Will JPMorgan Now Make and Take 'Delivery' of Its Own Silver Shorts? [View article]
You are incorrect. If metal is not allocated to you by title, you usually give the facility the right to use whatever you may think is yours for its own business purposes. That is the nature of a unallocated "storage" agreement.
You really need to read my article on London storage schemes, and download the sample contract, written by the banks that do unallocated storage. Your comments concern me, as they indicate that you may have become involved in one of these schemes without understanding what you are involved in. If you read the fine print, you'll find that you are NOT a secured creditor. You cannot be, because having a "security interest" requires that the property always be in the possession of the facility. Make sure you CAREFULLY read any contract you sign.
If you are involved with an unallocated storage agreement, if the company goes belly-up, you will have NOTHING but a share of the defaulting debtor's general assets. You are nothing but an unsecured creditor. If unsecured creditors get anything, which in most cases they won't, you will get the same payment as they do. What you think is your metal is really the general property of the institution involved, and becomes the property of a receiver or the trustee in bankruptcy.
The FDIC is irrelevant. It is an entity that guarantees U.S. banking deposits. Unallocated storage contracts are governed by the terms of the contract.
Did the ECB Save COMEX from Gold Default? [View article]
Kohalakid,
Obviously, you have no knowledge, whatsoever, of the rules that govern the markets in the United States, or anywhere else. Before we get more deeply into that, let me point out what 17 CFR 31.8 says, and leave it at that.
"...(a)(1) Each leverage transaction merchant must at all times maintain cover of at least 90 percent of the amount of physical commodities subject to open long leverage contracts entered into with leverage customers, and must at all times also maintain cover of at least 90 percent of the amount of physical commodities subject to open short leverage contracts entered into with leverage customers..."
Vault audits would tell us whether the alleged paper "cover" that is presented to the CFTC, and which is never questioned by them, to my knowledge, is actually valid. Most COMEX dealers are probably presenting OTC derivatives contracts to claim that they have the required "cover", and are not naked shorts.
However, the veracity of those paper OTC contracts are in question, if big banks like Deutsche Bank, are forced to go "hat in hand" to a sovereign gold vault, like the ECB, to get enough gold (8500 contracts worth) to deliver on their obligations at COMEX.
Vault audits are necessary, at this point, in order to determine the truth or falsity of the claim to possession of real metal. If OTC contracts are just supported by other OTC contracts, which, in turn, are supported by yet other paper contracts, and so on and so forth, ad infinitum, then the whole game is a fraud. In that event, the gold conspiracy theorists, from Ted Butler to Jim Sinclair, are telling us the truth. On the other hand, if the underlying metal really does exist, the conspiracy theorists are wrong, and everyone can feel much more comfortable in the quiet knowledge that our markets are honest and true.
Keep in mind that it is not the individual investor who sells a "naked" short. It is his broker/dealer, and his broker/dealer's clearing broker, who end up doing that. Many of the broker/dealers and certainly the people on the bottom of the totem poll, like you, me, the line brokers and so on, are simply honestly relying upon paper promises. But, if the underlying metal doesn't exist, then, someone, probably the biggest players, at the highest levels, are committing fraud.
The recent sale of such a suspicious amount of gold into the market, just at the moment of Deutsche Bank's need, justifies a full investigation of the gold market, either to help assure us that it is clean or to help start the cleansing process.
Will JPMorgan Now Make and Take 'Delivery' of Its Own Silver Shorts? [View article]
No. That is not accurate. We have no idea why JPM or NYMEX/COMEX did what they did. It is possible that the bank and the exchange are innocent of any wrongful intent. The process followed, however, combined with the surrounding circumstances, gives an appearance of impropriety.
