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Recently, I have received a good number of emails containing
conversations between readers and CFTC Commissioner Bart Chilton about the
allegations of a silver price manipulation because of the large concentrated
COMEX short position held by JPMorgan. Chilton had previously led the move to
begin the current silver investigation in September 2008 and has always been
quick to respond to those writing to him, a rarity for high officials. I
couldn’t help but notice that Commissioner Chilton had recently begun to
say things that seemed to try to explain away the allegations of a silver
manipulation, much different from his former stance of promising to look into
it. I found this change disturbing and it has influenced my thinking that the
CFTC would never do anything about the silver manipulation. One particular
response from Chilton to a reader prompted me to write to the Commissioner
myself (aside from sending him all my articles) -
Dear Commissioner Chilton,
A reader sent me the following reply from you to him about the short
concentration in COMEX silver –
> Hi Tom
> The Commitment of Traders report does not show net positions. So, simply
adding all the largest longs up, or looking at one of them, only give you one
piece of myriad portfolio. Those reports also don't give over the counter
positions. We look at all of that by trader. While there are a few (at times)
traders that have been in excess of what our belated position limits would
require, the sizes aren't like they were a few years back. I saw one trader
with 22 percent net short a while back. We obviously look to see what that
trader did at volatile times. And, for those that claim they know who the
traders are, I'm not sure how they make such determinations. Certainly it
isn't based upon our reports.
> Best,
> B
In all due respect, much of your reply is
factually incorrect. Every long form Commitment of Traders report does show
net (and gross) positions for every commodity by the 4 and 8 largest traders
on both the long and short side of every market. The whole point of your
agency keeping concentration data is to insure that no one trader or small
group of traders hold such a large net position on a regulated exchange as to
manipulate the price. For you to say otherwise is wrong.
While over the counter positions
aren’t included in COT data that is beside the point. I am not alleging
that the OTC market is manipulating the price of silver; the manipulation is
emanating from the concentrated position on the COMEX, a market under your
jurisdiction. A concentrated position on the COMEX (the world’s leading
silver market) which manipulates the price of silver can’t possibly be
excused just because an OTC position may have been created to take advantage
of the manipulated price (by the manipulator itself). Nor would it be
legitimate for an entity to acquire physical silver after manipulating the
price lower via a concentrated short COMEX position. In other words, it
doesn’t matter what positions may exist off the exchange, if the
position on the exchange is so concentrated as to constitute manipulation.
I don’t know where you have come to
learn this incorrect information, but it has clearly prevented you from
fulfilling your obligations as a regulator. In the current COT, for positions
as of the close of business December 4, the net concentrated short position
of the 4 largest traders is listed at 38.1% (versus 11.3% on the long side).
http://www.cftc.gov/files/dea/cotarchives/201...er_lf120412.htm
This translates into 54,002 net short contracts held by the
4 largest traders in COMEX silver futures. By the way, since there are over
36,000 contracts listed as spreads in the companion disaggregated COT report
that means the true net position of the 4 largest COMEX shorts is more than
51.1% of the market, not 38.1%. This is the largest concentrated net short
position in COMEX silver in more than two and a half years.
As I have previously explained in numerous
articles that I have sent to you and the other commissioners, your agency
disclosed (quite inadvertently) the identity of the biggest COMEX short
seller as JPMorgan, in explaining to various lawmakers that the large and
sudden increase in the US bank category in COMEX silver futures in the August
2008 Bank Participation was the result of a merger earlier that year that
could only have been the JPMorgan takeover of Bear Stearns. I’ll send
you a sample copy on request.
Currently, JPMorgan appears to hold 36,500
contracts (of the 54,002 contracts held by the 4 largest traders) on a net
basis. After deducting spread positions from total open interest,
JPMorgan’s net short position is more than 34.5% of the short side of
the market, much greater than the 22% figure a while back referenced in your
response.
