Monday, May 9, 2011

The Silver Market Manipulation: A Near Death Experience For JP Morgan

By now, we all recognize that last weeks assault on the Silver market was the result of multiple margin increases in the Silver futures contract traded on the CRIMEX in New York, AND NOTHING ELSE.  There was no fundamental reason for a 30% takedown in the price of Silver over the course of "one week".  Silver prices were definetly overbought and due a correction "technically", but what we witnessed last week was far from a "normal technical correction".  No, what we witnessed last week was clearly "market manipulation" on the highest order. 

Warren Bevan, in his Precious Metal Stock Review summarized last weeks fall in Silver prices best, "...
the swift and blatant nature of the move is suspect."

He continues:

I have never seen a commodity falling and still have its margins risen. It may have happened, but I don’t recall ever seeing it.

Normally if the powers that be at the CME think a market is a bit too frothy they may raise margins to reduce speculation. This act just increases the amount of money a trader has to lay down initially in order to trade a contract in said commodity.

Silver has had its margins raised numerous times during this latest run that began in August 2010. Every time we’ve seen a correction. Mostly they’ve been sharp and relatively shallow before moving back into new highs.

This time however, after each correction the CME raised margins again, and again, and again, for a total of five times in only 8 trading days. The last margin increase was announced late in the week and will take effect on Monday May 9th.

If this were a fight, it wouldn’t be fair. It would be like hitting your opponent with a knockout punch. Letting him fall then get to one knee before hitting him with another and another and another. The fight would have been stopped by observers after the first and certainly the second punch. But no such luck when the CME is involved.

You’d get more jail time if you robbed the old lady next door of her piggy bank while she was out of town than if you just robbed wise investors who see the merit in silver of billions of dollars in only a few days.

In the world of ultimate fighting silver has been trying to tap out for the last $10 but the referee/CME is ignoring them putting silver/the fighter in great harm. Although I’m not worried for silver’s sake. Its underlying fundamentals haven’t changed, it’s only gone on a blowout sale, and it’s likely to be very short-lived.

Make your calls and place your orders now. We may see slightly lower prices so perhaps place half your order now and the rest in a few days or a week is best, but this gift is much better than the one you’ll get this coming Christmas as it will keep on giving and giving for years to come.

Who is this CME Group?

CME Group at a Glance
Serving the Risk Management Needs of Customers Around the World
Building on the heritage of CME, CBOT, NYMEX and COMEX, CME Group serves the risk management needs of customers around the globe. We provide the widest range of benchmark futures and options products available on any exchange, covering all major asset classes. Our collective vision is one of ongoing global growth, innovative product development, continually enhanced technology and the highest level of service available on any exchange.

"...serves the risk management needs of customers around the globe."  Unless of course they happen to be
Silver investors and traders!  The CME is not interested in managing the risk of market participants from the general public.  No, they are only interested in covering the asses of the crooks that operate above and beyond the commodity laws of the United States.  And their own asses as well.  Should the CRIMEX member banks default on their obligations in the CME managed futures market, the CME, as the clearing house, would be held liable for CRIMEX member banks losses, and resposnsible for covering them.  In effect, the CRIMEX banks mounting losses over the past month in the Silver market, due to their "illegal" short positions, put the entire CME Group at risk of destruction last week.  The one question that begs to be asked is, "where were the margin increases as prices galloped higher during the month of April"?

Only when the risk of collapse of the CRIMEX became real did the CME react by raising margins in the Silver market [only].  The CME was not protecting Silver futures market "participants" in general, they were solely protecting the likes of JP Morgan and HSBC, the lead criminal bankers on the CRIMEX.  Quite frankly, by protecting JP Morgan, they were protecting the US Federal Reserve.

How real was the risk of a CRIMEX collapse that the CME Group was forced into action to protect JP Morgan, and came out swinging a hammer only Thor could appreciate?  The risk of collapse was very real if you look at what we have learned over the past few months browsing the Internet.