Capitalizing on the Rise in Silver Prices [View article]
The difference, I think, between then and now, is the fact that, today, prices are being driven by true worldwide demand, both from industry and investors. Back in 1980, demand was centered around the futures markets in America, with the Hunt family taking on incredible leverage in order to pressure short sellers. Once the exchange declared that there would be "liquidation only" allowed, the market collapsed. The Hunts were one family without sufficient cash assets to continue their manipulation without the help of leverage. A sudden return to reality collapsed silver prices. The key is that, back then, the fantasy casino was being played long. This time, the fantasy is on the short side, and reality is on the long side. Millions of real world silver buyers cannot be stopped from buying silver by any action of the COMEX or LBMA.
We have evidence that short-side manipulation has gone on for several years. Because the scheme was revealed at the March 25, 2010 CFTC hearing, this short side manipulation is now in the process of unwinding. If the futures exchanges were to declare "liquidation only", under these circumstances, the spot price for silver will go nuclear rather than collapse. That is because the primary demand is in the real world, not the futures markets.
In addition, back then, although the long side manipulation profoundly affected silver prices worldwide, its genesis was at the U.S. futures markets. Now, according to the testimony, the nexus appears to be the LBMA member banks. COMEX appears to be a important sideshow, but little more. LBMA is a much larger market and the unwinding upward will be much larger in scope and effect than the unwinding downward was, back in 1980.
Will JPMorgan Now Make and Take 'Delivery' of Its Own Silver Shorts? [View article]
Brinks went through all the bells and whistles, including a fully transparent inspection and evaluation of its vault security, as every facility should. Secretiveness and overnight approval is not the normal method of licensing at NYMEX/COMEX.
Time to Get Precious Metals Out of Storage in London? [View article]
Actually, you are not familiar with history. When the U.S. currency was gold-based, you COULD exchange every $20.67 for exactly one fine ounce of gold. That was the law.
Indeed, until 1914, when the doors of the Federal Reserve were opened, each $20.67 dollars were physically backed on a one to one ratio by one ounce of gold. The Federal Reserve, unfortunately, was allowed 40% of the number of ounces of gold needed to back the total number of dollars created. It was alleged that Americans had never and would never demand conversion in amounts greater than that.
Between 1914 and 1933, the Fed created 2.5 times the number of dollars as they had ounces of gold to back them up. During the Great Depression of the early 1930s, people began to lose faith in the dollar. They arrived at banks in large numbers, demanding conversion of dollars into gold, as was their legal right under then-existing U.S. law.
At first, in a panic attack, the Fed started to try to withdraw dollars by selling its U.S. Treasuries into the market. In a very short time, the total money supply was reduced by 1/3rd, which Ben Bernanke claims is one of the reasons the Great Depression became so severe.
In spite of the Fed attempting to reduce the number of dollars, there was still not enough gold to meet the legal demand for conversion of dollars into gold. The United States Treasury was soon depleted. Facing this and the contracted money supply that his advisors were claiming (like Bernanke does today) was leading to a more severe downturn, President Franklin Roosevelt issued his infamous Presidential Order of 1933, unconstitutionally seizing private gold bullion stocks all over the United States.
Subsequently, with the dollar revalued for purposes of foreign conversion to one ounce of gold for every $35, and U.S. citizens legally barred from owning gold bullion, the Fed began to expand the money supply back up again. The bottom line of this historical discussion is that the United States of America, itself, was forced into a default because it tried to maintain a 2.5 to 1 ratio of vault air to gold. It violated its own laws, and its legal promise of convertibility, as well as its own Constitution. The issue of Constitutionality was never resolved, because, as a practical matter, the order was never physically enforced.
But, if the U.S. government defaulted on its promise of conversion, how likely do you think the bullion banks are to default? They appear to be maintaining a 100 to 1 ratio...
We'll stick to our guns on this one. Any person who has precious metals in unallocated storage, should get it out, and place it into allocated storage in a reliable independent facility that has no history of misleading customers. Any financial institution, industrial user or other entity of sufficient size should also withdraw precious metals from unallocated storage, and should act to create appropriate in-house vaulting. This should be done immediately, if not sooner, and before it is too late.
