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WEEKLY COMMENTARY

September 29, 2003

                                                                                             
Admittedly, our world is a very complex place. Because of that complexity, solutions to many problems are difficult, painful and sometimes even impossible. Often, it comes down to the fix that is least damaging, and not the perfect solution. But, in my opinion, we all share a responsibility to strive towards finding and implementing ideas and actions that work towards the common good, rather than just sit around, complaining about our condition. This happens to be my biggest pet peeve - folks moaning and groaning about things, who suddenly grow silent when asked, "how would you fix it?"  I'm a firm believer that if you have a good solution to offer, then speak up. If all you want to do is moan, then shut up.

It's no secret that I complain about the silver manipulation. I've complained about it for more than 15 years. I've complained to the CFTC, the COMEX, and every possible elected official I could think of.  I'm going to keep on complaining, until the manipulation is dead. But I try hard not to be guilty of what I find so distasteful in others, and I have always offered constructive solutions to ending the silver manipulation in a fair and impartial manner (such as imposing legitimate speculative position limits, as dictated by law - but not enforced.)

Recently, I had written to the Attorney General of New York, Eliot Spitzer, asking him to uphold the integrity of the market, by not allowing the COMEX short sellers to renege on their contractual obligations to deliver real silver at any point, through phony rule changes. This clearly struck a chord with many market participants and observers, as quite a few hundred signed and commented on a petition requesting action by the AG.  I must tell you that I was surprised by this strong public reaction. Obviously, I am not alone in my concern for market integrity.

This week, I received an e-mail from someone in Australia, who sent me a very recent e-mail exchange he had with the CFTC's senior economist in their Market Oversight Division. It seems the gentleman from Australia had contacted the CFTC with exactly the same issue that I had contacted Attorney General Spitzer, namely, pressing the CFTC to be sure to hold the COMEX silver shorts responsible in fulfilling their contractual obligations. The dates of the e-mail's indicated, remarkably, that both my and the Aussie's contacts were completely independent.

What was truly shocking was the CFTC's response to what they would do in the case of a COMEX silver delivery default. Quoting from the e-mail (and the CFTC's web site), this is what the CFTC plans to do if COMEX silver contracts can't be delivered against ,  ".... the Commission has broad emergency powers under which it can order the exchange to take actions specified by the Commission.  Such actions could include limiting trading to liquidating transactions, imposing or
reducing limits on positions, requiring the liquidation of positions, extending a delivery period, or closing a market."

This is precisely why I wrote to Attorney General Spitzer - to prevent arbitrary rule changes. The CFTC, in their own words,  plans to change the rules, if necessary,  to accommodate the manipulative silver shorts. Every single one of their "actions" is designed to protect the crooked shorts and to punish the innocent longs. This stinks to high heaven. You should feel outraged. The CFTC is telling silver longs, well in advance of the inevitable delivery default, to "go screw yourselves."  I can see no other interpretation.

I have a better solution. A much better solution. My solution, unlike the CFTC's, is fair. My solution is constructive, in that it will head off and prevent a COMEX silver delivery default, not merely react in a panic, after a default. My solution is simple and cost-free to implement. My solution guarantees market integrity and will restore confidence in the CFTC and the COMEX.

My solution is to mandate that both long and short position holders in the current delivery month COMEX silver futures contracts guarantee their delivery responsibilities by first notice of delivery day. For longs, this means the full cash value of the contracts they hold must be deposited by first notice day. For shorts, this means receipts or warrants on COMEX-approved warehouse silver must also be deposited by first notice day. Any long or short not meeting these requirements must be liquidated by the clearing member responsible for the account, by first notice day.

If you think that solution sounds simple, you are correct. If you think that it sounds fair and balanced, you are also correct. You would be correct, again, if you thought that it would eliminate the possibility of a default in COMEX silver. Most importantly, market integrity would be preserved and confidence restored in both the COMEX and the CFTC.

My solution is so good, that if you listen closely enough, you can just about hear the great wailing and gnashing of teeth at the COMEX and CFTC. That's because my solution is all about leveling the playing field and taking away one of the current advantages that the manipulative shorts hold - the ability to bluff that they have real silver, when they may not, deep into the spot delivery month. If you study history, you'll learn most big commodity market problems revolve around the shorts' bluffs being called.  I'm offering a solution that will prevent a default and insure market integrity, and is fair to both longs and shorts. The CFTC and COMEX are talking about closing the market if things get too tough for the shorts and they can't live up to the delivery obligations that they voluntarily undertook.

I want to be clear about one thing. If my solution on delivery certification is adopted, as it should be, it won't necessarily end the silver manipulation immediately, by itself.  But, almost as importantly, it should eliminate the chance of a delivery default in COMEX silver. That would be a monumental achievement, beneficial to everyone.

That private citizens must attempt to force the regulators to regulate and protect the markets is bizarre. The regulators themselves should be searching for ways to anticipate and head off problems. Just like the clean sweep we are seeing at the New York Stock Exchange, it may be time for a good housecleaning at the CFTC and the COMEX. After all, what's worse than a regulator who won't regulate?