Here’s an
extended excerpt from the Weekly Review sent to subscribers on March 5 -
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. Since the Bank
Participation Report was released late yesterday, an hour or two after the
COT, my first thought in the interim was that it would not be JPMorgan increasing
its concentrated short position, but most likely the other three entities in
the big four. After all, with all the negative attention (and losses)
accruing to JPMorgan and its big silver short position, there would be no way
JPM would have accounted for the 3000 contract increase in the COT for the
big four.
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). From my reading of both these reports, it appears that the big
increase in silver short selling by JPM took place during the last COT
reporting week, even for the BP Report. Before I continue, let me explain
that I consider JPMorgan to effectively account for all or the bulk of the
entire US bank category in the Bank Participation Report for a variety of
mathematical reasons. However, it matters little if there is another US bank
also holding a significant net short position in COMEX silver, as all that
would mean is that two US banks are colluding to manipulate the price of
silver and not just one bank acting alone.
Two
and a half years ago, I had a very similar experience of shock over a Bank
Participation Report. This was before anyone knew that the Bank Participation
Report even existed. The August 2008 Report caused me to write a series of
articles that started with “The Smoking Gun” in the fall of that
year. http://news.silverseek.com/TedButler/1219417468.php In turn, my analysis and writing led
to the current CFTC silver investigation (still unresolved) and the
revelation that JPMorgan was the big COMEX silver short by way of taking over
Bear Stearns. I further believe that the revelation of the true size and
nature of the concentrated silver short position has contributed to the
current movement towards position limits by the CFTC.
As
much as the August 2008 Bank Participation Report was shocking, the current
one is even more so. That’s because we know so much more today than we
did back then. We have waited two and half years to hear anyone legitimately
explain how a US bank holding a short position equal to 25% of world
production isn’t manipulation. No explanation has been forthcoming, nor
is it likely to ever be offered. We know now that concentration is the prime
requisite for manipulation. To witness the most concentrated participant
suddenly increase its silver short position by more than 30% is something
almost beyond comprehension.
Let
me walk you through the mechanics of what just took place and then I’ll
speculate on the motivation of JPMorgan increasing its silver short position
so dramatically. Over the past two COT reporting
weeks, it has been primarily a commercial versus commercial type affair. The
big technical funds have largely refrained from adding to their net long
silver position, even though prices have climbed very sharply. Two weeks ago
the raptors (the smaller commercials away from the big 8) 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.
As
far as the motivations behind this trading, the most plausible explanation
for the raptors running from their newly initiated big short position is the
stark reality that shorting silver has been a very bad deal. My guess is that
the raptors did their homework on silver only after they put on the big short
and started to lose money on rising prices. That homework persuaded them to
get off the short side of silver pronto, which they did. JPMorgan’s
motivation for suddenly and greatly increasing its silver short position is
less clear and more troubling. 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).
That’s the problem and it goes to the heart of the crime. The raptors
didn’t want to sell, nor did the 5 thru 8 large traders. Ditto for
basically all the other silver traders. That left JPMorgan as the sole silver
seller, as the COT and Bank Participation Reports clearly document. Please
think about this.
We
know that concentration in any market is to be avoided. The whole thrust of
commodity law goes towards preventing concentration. We know that the ideal
profile of a free market is where a wide diversity of market participants
competes on both the buy and sell sides of the market. We also know that the
most extreme state of concentration possible is where there is, effectively,
only one buyer or one seller. Therefore, what the latest COT and Bank
Participation Reports just confirmed was that the most extreme form of
concentration possible just occurred during the latest reporting week.
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.
After all, the COT and Bank Participation Reports were only published
less than 24 hours ago. (As is my custom, I will be sending this article to
the Commission and JPMorgan and the CME Group).
I
realize that I am making serious allegations of violations of commodity law,
as there is no market crime more serious than manipulation. At the very
least, this new government data release is so disturbing that it should be
addressed immediately. Silence on the part of JPMorgan, the exchange and the
CFTC is no longer constructive. If my accusations
are off-base, then I should be set straight. I’m not out to cause
trouble; I am trying to help correct what I see as a very serious market
problem.
I can’t
help but think that Chairman Gensler of the CFTC
will be troubled by this recent action by JPMorgan to substantially increase
its already concentrated silver short position. In recent speeches he has
indicated his support for position limits to guard against concentration.
Please scroll down to the section on position limits in this recent speech to
see what I mean. http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-71.html
Chairman Gensler also solicits your public comments
on this issue, as I have done previously. I found it interesting that he
singled out position limits in this speech for encouraging you to comment. By
the way, the number of public comments on position limits is now close to
3,000, a truly remarkable outpouring of public sentiment. http://comments.cftc.gov/PublicComments/CommentList.aspx?id=965
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. They
are increasingly isolated which makes them both dangerous and vulnerable.
Most of you are holding silver from prices much below the current levels.
This bestows on you a power that few newcomers to silver possess, namely, the
power of a long term perspective and the ability to withstand short term
price gyrations. You have a price cushion and the power of knowledge that
should enable you to persevere against any short term manipulation. The
proper approach is to hold silver to go much higher and not to lose your
position, just as it has been all along.
That
aside, you should be disturbed enough about the revelations in the new COT
and Bank Participation Reports to rattle on the cages of JPM, the CME and the
CFTC. Just as a head’s up, I may make portions of this report available
in the public domain if I conclude it will benefit subscribers. Let me think
about it a bit. In the interim, please contact these parties if you feel so
inclined. You know I will.
Email addresses
for those who wish to contact the regulators –
ggensler@cftc.gov Chairman
mdunn@cftc.gov
Commissioner
bchilton@cftc.gov Commissioner
jsommers@cftc.gov Commissioner
somalia@cftc.gov
Commissioner
jamie.dimon@jpmchase.com
executive.office@chase.com
thomas.lasala@cmegroup.com
dean.payton@cmegroup.com
Theodore Butler
Butlerresearch.com
This article was released to subscribers on December 17. For
subscription information please go to www.butlerresearch.com
Theodore Butler is an independent Silver Analyst who has been
publishing unique precious metals commentaries on the internet since 1996. He
offers a subscription
service with once or twice weekly commentaries including detailed analysis of
the Commitment of Traders Report, regulatory developments, supply/demand
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outside the box. You can subscribe to his
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