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Post: #1
JPM and Silver Futures
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As a retired professional commodities trader with a thiry-seven year history of trading and managing trading accounts, I have followed with interest the unfolding drama surrounding JPM and the public outcry relative to their alleged manipulation of the silver futures market (COMEX).
Please be advised that I am speaking as an individual and have no personal or professional relationships, or contacts, with anyone from JPM, or any of their clients.
Personally, I have no evidence about JPM's guilt or innocence. However, in my opinion, I seriously doubt there is manipulation on their part. There is a strong possibility that the hedges in question (25% of open interest) are completely legitimate. If JPM wanted to capitalize on the silver market through manipulation, they could do so much more effectively by pushing the market up and creating a bubble, as per 1980-81.
First of all, silver is a poor hedge against inflation for most small investors because of the volume of metal one must acquire. This is especially true in the emerging markets where few people own safes. It is very heavy and difficult to hide in your closet, or under your mattress. Ever try carrying eight or ten (100 oz.) silver bars in five- gallon buckets from the coin shop to your car in downtown Chicago...I have. I had to go into traction the next day. Transporting the stuff on an airliner is out of the question. You need a commercial safe to store the stuff...gun safes are a joke.
Secondly, silver and copper are mined from the same ore. When copper prices are high, the sale of the copper component will cover the cost of production (dollars per ton of ore removed). The mining companies may or may not hedge the stored silver... most do. As the price of copper drops below the cost of production and additional revenues are needed to create a steady cash flow, silver may be sold at that time and the hedges lifted. The hedges are often in the back months, so the net effect from buying the paper hedges and selling cash silver puts pressure on the front month's futures, affecting the spot market (down) and the back contracts (up).
If the hedges are spread out over time and the silver is delivered against expiring contracts, then the back months are not necessarily affected that much.
What we have to worry about is the practice of large brokerage firms using the futures market to profit from previously sold derivatives.
Example: Writing tons of call options and then pushing the market down.
Thirdly, no one really knows how much physical silver exists throughout the world. The big question mark is Russia. During the Cold War, Russia was the largest producer (not the largest exporter) of gold, oil, cotton, industrial diamonds, industrial metals, etc. Their silver and gold reserves remain a mystery. Russia has a long history of using secret accounts with Wall St. firms. This practice may be continuing today.[/b]
I was surprised, as was Ted Butler, that Blythe Masters of JPM would make a pubic statement defending her firm's silver position after four years of silence. The timing of this appearance on CNBC has significance, in my opinion.
I think the silver market is about to take a significant hit, along with gold and the stock market. In my opinion, JPM is worried about the public outcry that will follow should the silver market experience significant selling. JPM is in fact defending itself before the event. This could be the greatest free trading tip that Wall St. has ever given the public. Be thankful...it doesn't happen often.
If silver prices were about to explode to new highs, as some have suggested, JPM would be redeemed. I believe the analysts at JPM are shart enough to fully understand the dynamics of the silver market and are afraid of being falsely accused when the silver market crashes.
My own technical work on the silver charts does not indicate a bull market is coming...in fact, just the opposite. When you consider that the bull market in gold has exceded its 1980-81 high by more than 100% and continues to trade over a period of months at, or near, that level (not a spike caused by short-covering), and silver has yet to exceed its 1980-81 high of $55...well, this is not a bull market scenario.
Silver's recent high of $49.00 was a short-covring rally that was unsustainable. It was a warning. Keep in mind that the demand for silver has been affected significantly by the photography industry, which began using digital cameras after the 1980-81 bull market in silver.
The electronics industry prefers gold-plated circuit board connectors over silver because silver will corrode and needs constant cleaning. Ditto copper.
Speaking of other metals, has anyone placed much significance on the relative value of platinum to gold. The last time I looked, gold was selling at a premium to platinum...not a good sign. It indicates weak industrial demand and could be signaling trouble for the stock market and the metals markets.
In closing, I would like to bring everyone's attention to the fact that the evaporation of wealth that occured during the 2000-02 dot.com crash and the crash of 2007-09, was in excess of $100 trillion. Nobody knows the exact amount. We will probably never know. Add to that evaporation the losses of wealth in Europe and other industrial economies that trade with the US and Europe.
The global economic machine was on the brink of a melt-down in 2008, when Congress passed the first bail-out bill, and signed by GWB. The world was on the brink. Fast forward to the present, a mere three and one-half years later and now we are suddenly in an inflationary spiral...this is nonsense. The bail-out packages passed by Congress and signed by both GWB and Obama amount to only a small fraction of the total wealth that was destroyed...perhaps 10% at best.
The bail-out packages amounted to nothing more than a band-aid. No economic growth has resulted. We had our sugar "high" and now we need some real protien.
Our national blood sugar is dropping precipitously. We need real food. Without real economic growth, our nations wealth (held in residential, commercial, institutional and industrial real estate) will continue to decline.
There is no doubt that the US Dollar will someday be replaced by the Chinese Yuan as the new reserve currency of choice. To understand the ramifications of that event, simply study the British economy after the US Dollar replaced the Br. Pound as the world's reserve currency. Effectively, we have three reserve currencies now, the Dollar being the strongest.
Note: I will post later on the subject of our federal debt and its future effect on the Dollar.
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