From your response, it is clear that you
are operating on faulty information which may explain why your agency
hasn’t intervened in the ongoing silver manipulation. While this is
surprising and disappointing at this stage of the manipulation, it also
creates the opportunity of setting the record straight should you endeavor to
do so. Many citizens and market observers feel your agency has dropped the
ball on terminating the silver manipulation. I’m sure you would agree
that it is not healthy for so many to doubt our important public regulators
and this may present an opportunity to assuage such growing doubts.
Ted Butler
In simple terms, Commissioner Chilton’s response to the reader
confirms my worst fear – the reason the CFTC hasn’t moved against
the silver manipulation is that they don’t understand it. Even though
the agency publishes remarkably detailed and accurate data on concentration
in their weekly COT reports, they apparently don’t comprehend what it
is they are publishing. As a big believer in the premise that recognition of
a problem is 50% of the ultimate solution; I also believe that if a problem
is not recognized, it is unlikely to be remedied. I’ve always considered
Chilton to be one of the “good guys” at the Commission, so it is
quite disheartening to see him so misinterpret his own agency’s data.
This is no small matter. The CFTC’s main mission is to guard
against price manipulation, the most serious market crime possible. The
reason price manipulation is the most serious market crime is because it
distorts the free market, thereby affecting everyone, consumers and producers
alike, not just active market participants. The one sure cause of
manipulation is a large concentrated position held by one or a few collusive
traders. That’s the whole purpose of position limits, namely, to
diffuse and prevent concentration. Whether it was the Hunt Bros on the long
side of silver in 1980, or the Sumitomo copper trader known as “Mr.
5%” on the long side of copper, or JR Simplot on the short side of
Maine Potatoes in 1976, the common denominator of all market manipulations
has been the concentrated holdings of one or a few traders. So it is with
JPMorgan on the short side of COMEX silver today. What is shocking is that
our most important commodity regulator, the CFTC, has seemingly failed to
recognize this.
Of course, perhaps it is not that the agency doesn’t understand
what is occurring in silver, but more that it doesn’t want to
understand. Perhaps there were some guarantees exempting JPMorgan from future
charges at the time of the Bear Stearns acquisition. Perhaps JPMorgan and the
CME are so powerful and above the law that the CFTC can’t hope to
confront them on such a black and white matter of excessive market share
concentration. Most remarkable of all is that more market observers have
written to the Commission about silver-related matters than the cumulative
total of all other issues. Still, the agency doesn’t get it (or want to
get it).
What to do about all this? I think the answer may come from none other
than the CEO of JPMorgan, Jamie Dimon. Truth be
told, were it not for silver, Mr. Dimon would rank
high on my list of effective business leaders. I’ve followed his business
career with admiration for many years. The best thing about him is that he
comes off as a no-nonsense, to the point kind of guy. This morning, in a
special broadcast on CNBC, Dimon was a featured
speaker at a special conference. He talked about the greatness of America in
so many ways and bristled at a suggestion that JPMorgan was too forceful in
their dealings with the regulators. Mr. Dimon’s
retort was that the Bill of Rights allowed everyone, including JPMorgan,
freedom of speech and the right to petition the government. I agree with Mr. Dimon and that has largely been my approach concerning my
allegations that it is JPMorgan manipulating the price of silver. As
citizens, we all have the right to petition the regulators to move against
perceived market crimes. I intend to continue to exercise that right and
suggest you do the same. I’d also like to help educate the regulators
as well, as far as understanding their own published reports. Lord knows,
they could use the help.
Chairman Gensler target="_blank" ggensler@cftc.gov
Commissioner Chilton target="_blank" bchilton@cftc.gov
Commissioner Sommers target="_blank" jsommers@cftc.gov
Commissioner O’Malia target="_blank" somalia@cftc.gov
Commissioner Wetjen target="_blank" mwetjen@cftc.gov
Ted Butler
For subscription information, please go to target="_blank" www.butlerresearch.com
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