In a post here in this blog on March 22, 2011, IS THAT A SILVER BULL TRAP? I shared the following:

JP Morgan has a vested interest in keeping Silver prices below $36 an ounce. Any substantial rise in price above this point would potentially cost JP Morgan BILLIONS of Dollars, and possibly put the banks solvency at risk. We learned this about JP Morgan last November when Wynter Benton's Friends Of Andrew McGuire were attempting their December delivery assault on the CRIMEX:

"WB: JPM is in worse shape then we ever dared to hope 20-Nov-10 07:06 am

This is what I am now hearing from traders on the floor. These traders are not even sure if Blythe knows the full extent of JPM's silver exposure.

When I first started to realize that JPM has shorted far more silver than they could ever hope to cover, my first question was "why would they do that?" Not only that, why do it with a commodity where you must report your positions through the COT and Bank Participation Report? After all,the whole world can see what you are doing. [my added comment: Ted Butler included!]

Now I know the answer. According to Max Keiser and now a couple of other independent sources, it seems the reasons why first Bear Stearns and now JPM are so desperate to manipulate the price of silver down is due to the fact that BS and JPM shorted billions (yes billions not millions) in ounces of silver through their derivatives.

Just like Joe Conason at AIG, silver shorting through derivatives have caused literally billions in losses not the millions that we know about publicly. That is why JPM has been so desperate to manipulate the price of silver downward so blatantly. If I am right about this, then JPM will be dead when silver hits $60 or so. Based upon the COT and BPR, if silver hits $60, JPM will lose around an additional $6 billion dollars, a large number but not nearly large enough to bring down mighty JPM.

But what is not known is that due to the way that its derivatives are written, JPM's losses are exponentional once silver breaks $36 or so. Rumors has it that JPM could be losing as much as $40 billion once silver is above $50. It has something to do with how the derivatives are written with payment tied to the price of silver.Since JPM was a price manipulator with respectt to the price of silver, JPM assumed that any derivative payments tied to silver would be less than they would be tied to some other index like the CPI or TIPS implied inflation index. JPM's inability to hold down the price of silver relative to other measures of inflation will cause unbelievable losses due to a mismatch in their derivative structures.

In essence,JPM has bet (a huge amount)through derivatives that silver will never outperform inflation. And why not,since JPM assumed that it will always be able to manipulate the price of silver. We have now come to understand that JPM's loss exposure to silver is much greater than we have ever dared to hope.

WB: In an effort to clear up some recent confusion regarding my latest posting, I will try to explain what I have recently uncovered.

JPM's current short silver position is estimated to be approximately 150 million ounces down from the recent 180 million ounces in August. The losses from these positions are easy to figure out. For every $10 rise in the price of silver, JPM will lose $1.5 billion. But what I have recently discovered is that through its derivative positions, JPM will lose about 5 times that amount ounce the price of silver is above $36. And ounce silver is above $45 dollars, JPM's losses will increase to 8 times the amount of losses in their short positions. The reason is that as the price of silver increases, certain provisions get activated which multiplies the losses.One reader asks the question why isnt the price of JPM going down to reflect the lossesd in silver. My answer is that the price of silver is not high enough to begin to trigger losses in their derivative positions. But once silver approaches this critical level say around $36, then you should begin to see the price of JPM stock begin to reflect these losses.

In fact, traders are saying that once the price of silver surpasses the stock price of JPM, then for every dollar the price of silver go up, JPM should lose around 70 cents or so. This means that if silver hits $60, JPM will be a single digit stock.

JPM market cap is around $170 billion. If silver losses are as great as $40 billion in cash , then JPM will be insolvent. Period.

From your former traders (whom you dismissed so callously)"

If this information from November 2010 were accurate, it might be safe to say the JP Morgan AND the CRIMEX were both on the verge of collapse with the price of Silver quickly approaching $50 an ounce on April 25, 2011 when we saw the first of the five margin increases announced by the CME.  Silver prices predictably fell on the announced margin increase, but what shocked JP Morgan and the CME is how quickly prices rebounded back towards $50.  Within 24 hours of the margin increase taking effect, and a $5 an ounce haircut, Silver was back knocking on $50.  At this point the CME decided it was in "their own" best interests to bring their hammer to the party and pound Silver into submission.  Their repeated margin hikes last week saved JP Morgan from default, and prevented the CME Group from being left holding the bag.  These margin hikes of course royally screwed the investing public, but who are we to complain?  JP Morgan was saved!