Will JPMorgan Now Make and Take 'Delivery' of Its Own Silver Shorts? [View article]
The most credible source is the LPMCL. That entity, which establishes the standard for London's unallocated storage scheme, overtly states that such customers are UNSECURED creditors. If you reread my previous article, you will find the hyperlink to take you there. Good luck.
Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval [View article]
bgoud007,
Anyone with common sense knows that, since BAC counter-parties are already demanding billions of dollars in collateral from BAC, leading to this move, simply because the credit rating of Merrill and the holding company have been reduced by one notch, the total potential net obligation, arising out of a potential major contingency trigger, must involve hundreds of billions or even trillions of dollars. But, excuse me, for mistaking you for a person who has any common sense.
Fed Minutes: We Have Not Yet Even Begun to Print! [View article]
Matt, it is rather clear that you "don't get it". In fact, it is clear that you have no background in economic history. Everything that is being done now has been done before. It did stop the depression back then, but it ended in hyperinflation. The same is going to happen this time around.
It is unfortunate that our educational system creates persons, like Bernanke, who are so narrowly educated, and focused on only one event. America's economic leadership is narrowly focused on the Great Depression. They do not see what I, and other men with a broader education can clearly see.
This era has the most in common with 1919 Germany, not the Great Depression era in America. In fact, the name that the American economists, including Bernanke, have given it, is not the name given to the Great Depression era, in the 1930s. American economists are calling our present situation the "Credit Crunch". They are doing this, while being blissfully unaware that German economists called the post WWI depression, in 1918 by the exact same name.
The Empire Strikes Back Against the Silver Price Rebellion [View article]
We thought that this fact was understood. Silver prices are going to be very volatile. And, prices may swoon for a while. In fact, we think that a swoon is about to happen. In between the time this article was written, early Friday morning, and then submitted to SeekingAlpha's editorial staff who approved it for publication, the prediction has proven correct. The price dropped considerably on Friday. That is why trading silver can be exciting to those that enjoy the adrenaline rush, and why it is a high risk proposition to do so.
In the long run, however, with market knowledge of the 100 to 1, or 50 to 1, or whatever the huge ratio is between fictional stored silver and real silver in the vaults, the bullion banks, their associated hedge funds and shadow market entities are going to have hell to pay. A very rough time for them is ahead, because they are going to need to deal, for the first time, with large purchases from extremely well capitalized people, who refuse so-called unallocated "storage" and, instead, make demand for delivery.
Therefore, in the medium and long term, the price of silver will probably keep rising. We don't believe the price is being primarily given, anymore, by liquidity in the financial markets, but by this battle royal, which is why we believe that, after a few days of reacting to a general selloff of risk assets that might happen once QE-2 ends, silver prices will continue to rise. But, then, given that the selloff event is so widely expected, it may not happen at all.
Will JPMorgan Now Make and Take 'Delivery' of Its Own Silver Shorts? [View article]
We should also note that, if CME has a legitimate reason to give favored treatment to JPM, they should announce it openly and transparently. Instead, they withheld essential addenda details about the vault, and approved it virtually "overnight". The addenda are essential to third parties in order to evaluate whether or not to utilize the vault. Logical people will see a high probability that it is not meant for third parties at all, but, rather, for the use of JPM and its related entities. Once we deduce this, we then wonder why licensing was needed at all, let alone expedited licensing?
Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval [View article]
The FDIC is on the hook because, if a contingency occurred that triggered a large derivatives obligation, it could cause the deposit-taking division of the bank to become insolvent, which would then need to be closed, and trigger tens or hundreds of billions worth of FDIC payouts to depositors. In the article, it is clearly pointed out that JPM and other banks are doing the same thing. It is a serious mistake to allow any of them, including JPM, to house derivative bets inside an FDIC insured depository bank.
No BAC-hating here. The article merely uses this incident to point out that the Federal Reserve feels free to violate its own governing laws whenever it sees fit, and no one, not even the staunch opposition of the FDIC, is able to stop it. Congress has foolishly given a bank-controlled entity omnipotent powers to void its own rules at any time convenient to the banks.
