TED BUTLER COMMENTARY

August 21, 2007

Fighting Back

Make no mistake, the intent of the recent silver sell-off, was to liquidate as many leveraged traders as possible. It not only applied to silver, but many other commodities and currencies. A quick review of the Commitment of Traders (COT) market structure in the markets involved shows that whatever side the large non-commercial speculators (hedge funds and other traders) were most heavily weighted, the markets moved sharply the other way. Thus, the price moves in a great number of seemingly unrelated markets, from metals to soybeans to oil, moved against the large speculators. It was a perfectly executed campaign against the speculators.

Without question, the campaign was as much a resounding success for the commercial traders as it was a crushing defeat for the speculators. This can be seen in the record trading volumes and price violence. We must wait for the next COT reports in these commodities to see just how large a clean out occurred, but I am sure it was significant, especially in silver.

Silver experienced the most extreme and violent sell off of all. On a percentage basis, silver’s price fell the most of any market. Silver was more oversold than at any point in its history, according Relative Strength Indicators (RSI) and the amount by which silver fell below its moving averages.

The silver manipulators were ready and able to take unfair advantage of the weakness in other markets to collusively pull their bids in silver in order to let the price plummet and force leveraged traders to cough up long positions.

Absolutely nothing in the world of supply and demand was responsible for the big silver price sell-off. There was no big production increases, or fall-off in demand. Inventories didn’t change. This was all about paper contract shuffling.

At the heart of the manipulation is the glaring fact that separates silver from any other market - the concentrated short position in COMEX silver futures. It is this concentrated short position in COMEX silver that defines the manipulation and enables it to continue. Eliminate this concentrated short position, and the silver manipulation will end.

TIME TO ACT

Today, I’m going to report on the private undertaking I have referenced in recent articles and, in turn, ask your assistance in attacking the concentrated silver short position and terminating the silver manipulation. Many of you have written to me to suggest this and for me to lend some guidance.

I believe the concentrated short position, and silver manipulation, has been allowed to continue to exist due to a quirk in commodity law. That quirk, or catch, was that commodity law prohibits the regulators from publicly releasing the identity of the largest traders in any commodity. That’s why the CFTC only identifies the largest traders in every commodity as the "4 or less" and "8 or less" largest traders. This regulation was enacted many decades ago for the well-intended purpose of protecting the identity of large traders to prevent them being put in a compromised trading position.

While the original intent of this identity protection may have been valid, that same law was never intended to protect and shield the identity of those engaged in manipulation, I believe that’s what this regulation has morphed into. After all, the primary intent of commodity law is to prevent manipulation, which is exactly as it should be. Over time, there has been a movement towards more transparency as a desired objective of modern markets. Protecting the identity of large traders in commodity futures markets is at odds with the transparency we encourage in all other financial markets.

I believe the CFTC and the COMEX have used this archaic identity-protecting regulation to protect the silver manipulators, just as they have protected the manipulators by their failure in not acknowledging the concentrated short position. In my opinion, the regulators want to avoid disclosure and debate precisely because they can’t legitimately defend the concentration.

The purpose of my recent private undertaking was to circumvent the CFTC and the COMEX and go directly to whom I thought might be holding a significant short position in COMEX silver futures. This was not a brand new strategy. I did it a few years ago with AIG, the large insurance company. I wrote publicly and privately to Eliot Spitzer, the then-Attorney General of New York. The gist of my approach was, "what the heck is an insurance company doing speculating in the silver market?" Since that campaign, the price of silver is significantly higher and AIG has disappeared from any outward involvement in the silver market.

I decided to focus currently on Mocatta, for a number of reasons. Mocatta has a historical record of holding a large short position in COMEX silver futures, including holding a major short position against the Hunt Brothers’ long position in the fabled silver manipulation in 1980. Public reports at the time indicated that Mocatta was under extreme financial pressure in the spike in silver prices and was instrumental in getting the rules changed at the COMEX. This has been cited as attributing to the subsequent collapse. In my opinion, Mocatta has been a large silver short, on and off, ever since.