Does the CME Group have a Code Of Ethics?  You might be shocked to learn that they do.  Of course, what is a Code Of Ethics, if it not enforced or aheared to?

I found these choice headings in the CME Group's Code Of Ethics amusing:

Compliance with Laws, Rules and Regulations
Obeying the law, both in letter and in spirit, and behaving in a manner consistent with CME Group's values is the foundation of CME Group's ethical standards. All directors are expected to conduct their business and affairs in compliance with applicable laws, rules and regulations, and to encourage and promote such behavior for themselves, officers and employees.

Fair Dealing
Each director should deal fairly with CME Group employees, customers, members, shareholders, regulators, competitors and suppliers. No director should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair dealing practice.

Reporting Illegal or Unethical Behavior
Directors should promote ethical behavior and encourage an environment in which CME Group encourages employees to talk to supervisors, managers or other appropriate personnel about illegal or unethical behavior. CME Group has established avenues of communication to enable employees or others to report suspected misconduct, including CME Group's Compliance & Ethics Helpline (1.877.338.4545). No one will be subject to retaliation for a good faith report of suspected misconduct. Directors should communicate any suspected violations of this Code promptly to the Chairman of the Board or the Chairman of the Governance Committee.

Enforcement of the Ethics Code
The Governance Committee of the Board of Directors shall determine appropriate actions to be taken in the event of violations of this Code of Ethics. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to the Code. In determining what action is appropriate in a particular case, the Governance Committee shall take into account all relevant information, including the nature and severity of the violation, whether the violation appears to have been intentional or inadvertent, and whether the individual in question had been advised prior to the violation as to the proper course of action.

Waivers of the Ethics Code
CME Group will waive application of the policies set forth in this Code only where circumstances warrant granting a waiver. Waivers of the Code for Board members may be made only by the Governance Committee of the Board of Directors and will be promptly disclosed as required by law or regulation.

In a blog post on Mrach 9, 2011 JP Morgan Looking To Napalm Silver Market I included an essay by Bix Weir, Silver "Scorched Earth" and The END of Market Manipulation .  In this essay Mr. Weir makes the case that the US Banks that are grossly short Silver on the CRIMEX may have no choice but to continue to short the Silver market to the point at which they, the US Banks, have to bailed out to prevent the collapse of the themselves, the CRIMEX, even the global monetary system:


It is a way to protect themselves from the inevitable default in the COMEX silver market. Clearly a skyrocketing silver price would destroy the US Bank short position. "Too Big To Fail" will have to come into play in both the implementation of position limits as well as potentially deflecting the BLAME onto the CFTC and Dodd-Frank Law for TOO MUCH REGULATION.

They could even try to BLAME the destruction of the global monetary system on those "greedy silver bugs" who only care about themselves!

These US Banks know the silver manipulation game is over as the rest of the investment world has finally come to the understanding that there IS manipulation in the silver markets. On Wall Street when there is blood in the water you can bet the sharks will circle and a feeding frenzy will soon begin.

Although I've never been a fan of this saying we're about to witness why...


I think the US Bank COMEX short will continue to grow such that they will have such a large and dangerous short position in silver that they will either beg for a "Get Out of Jail Free" card or TAKE THE ENTIRE SYSTEM DOWN WITH THEM.


IMPORTANT: I'm not saying that silver investors are out of the woods when it comes to silver market manipulation BUT we are very near a dramatic END GAME for silver manipulation. "THEY" can still place the price of silver anywhere they want and until the computer rigging programs are turned off be prepared for ANYTHING. I have no doubt they have more High Frequency Trading rig jobs left up their sleeves BUT if you are on the sidelines with physical silver, out of their reach, you will be more than fine.

