/oz.,
is 11.9 billion ounces of silver.
See:
http://www.bis.org/statistics/otcder/dt21c22a.pdf
The
total open interest in silver futures contracts is about 140,000, x 5000 oz.
= 700 million.
The
problem is that the "over the counter" markets are not transparent,
and thus, cannot be used by any other market participants to set
prices. It is likely that the bulk of the other precious metals
derivatives use COMEX pricing as the basis for the value of their
derivatives.
If the
futures markets in precious metals are fraudulent by nature, how in the world
can mere position limits fix things?
First
of all, let's note that currently, there are only position limits imposed on
the longs, those who may stand for delivery of precious metals. There
are no limits imposed on the commercial shorts.
But
that's backwards. It should never be illegal for any investor in any
market to buy what they want with their money. There should never be
any limits on longs. Thus, all longs should be exempt from all limits.
But
it's the shorts who can manipulate markets by depressing prices by selling
what they do not have, which creates the possibility for default, which must
be regulated, and limited.
Given
the huge size of the OTC positions, up to 12 billion ounces, which dwarfs the
size of world annual production at 0.6 billion ounces, systemic default seems
inevitable, and long past due.
The
OCC report goes to show that JP Morgan dominates the gold derivatives trade,
and thus, likely dominates the silver derivatives trade as well.
http://www.occ.treas.gov/ftp/release/2009-161a.pdf
The
CFTC has continually lied to protect the excessive short selling in the
market, by releasing reports that deny "manipulation" given the
surface language, but admit manipulation if you know how read between the
lines.
For
example, the CFTC has stated that as shorts cover, and buy back positions,
the buying back of a position pushes prices up, thus negating any negative
price action. But that admits that the market prices are lower than
they would be, if the shorts are not covered and remain open, which they
continually are, as they are always rolled over into future months.
As
another example, the CFTC has stated that the market cannot be manipulated as
long as there are no restrictions preventing participants from taking long
positions, but there are position limits on the longs, which prove that the
market is, in fact, manipulated.
As
long as the CFTC continually lies and issues hypocritical statements, they
lose credibility, and make themselves an accomplice to the ongoing
fraud. Perhaps the CFTC members today will be found to be guilty of
obstruction of justice if a more honest administration is elected?
In
school, they teach that the futures markets create more stable prices.
But it seems to me that futures markets create more wild price swings than
there would be otherwise without futures markets.
It was
panic short covering, and panic over the dollar failing (and the dollar used
to be a derivative of silver prices) that drove silver to $50/oz. in
1980.
Futures
markets make prices more volatile, more extreme, in my opinion. They
both allow the creation of prices that are manipulated too high, and too low,
because they allow debt-enabled leverage trades on both sides of the market.
Default
is ever more likely, and obviously looms.
Default,
we can see, is already being prepared for, in advance, in three ways.
First,
I see that there are cash settlement options for precious metals contracts.
Second,
futures contracts can be settled via ETF shares.
Third,
the COMEX went public, and was sold to the CME, another public company, and
public companies have the protection of limited liability, as stock holders
are simply not on the hook for any sort of debt liability at all, while the
private owners of the exchange used to be ultimately liable, that is no
longer the case.
I see
that it has been proposed to impose position limits on the commercial shorts.
It has
been proposed that no entity maintain any position larger than 5 or 10
percent of the open interest.
That's
simply silly, as the largest traders could simply set up dummy corporations
to continue to short all that they want, and how could anyone know?
Another
alternative would be to maintain a certain fractional reserve percentage of
metal on deposit, such as 40% backing, to help guarantee delivery.
That's
also silly, as there could be 100% backing on the COMEX, but the OTC market
clearly shows derivatives that are over 10 times as large, and clearly cannot
all be backed by real metal, so the overall fraud in the world silver market
would continue!
But if
the other derivatives in the OTC market are priced based on COMEX prices,
because the COMEX market's prices are public, and thus looks to the COMEX for
it's price discovery function, then it's all the more important that there be
100% backing for all precious metals contracts at the COMEX.
Furthermore, it must be insured that the metal that backs all futures
contracts is not encumbered by other contracts, derivatives, ETFs or other
obligations.
There
are no solutions that are viable other than requiring a 100% backing of all
short futures contract positions. Nothing less would insure delivery,
limit liability, and prevent default.
What
we are examining here is an exchange. Longs put down money, a part of
what they ultimately need to delivery, cash. Similarly, shorts should
be obligated to deposit silver, prior to delivery. Each should make a
deposit of 100% of the notional value of the contract.
This
should be the job of the CFTC regulators: to physically inspect bars on
deposit, and to do the calculations necessary to insure that no futures
contract is offered for sale unless there is a full 100% backing of metal on
deposit to back the position, and that such metal cannot be used to back any
other kind of short sale.
That
would still not end the fraud taking place in the London market and in the
OTC markets, or other markets overseas, but it would at least be a step in the
right direction, as the COMEX pricing would at least more accurately reflect
real prices for real metal.
All
the gamblers would still have a place to go, but at least it would be an
honest form of gambling, and not a rigged casino.
But a
sudden ending, or destruction of futures market price rigging or manipulation
could also lead to the destruction of the dollar. The transition back
to honesty and honest markets needs to be gradual so as to hopefully not
upset everything.
As
concentration in futures has reached levels of up to 40-90%, it needs to
start out being slowly capped, and racheted down, step by step, following
along a plan, going down gradually to the more ideal level of no more than 5%
of the open interest.
Further,
a precious metals backing needs to be implemented gradually. Currently,
with about 120 million oz. on deposit in the warehouses, and only 50 million
ounces registered for delivery, which is used to back from 700, to 800
million ounces of futures contracts (which is about a 6% backing). If
such silver is also used to price, and back, up to 12 billion ounces of
silver in the other precious metals over the counter derivatives (that would
show about a 0.4% backing). Thus, the deposit requirements must be
increased gradually, over time, so as to not drive silver prices to $1000/oz.
overnight, as such things can cause an economic crisis worse than that felt
in Argentina, which is certainly counterproductive.
It is
especially important for the CFTC to at least be seen as doing something to
prevent default. After all, why else should the CFTC exist? And
after all, this selling of silver that the commercials don't have is clearly
manipulative, fraudulent, and is a hidden attack on the value of everyone's
money as it is allowed to continue. If the fraud is exposed suddenly
and things go badly, the public may cry for blood, literally, as history has
shown. It will be important for the CFTC that the CFTC is not seen as
being complicit, and not be seen as if they are aiding in the fraud, or
hiding the fraud, which is the perception today.
http://en.wikipedia.org/wiki/Complicit
An individual is complicit in a crime if
he/she is aware of its occurrence and has the ability to report the crime,
but fails to do so. As such the individual effectively allows criminals to
carry out a crime despite easily being able to stop them, either directly or
by contacting the authorities, thus making the individual a de-facto accessory to
the crime rather than an innocent bystander.
A good
first step for the CFTC, or at least, for some of the honest people working
at the CFTC, is to admit that the excessive selling of futures contracts is
manipulative, and that steps should be taken to limit this market
manipulation.
For
more, see
http://silverstockreport.com/2010/cftc-meeting.html
If you
support the statements and philosophy in this document, please send your own
copy, with your own name, to:
Written
materials should be mailed to the Commodity Futures Trading Commission, Three
Lafayette Center, 1155 21st Street, N.W., Washington, DC, 20581, attention
Office of the Secretariat; transmitted by facsimile at 202-418-5521; or
transmitted electronically to metalshearing@cftc.gov. Reference
should be made to �metals
position limits.�
=========
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