I am addressing the issue of the Federal Reserve, NOT Bank of America. BAC is the momentary focus at hand, but the problem is the Federal Reserve's structural inability to act as a responsible regulator. But, one more thing...something you apparently are unaware of...derivative obligations have special status in bankruptcy and insolvency proceedings.
For example, the Bankruptcy Code contains “safe harbor” provisions which protect the rights of a counter party to a derivative contract to seize collateral (which might otherwise be used to reimburse the FDIC for paying depositor claims). There is also protection for derivatives counter parties from the operation of the bankruptcy automatic stay, the executory contract provisions and the normal avoiding powers of the trustee. Normally, these powers would protect the rights of the FDIC to preserve collateral to repay taxpayers for payments made to depositors. The safe harbors apply to “credit swaps”, “interest rate swaps" and most other derivative obligations.
The Empire Strikes Back Against the Silver Price Rebellion [View article]
Your broker may give you 2 days. Not all do. One of the largest futures brokerage houses in the world gives exactly 1 hour for customers to cover, which is not even long enough to wire in money. We personally know someone who had an issue with the 1 hour requirement. He asked politely for a change in the terms as a condition of opening a new account. His request was refused. But, frankly, we believe that most of the liquidations on Monday and Tuesday were obtained by triggering known stop loss order points, not margin calls. To the extent that we emphasized the margin calls, we humbly apologize.
Perhaps, you can justify the reason why existing long buyers must put up more collateral when the price of silver rises? They obviously do not put the exchange at great risk of default, since their purchase price is fixed by the original cost of the futures contract. The only people who should be subject to higher performance bonds are new buyers and all short sellers.
But, your comment raises some interest questions. Since you claim to be an expert on the mechanics of New York based futures exchanges, I am sure you will be able to explain why margin requirements were raised on gold and silver in the early Autumn of 2008, even as the price of gold was stagnant or falling? Additionally, we would like some explanation given regarding shenanigans committed at NYMEX in the palladium market in year 2000. A shortage of palladium, back then, left short selling clearing members who had sold palldium near to a default. On August 11, 2000, the NYMEX performance bond committee raised palladium bond requirements far above the purchase price that most long buyers paid for their contracts? Obviously, no long buyer could possibly default so long as the buyer puts up 100% of the purchase price. Frankly, it still astounds us is that NYMEX and its committee members did not face RICO charges over that incident. We now have written documentation from NYMEX that this palladium event really happened.
We have used some creative license in our prose to make the silver story more interesting. However, the history of performance bond changes at the futures exchanges, in New York, give a strong appearance that the system is being gamed by a few politically powerful firms, rather than a real need to protect the exchange from default. Our Star Wars analogies seem appropriate, given the history of silver prices, its over-concentrated short position, the 100 to 1 ratio of unallocated silver to stored silver in London, and the history of having so many dedicated advocates and long term antagonists.
This piece was intended as presenting some thoughts on a speculative trade. It was never intended as a primer on investing strategy. A very limited part of anyone's portfolio, in relation to overall wealth, can be devoted to speculative trades. The risk of being wiped out is too high to devote a large part of your portfolio to this type of activity. Remember, your family must eat, regardless of whether you win or lose in the market.
A long term "core" position is very different. Long term, you may choose to hold stocks, bonds, metals, and so on. You've determined that the long term positions are worth sticking to for a very long time, regardless of whether they move up and down a bit, while you are holding them. Income can be generated from long term holdings in the form of dividends, and/or by selling covered calls at appropriate times.
In contrast, speculative trades are short-term ones that have a reasonable likelihood of resulting in a spectacular gain. You take a big chance, and are willing to lose the value of the entire investment in exchange for the prospect of a big gain. You should not bet any more money than you can afford to lose on speculative trades.
Acting on the opinion that silver was going to soar, back in March, and, now, acting on the opinion that silver is about to go down substantially, are both examples of speculative trades.
