In Ted Butler's Archive

A Show Stopper

For all those who watched the historic CFTC meeting December 16th on position limits, no, your eyes didn’t deceive you – the meeting ended strangely and abruptly. No vote was taken on the staff’s proposal and you should be scratching your head at what actually transpired. As strange as the sudden adjournment to the most important meeting in CFTC history might be, there was a wealth of knowledge and confirmation to be drawn from it. This meeting was perhaps the most significant and positive development towards ending the long-term silver manipulation that I have witnessed in my 25 year involvement. Silver investors should come away from this meeting with a strong conviction of how things will turn out.

I know there are deep differences between the five commissioners on the matter of position limits, even though such limits are now mandated by law. I know that the CME Group (COMEX and NYMEX) is pulling out all stops to prevent, delay and water down any position limits that may be enacted. But I also know that there is one glaring truth that accounts for the dissention and turmoil revealed at the meeting. This is all about silver and its manipulation. If it weren’t for silver, this meeting and the issue of position limits would be a non-event. There is no current concentration problem in any other commodity.

Because of the fact that silver has been manipulated in price and position limits would terminate that manipulation, the CME and JPMorgan want to derail any move towards these limits. Keep this fact in mind, as it is the central issue. When it comes to market regulation and silver the CME Group does not do the right thing. They are only interested in their bottom line and the devil with everyone else. However, the CME is designated as a self-regulatory organization by law, which means they have special responsibilities as a front line defense against market wrongdoing.

This is an issue in which the public has spoken loud and clear and it is downright un-American to solicit public opinion and then to ignore that opinion. My sense is that the CFTC is trying to be as accommodative to the CME exchange as possible, in order to ease the way into new position limits, as required by law. Instead, the CME turned increasingly hostile to any change in position limits. My advice to the CFTC is to stop trying to reason with the CME and take the proper measures to end the silver crime in progress.

Commissioner Bart Chilton, much to his credit, made a number of recent statements that gave me great encouragement. He has confirmed that a single entity controlled 35% to 40% of the short side of COMEX silver earlier this year. (He didn’t identify JPMorgan as the entity, because he is precluded by law from doing so.) Chilton also indicated that he thought a 1500 contract limit for silver to be reasonable.

But it was something that Chilton said in a speech two days before the meeting that rocked me. In essence, Chilton proposed that any time a trader hits the proposed position limit and is holding a hedge exemption from position limits the agency would closely review the details of the underlying swaps that allowed the exemption. Importantly, Chairman Gensler ratified Chilton’s approach at the hearing and directed the staff to initiate this approach immediately. The chairman’s exact words were, “Make it so.”

Why was I rocked? Because I thought the agency was already doing this. Then it dawned on me that verifying whether the OTC swaps position that allowed JPMorgan to hold the obscenely concentrated COMEX short position was handled by the CME as part of their role as a SRO (self-regulatory organization). The CFTC never got to examine the details of what swaps justified JPMorgan’s concentrated silver short position, just the CME. In an instant, I knew how the silver scam was allowed to continue this long. The exchange decided what OTC swaps were legitimate, not the CFTC. But with Chilton’s Position Points approach, it would now be the agency doing the verification. Talk about a game changer.

I have to speculate on what I think the CFTC will find when they examine JPMorgan’s swap book. Mine is not a new speculation, but one I had written about before in many article, starting more than 7 years ago. When the CFTC opens JPMorgan’s swap book, I believe they will find it littered with Chinese names. Here’s an article from a year ago that also contains links to earlier articles on this theme

JPMorgan must have some reason to justify the big concentrated COMEX silver short position. If they claim that they are long silver OTC swap positions as an offset to their COMEX short position, it becomes critical that the CFTC inquire who is holding the short side of the OTC silver swaps. My belief is that it will be Chinese interests on the short side of the swap. Such a finding will lead the CFTC to conclude that it is really China holding the concentrated silver short position and they are using JPMorgan and the CME Group as their dupes to carry out the silver manipulation. This wouldn’t absolve JPMorgan or the CME for enabling China to manipulate silver, but actually make it worse. A foreign super power and clear rival to US national interests being aided and abetted in the serious market crime of manipulation in the price of a vital world commodity by leading US financial firms is almost too outrageous to contemplate. Yet that is exactly what I think has occurred.

I did not pick interests in China out of the thin air. As the largest producer of silver in the world (mining plus refining), it would sound plausible for them to be short (but never to the extent it has reached on their surrogate COMEX position held by JPM). More importantly, rogue traders from China have had a regular habit of betting on the short side of world commodities that their country consumes with a ravenous appetite, although that would not appear to make sense. Two examples that come to mind are disastrous bets on the short side of oil and copper five or six years ago.

It made no sense for Chinese traders to have bet the short side big in oil or copper. Yet it happened. Just because it makes no sense for someone from China to have bet big on the short side of silver doesn’t mean it couldn’t happen. Let’s face it – someone is and has been short on silver, all the way up from the single digits. It will go down as the single dumbest trade in history when all is said and done, taking the title away from Barrick Gold and Anglo Ashanti for their dumb short gold trades.

If my premise is correct, not only has the CME looked the other way when examining the offsetting OTC swaps of JPMorgan, it means that they also looked the other way when Bear Stearns held the big concentrated COMEX silver short position and AIG Trading before them. In other words, the CME got into a long term habit of looking the other way. It also explains why they are so opposed to any legitimate reform of the concentrated silver short position. What makes manipulation the most serious market crime possible is because it distorts the law of supply and demand and misallocates capital resources. Were it not for the long-term silver manipulation and the distortion of the price, we would not be on the verge of a physical shortage.

This article was released to subscribers on December 17.

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