Could we have just witnessed the capitulation of the Silver Market Manipulation that Silver investors have endured for years?  With this obvious bailout of JP Morgan by the CME Group, will we now see the banks that have worked in unison to suppress the price of Silver jump over to the long side and ride Silver to the Moon?  Will global investors, the "smart money", now rush into the Silver market at these sale prices and snap up the remaining Silver confident that this manipulative game at the CRIMEX has at last finally ended?

Only time will tell, but I seriously doubt the CME Group is going to risk their existence further on the games of JP Morgan and their masters at the US Federal Reserve.  It would not surprise me to see, in the very near future, the CFTC finally come forward with new position limits in the precious Metals and energy sectors as a result of what we have witnessed the past week on the CRIMEX.  If in fact JP Morgan has "seen God" at $50 an ounce Silver, will they just stick their hands in their pockets here, lucky to still be alive, and just let the Silver market rocket higher from here?

King World News interviewed John Hathaway of the Tocqueville Gold Fund.
When asked about the smash in the metals Hathaway stated, “I think people go crazy over these price changes and I understand that. I understand how it affects the psyche and all that, but the idea is you have physical (metal), it’s an asset. Whatever it’s valued at one day to another in paper money is irrelevant, you don’t price your house every day.”

When asked about silver specifically Hathaway had this to say, “My instinct is that this was too quick for this to be final. It’s like a haymaker (in silver) and it knocked everyone for a loop. Could it go to $30, could it go to $28? Yeah I suppose so, it could, but it wouldn’t bother me.

The long-term fundamentals for silver are no different at $35 than they were at $45 and what they were at $15. It’s a hard idea to get across, but I think people get too wrapped up in current price action.”

When asked about gold Hathaway remarked, “Well gold has hardly corrected. I thought silver by comparison was very spikey and for it to go to $60, it couldn’t have done it from $45 without doing this first. This is just a correction for gold that may not be over, it may take more doubters. It’s a shakeout, we had this huge run and a lot of investors and traders probably got in too late if they were short-term in their thinking, but that is not the big picture.

The precious metals markets may just chop around for a bit. After that, gold and silver should set new highs. I think people will be amazed at what gold does. Once it (gold) had the last breakout, it did tack on close to $200 in no time flat, I think it will do the same thing again on the next breakout.

You’ll see an advance that nobody gets, nobody anticipates, and it all comes down to the fact that there is a lot of money to go into a very small space. Somebody likened it to trying to put the Hoover Dam through a garden hose. If money wants to move into gold just stand back because who knows how high the price will go.”

The Institutional Gold Rush
By Peter Schiff
The point here is simple: the total investable funds around the world are immense relative to the size of the gold market. It's not hard to perceive what a simple move from 1% to 5% of the average institutional portfolio would do to the price of gold, and this why the University of Texas' bullion delivery is so important - it's a vivid indication that such a move is now taking place.

Gold remains widely neglected among the big-money players, but it's clear that they're beginning to come to terms with the US dollar's terrible prospects. After all, while fund managers don't want to veer from the herd, they also don't want to follow the herd off a cliff.

The University of Texas, with its billion-dollar stash of physical gold, is one institution that has finally seen the cliff. The physical delivery of this purchase exemplifies the severity of the threat that UT's endowment board perceives.

The average investor should recognize that there is little time left to purchase precious metals before substantial new demand drives the price of gold higher. A very small percentage change in large institutional investment is all that's required for massive gold price increases.

I believe we are on the cusp of a smart-money gold rush. It will drive gold to a record in real terms, even before retail investors join in. Though you may have missed the last decade of gains, there is still a chance to buy in before the stampede.

Hong Kong Mercantile Exchange's 1 Kilo Gold Contract To End Comex Gold Futures Trading (And "Bang The Close") Monopoly
By Zero Hedge
One wonders how many short positions current Comex board members have on now. Yet by dint of being a monopoly, the Comex had and has free reign to do as it pleases: after all, where can futures investors go? Nowhere... at least until now. In precisely 9 days, on May 18, the Hong Kong Mercantile exchange will finally offer an alternative to the Comex and its alleged attempts at perpetual precious metals manipulation.

The next "dip" in Silver prices may be your last chance to buy at these remarkable sale prices:

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