There’s no doubt that Mocatta is a leader, if not the largest dealer in silver in the world. They are the head of the London Silver Fix of LBMA, as well as a leading clearing member of the COMEX. Mocatta was sold in late 1997, to the Bank of Nova Scotia (Scotiabank) by Standard Chartered Bank of London, and now goes by the name ScotiaMocatta. I want to be very clear that Scotiabank is a highly respected financial institution, with an impressive 175-year old history and an excellent high reputation to match.

On June 25, I wrote (via e-mail) to the CEO of Scotiabank, Mr. Richard Waugh, to warn him that the silver market was manipulated by an unprecedented concentrated short position and that my research had indicated that his bank’s precious metals subsidiary, ScotiaMocatta, was probably involved. My intent was to put him on notice and do what I could do to undermine the silver manipulation. I wrote that my communication was private and it was not my intent to harm the good reputation of Scotiabank.

I was (somewhat) surprised to receive an acknowledgement from Scotiabank, the next day, June 26, from Mr. Waugh’s office, stating that they would review my comments with the department involved. That same day, I e-mailed the article that was published that day, ‘Blood From A Stone," to Mr. Waugh as it mentioned ScotiaMocatta and I thought it would be appropriate and helpful.

On July 16, I received a reply from Scotiabank, indicating that. they had reviewed my allegations and found no evidence of wrongdoing. The reply also indicated that they disagreed with my "reading" of the COT.

Inasmuch as I had not offered any interpretation of the COT, other than to state that the report indicated that there was a concentrated net short position of over 250 million ounces held by 4 or less traders, I wrote back the next day, July 17, to Mr. Waugh saying that I offered no interpretation but I was stating an incontrovertible fact. I then told him that the only issue was whether Mocatta held a significant short position in COMEX silver futures, either for its own account or as a clearing broker for a customer. If he declared that Mocatta was not short, I would take him at his word and drop the matter. But if he could not, or would not, state that Mocatta was not short, I would have to assume that they were short, as would any reasonable person. I also warned him, once again, of the great risk to the bank’s finances and reputation should it turn out that Mocatta was short silver, even if they claimed it was "hedged" with other derivatives.

On July 24, I sent Mr. Waugh the article of mine that was published that day, "Still The Same". In this article, I explained the silver manipulation in detail and described how the senior management of the large financial companies involved in the manipulation was probably unaware of their firms’ involvement. In truth, I wrote that article specifically with Scotiabank in mind, although it certainly applied to all the firms involved. The next day, Scotiabank responded, saying they were reviewing my additional comments and would respond to me.

On August 9, not having heard from Scotiabank, I wrote to Mr. Waugh, expressing my puzzlement over what was delaying his response, since manipulation was the most serious market crime possible and how this particular silver manipulation was a crime in progress. Once again, I wrote that this was a simple matter of determining whether Mocatta was short COMEX silver or not.

I also reiterated that even if Mocatta held offsetting hedges, that might not excuse manipulation, and how it was possible that the counter parties might disavow any counterbalancing offsets if manipulation was proven. Lastly, I pointed out that Scotiabank’s public earnings statements indicated a Value at Risk (VaR) of only $1.5 million a day for their entire commodity exposure, whereas if Mocatta did hold a significant short silver position on the COMEX, the true VaR could be a hundred times that amount, or more.

Scotiabank responded on August 15, that an additional and independent investigation found no wrongdoing on their part and they considered the matter now closed. I responded, the next day, that they did not provide any explanation to substantiate their finding, nor did they deny that they were short COMEX silver futures in a significant amount. I wrote that I planned to write of this matter in the near future and offered to send them advance copies of any article I wrote about them, if they requested I do so. They made no such request.

I’d like to fully explain my intent here. My intent is to help terminate the silver manipulation in any above board and legitimate manner I can think of. My intent is not to harm Scotiabank. It was precisely because I suspected Mocatta as a big silver short that I wrote to Scotiabank in the first place, looking to resolve the issue. After this exchange of correspondence over the past several weeks, my suspicions are even stronger.

