In Ted Butler's Archive


The head of commodities for JPMorgan, Blythe Masters, gave a short interview Thursday on CNBC. She claimed that all of JPMorgan’s positions in silver were to accommodate legitimate client hedging needs. This is the first time that JPMorgan has openly acknowledged the allegations against it for manipulating the price of silver. The main theme advanced by Ms. Masters is that JPMorgan holds no unhedged silver positions and all its short positions are a direct result of offsetting client positions in the OTC or swaps market. Therefore, it matters little to JPMorgan whether the price of silver rises or falls.

The allegations against JPMorgan for silver manipulation are centered on their concentrated short position. Claiming there are client positions offsetting the concentrated short position doesn’t alter the fact that the concentration exists. Holding 25% of any licensed futures market is manipulative to the price. It doesn’t matter what excuse is given for holding this excessively concentrated market share.

If a single trader held a 25% share of any other major futures market, say in crude oil or corn, there would be emergency meetings and decrees to break that concentration. Farmers would be descending on Washington, DC in tractors if a New York bank held a short position equal to 25% of the Chicago Board of Trade’s corn futures market. It wouldn’t matter one wit to the regulators what was behind the position. Such a market share in a major commodity futures market would be unthinkable. But 25% has been JPMorgan’s usual share of the net COMEX silver (minus spreads) since it took over Bear Stearns and often it has been much larger than 25%. What’s behind the position doesn’t matter; the position itself matters.

I’ve often said that JPMorgan is stuck with their excessively concentrated silver short position on the COMEX. Ms. Masters’ TV attempt to explain it all away strengthens my conviction. There has always been one big silver short on the COMEX. It started with Drexel Burnham, got moved to AIG trading, on to Bear Stearns and, finally to JPMorgan. JPMorgan is the final holder and I sense them knowing that may be behind the attempt to explain it away. Never, in the 25 years I have been engaged in attempting to end the silver manipulation, has there ever been a public acknowledgement from the big silver short.

If legitimate client positions stand behind JPM’s outsized short position that implies most of the world’s silver hedgers only do business with JPM and no one else. Why aren’t other banks and financial institutions looking to compete with JPMorgan on the short side? It’s because no other firm wants to get stuck like JPM is stuck and reduced to offering flimsy excuses.

If a legitimate hedger wants to sell short on the COMEX to hedge production or inventory it can do so in its own name and for its own account. It doesn’t need to join with others and do it in someone else’s name and in concentrated form. There is no legitimate reason why JPMorgan’s clients can’t hedge in their own names. One would think JPMorgan would advise clients to hold the COMEX short positions in their own names to reduce JPM’s concentration.

Unless, of course, there is only one major client behind JPMorgan’s concentrated COMEX silver short position (perhaps China). If JPMorgan is representing only one client that raises a whole new level of possible criminality. JPM may be the transfer mechanism in what can only be seen as hiding the identity of a market manipulator. If the real hidden short is foreign and outside U.S. jurisdiction, that’s even worse than JPMorgan holding the position itself. Enabling a foreign entity to evade U.S. commodity law and manipulate a U.S. futures market? Hello!

Because the COMEX is the most important derivatives market in the world for precious metals, any large silver derivatives position must be reflected in COMEX positioning. If JPMorgan could just make this COMEX concentrated short position disappear by dealing on the OTC market, they would have done so long ago. They can’t because the OTC market is smaller than the COMEX. JPM is trying to convince us that the COMEX concentration doesn’t matter because the big short is someone else that you can’t see for reasons of client confidentiality. The banks always have a slick answer to this behavior. How about the reporter asking JPMorgan what the heck are they doing trading in silver in the first place? Is that what banks do?

The real problem is that the COMEX sets the price of silver for the world. Therefore, JPMorgan’s concentrated short position, by its size, unduly influences the price of silver. This gives JPMorgan control of what price its clients transact their silver hedges. This is a serious conflict and certainly not in the clients’ best interests: they would be lowering the price of their clients’ silver holdings. What fair and open business practice would permit JPMorgan to set the price on the COMEX and then use that price to transact hedges with clients at the “set” price?

Eight years ago, on May 14, 2004, the CFTC made public a long letter which denied that any silver manipulation existed. The letter took aim at me and concluded that investors had best be very careful before investing in silver. On the day of the letter, the price of silver was around $5.60. Almost to the day four years later, the CFTC released another long public letter, dated May 13, 2008, which basically re-iterated that there was no silver manipulation or undue concentration on the short side on the COMEX. On the date of this letter, the price of silver was $16.66.

We are at the anniversary of a four-year cycle that began in 2004. Will we get yet another long-winded public letter from the CFTC assuring us there is nothing wrong in silver or will it play out differently this time? The remarkable thing is that the first two CFTC letters had absolutely no effect on persuading growing numbers of observers that silver wasn’t manipulated. Even more remarkable is that the basic issues haven’t changed over the past eight years.

One thing I am encouraged by in JPMorgan’s breaking of the silence is that it may indicate real change. Prior to now, the CFTC always did the dirty work for the silver manipulators. By publicly denying that a silver manipulation existed in 2004 and 2008, the CFTC automatically protected and coddled the silver manipulators, who didn’t have to answer to anyone. This CFTC cover also protected the silver crooks from civil litigation. The COMEX commercial crooks, including the CME Group, could always hide behind the CFTC’s skirts and proclaim that they were highly regulated and if they were doing anything wrong, the CFTC would say so. If the CFTC protecting the silver crooks didn’t cause your blood to boil, you need new blood.

It is shameful and deplorable that the CFTC has taken no action against the silver manipulators for so long. But one possible advantage to that delay is that it may be forcing JPMorgan to speak out. That’s much better, particularly given how hollow JPM’s words were in their first public defense. Also for silver investors it has given them an enormous price reduction over what the price would otherwise be without JPM. You don’t often get to buy something trading far below its free market price.

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