The Fed Makes Sure U.S. Dollar Collapses With The Eurozone [View article]
Mr. Kramer, actually, history teaches just the opposite. During the 1870s so-called "depression", for example, there were a lot of bank failures and deflation, because we were on the strict 1 for 1 banknote to gold specie standard. Yet, the American standard of living, between 1870 and 1893 increased at a fastest rate in history. Mark Twain coined the term "the gilded age".
During the "gilded age" real wages, wealth, GDP, and capital formation all increased by leaps and bounds. Between 1865 and 1898, the output of wheat increased by 256%, corn by 222%, coal by 800% and miles of railway track by 567%. Protein intake, home sizes, life span, as well as the possession of goods indicate that the American standard of living was increasing very fast during that deflationary period in which people actually did, literally, kept their money in bags of gold, and "in the mattress".
The reason for the increased wealth was that money only left mattresses for good reason. If there was a valuable business opportunity, people invested in it. They didn't invest in every stupid scheme concocted by a broker or brokerage house, as they do today. There was no Federal Reserve to redirect wealth from productive hard working people in real trades and industry, to financial speculators.
Beyond that, fundamental issues of liberty are implicated when you imply that a central bank should be allowed to force people into releasing money they want to "hide" in "mattresses". If that is what they choose to do, our Constitution requires that they be allowed to do it, without an unlawful seizure by the government. The intentional seizure of "mattress money" by an unelected Federal Reserve is taxation without representation. That is what the American Revolution was all about, and the reason this nation broke away from the British King. If there is to be a tax on idle funds, it must be passed by the People's elected representatives in Congress, not by an unelected American equivalent of the Soviet Politburo.
In reality, few if any Americans still stuff mattresses full of money. That is a third-world and former Communist nation phenomenon. In America, ultra-prudent people tend to deposit their money in FDIC insured bank savings, and into corporate and government bonds. With the exception of the money put into government bonds (which is often wasted by excessive entitlement programs and pork projects) this money is NOT idle. It fuels loans to American business and industry. By debasing the dollar, and transferring its value to financial speculators, the Federal Reserve is stealing under color of law.
Will JPMorgan Now Make and Take 'Delivery' of Its Own Silver Shorts? [View article]
You really need to read my article on London storage schemes, and download the sample contract, written by the banks that do unallocated storage. Your comments concern me, as they indicate that you may have become involved in one of these schemes without understanding what you are involved in. If you read the fine print, you'll find that you are NOT a secured creditor. You cannot be, because having a "security interest" requires that the property always be in the possession of the facility. Make sure you CAREFULLY read any contract you sign.
If you are involved with an unallocated storage agreement, if the company goes belly-up, you will have NOTHING but a share of the defaulting debtor's general assets. You are nothing but an unsecured creditor. If unsecured creditors get anything, which in most cases they won't, you will get the same payment as they do. What you think is your metal is really the general property of the institution involved, and becomes the property of a receiver or the trustee in bankruptcy.
The FDIC is irrelevant. It is an entity that guarantees U.S. banking deposits. Unallocated storage contracts are governed by the terms of the contract.
Did the ECB Save COMEX from Gold Default? [View article]
Obviously, you have no knowledge, whatsoever, of the rules that govern the markets in the United States, or anywhere else. Before we get more deeply into that, let me point out what 17 CFR 31.8 says, and leave it at that.
"...(a)(1) Each leverage transaction merchant must at all times maintain cover of at least 90 percent of the amount of physical commodities subject to open long leverage contracts entered into with leverage customers, and must at all times also maintain cover of at least 90 percent of the amount of physical commodities subject to open short leverage contracts entered into with leverage customers..."
Vault audits would tell us whether the alleged paper "cover" that is presented to the CFTC, and which is never questioned by them, to my knowledge, is actually valid. Most COMEX dealers are probably presenting OTC derivatives contracts to claim that they have the required "cover", and are not naked shorts.