I am convinced that silver is manipulated and I think I have explained the manipulation, in terms of commodity law. Now it is time to do more than explain. Because neither the CFTC nor the COMEX will do their job, and because they have shielded the big shorts, a new approach must be taken. That’s why I wrote to Scotiabank.

Now, someone might ask, "why should Scotiabank answer to Butler when he asks if they are short or not? I would answer that because the issue, possible manipulation, is important enough. If they were not short it would be foolish for them not to declare that fact. It’s not who is asking the question, it’s the nature of the question. They thought the issue was important enough to run two separate inquiries, including one that was independent.

The problem for Scotiabank, as well as for the CFTC and the COMEX, and the concentrated shorts is that they can’t allow a legitimate and open discussion of this issue. With the exception of gold, there is no other market that raises the troubling issues that silver does. When pressed, the CFTC came up with a long-winded and non-responsive reply that was hardly germane. They never answer simple questions with simple answers. The supposed self-regulator, the NYMEX/COMEX, does not even bother to answer, even when asked directly and publicly. That is shameful. Now that they are a public company, they must be forced to respond to this concentration matter.

I don’t think I am wrong, but anything is possible. However, the issue is important and specific enough that it deserves to be addressed. This is a matter that can be quickly resolved. So let’s try to resolve it. Because the entities involved don’t want to address this issue openly, everything possible must be done to bring this matter into the open. I am only one man and it is relatively easy for the entities protecting the silver shorts to ignore me. But there is great strength in numbers, and if many press them, it will be harder for them to pretend the matter is not important.

It is time for all interested parties to participate. It is time to contact the CFTC, the COMEX and Scotiabank and demand simple answers to simple questions. Please don’t include a laundry list of perceived wrongdoings in the world. This is about the concentrated silver short position and manipulation. The key is specificity. You must ask very specific questions. I’ll provide suggestions and e-mail addresses below. Of course, you can reference this article and send it along with your questions.

I don’t necessarily expect the concentrated shorts to cave-in and fold immediately, but I promise you that if the regulators can be forced to publicly discuss this matter, I am sure I can legitimately counter any defense or excuse they come up with. All I am asking is a opportunity to have this issue fully-aired, once and for all.

My e-mail exchange with Scotiabank was extremely polite and courteous, on their part and mine. It is important to maintain that. Even though this is about the silver concentrated short position, I appeal to gold investors to participate. There are many more gold investors and the more who write, the more effective it will be. Next to silver, gold comes closest to replicating silver on the concentration issue. If the concentrated short position in silver is resolved and the manipulation is broken, then it stands to reason that gold could benefit immensely, as many of the big traders short silver are also short gold. But I ask gold investors who write to refrain from introducing gold manipulation issues, as that widens the scope and gives the regulators more wiggle room.

In contact with Scotiabank, I would ask these questions;

1. Does ScotiaMocatta hold a significant short position in COMEX silver futures for itself or for customers?
2. Is it proper for Scotiabank to be speculating in silver?
3. Is Scotiabank properly reporting its risk profile in silver?

Please send to the attention of Mr. Richard Waugh, CEO

mail.president@scotiabank.com,

In any contact to the CFTC and the NYMEX/COMEX, I would ask these questions;

1. If a net concentrated silver short position, held by 4 or less traders, of the equivalent of over 260 million ounces is not manipulative to price, what amount would be manipulative?
2. Should a trader’s identity be shielded if allegations of manipulation are made?
3. Please list those markets where the net concentrated short position, held by 4 or less traders, is greater than 150 days of global production, as is the case in silver.

For the CFTC, please send to the attention of the Hon. Walter Lukken, Acting Chairman wlukken@cftc.gov

For the NYMEX/COMEX, please send to the attention of Mr. James Newsome, CEO jnewsome@nymex.com

Finally, it is a shame that questions about such important issues are not being asked by the leaders of the silver industry, particularly the silver mining companies. Such questions coming from them would stand a better chance of resolving the manipulation than from outsiders. If you are a shareholder of any company involved in either silver or gold, please contact those companies and ask them to get involved. "Getting involved" doesn’t mean that mining management leaders must take any great personal risk, just ask the same questions that I’m asking.