In Ted Butler's Archive

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Here is Ted Butler’s most recent letter to the CFTC:

June 17, 2002

The Honorable James E. Newsome
Commodity Futures Trading Commission VIA FAX and E-MAIL
Three Lafayette Centre
1155 21st Street, NW
Washington DC 20581

Dear Chairman Newsome;

It is hard to believe, but the manipulation by the COMEX insider silver shorts grows more extreme each week. It is obvious that they will not stop their illegal activities until you make them stop.

Your Commitment of Traders Report of June 14, 2002, for positions held as of June 11, 2002, indicates a one-week increase of 18 million ounces in the net short position in the 4 or less traders’ category, to over 266 million ounces, another all-time record. The 8 or less traders’ category is now over 350 million ounces net short, also a deplorable record. This increase in net short positions, particularly pronounced in the most concentrated category, came despite a decline of almost 25 cents per ounce in the price of silver in the reporting period. Clearly, these insider crooks are now selling short more silver, regardless of price, with the only possible intent being to cause a price decline.

The net short position of the 4 or less traders is now over 100 million ounces larger, or more than 60% greater, than when I first started writing to you about this problem in February of this year. How large must this illegal short position have to get before the Commission ends this scam and levels the playing field?

Respectfully yours,

Ted Butler

Mr. Butler’s current take on the silver market:

As the attached new letter to Chairman Newsome of the CFTC indicates, the very few commercial traders on the COMEX markedly increased their net short position according to the latest Commitment of Traders Report (COT). And they did it on declining prices, which is very unusual. Another unusual aspect of this week’s report was that the overall net short position in the commercial category actually decreased, by about 3500 contracts (17.5 million ounces), while the concentrated net short position of the four or less largest traders increased by a similar amount. In many years of studying the COT, I have never witnessed such a large disparity between the total net commercial change and that of the four or less largest traders. What do I think this means?

I think it means that the four or less traders (or maybe just the one or two largest short traders, in actuality) are becoming more concentrated and isolated. I think in the past, the largest trader (or traders) acted as sort of a “ringleader” for the other dealers, who followed and mimicked the leader’s trades. After all, as I have written about extensively, the day to day price movements in silver (and most commodities) are a result of the “games” played between the dealers and the technical hedge funds. Everyone who follows the markets (including and especially the dealer community) knows that the technical funds buy and sell at predetermined and identifiable price points. It is easy and profitable for the dealers to fade the funds, and they have been picking the funds’ pockets for many years. (As a separate issue, I contend that this trading activity is also illegal, on the part of both the funds and dealers, as commodity law says clearly that speculators should not determine prices, only real producers and consumers should.)

But this last COT indicates that the dealer community may not be so homogenous, with all the dealers dovetailing the leader. If that’s true, I think it may be because the other dealers can read and comprehend the shockingly bullish story on silver, and may be growing reluctant to play follow the leader and skin the funds when it requires a big short position. This would represent a sea-change.

Let me be clear – we are at a very critical junction in the silver market. The technical funds, who are long to the max, may still be forced to liquidate on the downside. The concentrated dealers are trying to force such lower prices on a daily basis. I don’t know if they will succeed, but you must plan on that eventuality and the prospect of lower silver prices temporarily. On the other hand, some commercial shorts may be abandoning the short side, like rats deserting a sinking ship, and if that continues, all you’ll have to do is hold on to your silver and go fishing.

One last update to an item I mentioned in my last commentary – the buying of silver (and gold) by the Central Fund of Canada. It seemed there was an expected long delay (months) before the actual silver was to be delivered to the Fund’s vaults in Canada. But since I last wrote about this, there was unusual silver trading and delivery activity on the COMEX. Someone bought a chunk of silver similar in size to the Fund’s stated purchase amount (four million ounces) for immediate delivery. What made the transaction notable was the fact it was done in a month not normally traded (June) for such quantities, indicating urgency. It will be interesting to see if this delivered silver is moved out of the COMEX warehouses. If it is, that would seem to confirm the transaction was for the Fund. In that event, it would tell me that, for the first time I recall, that the COMEX warehouses may be the supplier of last resort for unexpected silver demand. While this is speculation on my part, it would be wildly bullish. Maybe the commercials shorts who don’t appear to want to tag along with the lead big short, sense this also.


By James R. Cook

From a macro economic standpoint, (the big picture), no country has been able to maintain the value of its paper currency. In virtually all examples, unbacked paper money eventually becomes worthless. When a country expands money and credit aggressively (the U.S.A.), only two things can happen. If the monetary expansion persists, there will be hyperinflation. If expansion ends, there will be depression. No other outcome is possible after a long period of inflating.

Much of the new money in the U.S. has gone overseas to buy goods. Foreigners hold around $10 trillion in American paper. This mind-boggling sum is of such a magnitude that a slight amount of slippage in the dollar can quickly turn into a nightmare. The monetary authorities are surely working behind the scenes to prop up the dollar, but when you’re talking in trillions, only a slight shift in sentiment can collapse the currency.

If the dollar goes south so does the stock market and vice versa. It’s foreign selling of U.S. stocks that help depress the dollar. A falling stock market promises to petrify the consumer. Foreign goods will rise in price and ignite inflation. A frightened consumer that stops spending and starts saving will kill any hope of a profits renaissance. Capital spending can falter further and the economy stagnate. Monstrous amounts of consumer and corporate debt now threaten to roll over into delinquency. That means a soft housing market as consumers concentrate on making mortgage payments to hang on to their homes. The piper must be paid. Unfortunately, the weight of second mortgages and refinancings threatens to spoil the dream.

The stock market senses a proximity to the abyss. Foreigners see that Americans are blind to the dark realities of contraction. The nation careens down a path of lavish living, heedless to the consequences of credit addiction. At this moment we sail between Scylla and Charybdis but unlike Ulysses, we are not lashed to the mast, but reveling in wine and song. The dark rocks beckon and the whirlpool looms large.

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