However, the veracity of those paper OTC contracts are in question, if big banks like Deutsche Bank, are forced to go "hat in hand" to a sovereign gold vault, like the ECB, to get enough gold (8500 contracts worth) to deliver on their obligations at COMEX.
Vault audits are necessary, at this point, in order to determine the truth or falsity of the claim to possession of real metal. If OTC contracts are just supported by other OTC contracts, which, in turn, are supported by yet other paper contracts, and so on and so forth, ad infinitum, then the whole game is a fraud. In that event, the gold conspiracy theorists, from Ted Butler to Jim Sinclair, are telling us the truth. On the other hand, if the underlying metal really does exist, the conspiracy theorists are wrong, and everyone can feel much more comfortable in the quiet knowledge that our markets are honest and true.
Keep in mind that it is not the individual investor who sells a "naked" short. It is his broker/dealer, and his broker/dealer's clearing broker, who end up doing that. Many of the broker/dealers and certainly the people on the bottom of the totem poll, like you, me, the line brokers and so on, are simply honestly relying upon paper promises. But, if the underlying metal doesn't exist, then, someone, probably the biggest players, at the highest levels, are committing fraud.
The recent sale of such a suspicious amount of gold into the market, just at the moment of Deutsche Bank's need, justifies a full investigation of the gold market, either to help assure us that it is clean or to help start the cleansing process.
Will JPMorgan Now Make and Take 'Delivery' of Its Own Silver Shorts? [View article]
Capitalizing on the Rise in Silver Prices [View article]
We have evidence that short-side manipulation has gone on for several years. Because the scheme was revealed at the March 25, 2010 CFTC hearing, this short side manipulation is now in the process of unwinding. If the futures exchanges were to declare "liquidation only", under these circumstances, the spot price for silver will go nuclear rather than collapse. That is because the primary demand is in the real world, not the futures markets.
In addition, back then, although the long side manipulation profoundly affected silver prices worldwide, its genesis was at the U.S. futures markets. Now, according to the testimony, the nexus appears to be the LBMA member banks. COMEX appears to be a important sideshow, but little more. LBMA is a much larger market and the unwinding upward will be much larger in scope and effect than the unwinding downward was, back in 1980.
Will JPMorgan Now Make and Take 'Delivery' of Its Own Silver Shorts? [View article]
Time to Get Precious Metals Out of Storage in London? [View article]
Indeed, until 1914, when the doors of the Federal Reserve were opened, each $20.67 dollars were physically backed on a one to one ratio by one ounce of gold. The Federal Reserve, unfortunately, was allowed 40% of the number of ounces of gold needed to back the total number of dollars created. It was alleged that Americans had never and would never demand conversion in amounts greater than that.
Between 1914 and 1933, the Fed created 2.5 times the number of dollars as they had ounces of gold to back them up. During the Great Depression of the early 1930s, people began to lose faith in the dollar. They arrived at banks in large numbers, demanding conversion of dollars into gold, as was their legal right under then-existing U.S. law.
At first, in a panic attack, the Fed started to try to withdraw dollars by selling its U.S. Treasuries into the market. In a very short time, the total money supply was reduced by 1/3rd, which Ben Bernanke claims is one of the reasons the Great Depression became so severe.
In spite of the Fed attempting to reduce the number of dollars, there was still not enough gold to meet the legal demand for conversion of dollars into gold. The United States Treasury was soon depleted. Facing this and the contracted money supply that his advisors were claiming (like Bernanke does today) was leading to a more severe downturn, President Franklin Roosevelt issued his infamous Presidential Order of 1933, unconstitutionally seizing private gold bullion stocks all over the United States.
Subsequently, with the dollar revalued for purposes of foreign conversion to one ounce of gold for every $35, and U.S. citizens legally barred from owning gold bullion, the Fed began to expand the money supply back up again.
The bottom line of this historical discussion is that the United States of America, itself, was forced into a default because it tried to maintain a 2.5 to 1 ratio of vault air to gold. It violated its own laws, and its legal promise of convertibility, as well as its own Constitution. The issue of Constitutionality was never resolved, because, as a practical matter, the order was never physically enforced.
But, if the U.S. government defaulted on its promise of conversion, how likely do you think the bullion banks are to default? They appear to be maintaining a 100 to 1 ratio...
We'll stick to our guns on this one. Any person who has precious metals in unallocated storage, should get it out, and place it into allocated storage in a reliable independent facility that has no history of misleading customers. Any financial institution, industrial user or other entity of sufficient size should also withdraw precious metals from unallocated storage, and should act to create appropriate in-house vaulting. This should be done immediately, if not sooner, and before it is too late.
Will JPMorgan Now Make and Take 'Delivery' of Its Own Silver Shorts? [View article]
Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval [View article]
Anyone with common sense knows that, since BAC counter-parties are already demanding billions of dollars in collateral from BAC, leading to this move, simply because the credit rating of Merrill and the holding company have been reduced by one notch, the total potential net obligation, arising out of a potential major contingency trigger, must involve hundreds of billions or even trillions of dollars. But, excuse me, for mistaking you for a person who has any common sense.
Fed Minutes: We Have Not Yet Even Begun to Print! [View article]
It is unfortunate that our educational system creates persons, like Bernanke, who are so narrowly educated, and focused on only one event. America's economic leadership is narrowly focused on the Great Depression. They do not see what I, and other men with a broader education can clearly see.
This era has the most in common with 1919 Germany, not the Great Depression era in America. In fact, the name that the American economists, including Bernanke, have given it, is not the name given to the Great Depression era, in the 1930s. American economists are calling our present situation the "Credit Crunch". They are doing this, while being blissfully unaware that German economists called the post WWI depression, in 1918 by the exact same name.
The Empire Strikes Back Against the Silver Price Rebellion [View article]
In the long run, however, with market knowledge of the 100 to 1, or 50 to 1, or whatever the huge ratio is between fictional stored silver and real silver in the vaults, the bullion banks, their associated hedge funds and shadow market entities are going to have hell to pay. A very rough time for them is ahead, because they are going to need to deal, for the first time, with large purchases from extremely well capitalized people, who refuse so-called unallocated "storage" and, instead, make demand for delivery.
Therefore, in the medium and long term, the price of silver will probably keep rising. We don't believe the price is being primarily given, anymore, by liquidity in the financial markets, but by this battle royal, which is why we believe that, after a few days of reacting to a general selloff of risk assets that might happen once QE-2 ends, silver prices will continue to rise. But, then, given that the selloff event is so widely expected, it may not happen at all.
Will JPMorgan Now Make and Take 'Delivery' of Its Own Silver Shorts? [View article]
Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval [View article]
No BAC-hating here. The article merely uses this incident to point out that the Federal Reserve feels free to violate its own governing laws whenever it sees fit, and no one, not even the staunch opposition of the FDIC, is able to stop it. Congress has foolishly given a bank-controlled entity omnipotent powers to void its own rules at any time convenient to the banks.
I am addressing the issue of the Federal Reserve, NOT Bank of America. BAC is the momentary focus at hand, but the problem is the Federal Reserve's structural inability to act as a responsible regulator. But, one more thing...something you apparently are unaware of...derivative obligations have special status in bankruptcy and insolvency proceedings.
For example, the Bankruptcy Code contains “safe harbor” provisions which protect the rights of a counter party to a derivative contract to seize collateral (which might otherwise be used to reimburse the FDIC for paying depositor claims). There is also protection for derivatives counter parties from the operation of the bankruptcy automatic stay, the executory contract provisions and the normal avoiding powers of the trustee. Normally, these powers would protect the rights of the FDIC to preserve collateral to repay taxpayers for payments made to depositors. The safe harbors apply to “credit swaps”, “interest rate swaps" and most other derivative obligations.
The Empire Strikes Back Against the Silver Price Rebellion [View article]
Perhaps, you can justify the reason why existing long buyers must put up more collateral when the price of silver rises? They obviously do not put the exchange at great risk of default, since their purchase price is fixed by the original cost of the futures contract. The only people who should be subject to higher performance bonds are new buyers and all short sellers.
But, your comment raises some interest questions. Since you claim to be an expert on the mechanics of New York based futures exchanges, I am sure you will be able to explain why margin requirements were raised on gold and silver in the early Autumn of 2008, even as the price of gold was stagnant or falling? Additionally, we would like some explanation given regarding shenanigans committed at NYMEX in the palladium market in year 2000. A shortage of palladium, back then, left short selling clearing members who had sold palldium near to a default. On August 11, 2000, the NYMEX performance bond committee raised palladium bond requirements far above the purchase price that most long buyers paid for their contracts? Obviously, no long buyer could possibly default so long as the buyer puts up 100% of the purchase price. Frankly, it still astounds us is that NYMEX and its committee members did not face RICO charges over that incident. We now have written documentation from NYMEX that this palladium event really happened.
We have used some creative license in our prose to make the silver story more interesting. However, the history of performance bond changes at the futures exchanges, in New York, give a strong appearance that the system is being gamed by a few politically powerful firms, rather than a real need to protect the exchange from default. Our Star Wars analogies seem appropriate, given the history of silver prices, its over-concentrated short position, the 100 to 1 ratio of unallocated silver to stored silver in London, and the history of having so many dedicated advocates and long term antagonists.
Silver Prices Are About to Fall [View article]
A long term "core" position is very different. Long term, you may choose to hold stocks, bonds, metals, and so on. You've determined that the long term positions are worth sticking to for a very long time, regardless of whether they move up and down a bit, while you are holding them. Income can be generated from long term holdings in the form of dividends, and/or by selling covered calls at appropriate times.
In contrast, speculative trades are short-term ones that have a reasonable likelihood of resulting in a spectacular gain. You take a big chance, and are willing to lose the value of the entire investment in exchange for the prospect of a big gain. You should not bet any more money than you can afford to lose on speculative trades.
Acting on the opinion that silver was going to soar, back in March, and, now, acting on the opinion that silver is about to go down substantially, are both examples of speculative trades.
The Fed Makes Sure U.S. Dollar Collapses With The Eurozone [View article]
During the "gilded age" real wages, wealth, GDP, and capital formation all increased by leaps and bounds. Between 1865 and 1898, the output of wheat increased by 256%, corn by 222%, coal by 800% and miles of railway track by 567%. Protein intake, home sizes, life span, as well as the possession of goods indicate that the American standard of living was increasing very fast during that deflationary period in which people actually did, literally, kept their money in bags of gold, and "in the mattress".
The reason for the increased wealth was that money only left mattresses for good reason. If there was a valuable business opportunity, people invested in it. They didn't invest in every stupid scheme concocted by a broker or brokerage house, as they do today. There was no Federal Reserve to redirect wealth from productive hard working people in real trades and industry, to financial speculators.
Beyond that, fundamental issues of liberty are implicated when you imply that a central bank should be allowed to force people into releasing money they want to "hide" in "mattresses". If that is what they choose to do, our Constitution requires that they be allowed to do it, without an unlawful seizure by the government. The intentional seizure of "mattress money" by an unelected Federal Reserve is taxation without representation. That is what the American Revolution was all about, and the reason this nation broke away from the British King. If there is to be a tax on idle funds, it must be passed by the People's elected representatives in Congress, not by an unelected American equivalent of the Soviet Politburo.
In reality, few if any Americans still stuff mattresses full of money. That is a third-world and former Communist nation phenomenon. In America, ultra-prudent people tend to deposit their money in FDIC insured bank savings, and into corporate and government bonds. With the exception of the money put into government bonds (which is often wasted by excessive entitlement programs and pork projects) this money is NOT idle. It fuels loans to American business and industry. By debasing the dollar, and transferring its value to financial speculators, the Federal Reserve is stealing under color of law.