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A friend and long-time subscriber who intends to write a book about the silver
manipulation asked if I could provide him with a bit of history. To my mind,
the silver manipulation dates back to early 1983, when the commercial traders
grew confident that they could sell any quantity of paper short contracts to
the technical fund buyers on the COMEX. By that time the commercials learned
that technical fund buyers would never take physical delivery and could be
counted on to buy or sell based upon price signals that the commercials could
easily influence and control. In essence, the game has remained remarkably
similar ever since.
While the commercials learned to behave collusively when dealing with the
technical funds, there was an additional requirement that there would be one
large commercial standing ready to be the short seller of last resort to
backstop the combined commercial effort. Without a “Mr. Big”
standing behind and guaranteeing that the combined commercial effort to trick
the technical funds would never get overpowered, the long term silver
manipulation would not have been possible. Over the past 30 years, there have
been a series of Mr. Big’s that have been the
paper silver short sellers of last resort. Therefore, the history of the
silver manipulation can be recorded along the lines of who was the big short
seller at any particular time.
In 1983, the big COMEX silver short seller was Drexel Burnham Lambert,
although the origination of Drexel’s short position began earlier at J.
Aaron and A.C. Leon Israel (ACLI). After Drexel went bankrupt in the late
1980’s, the Drexel Trading operation was taken over by AIG Trading.
Around 2004, the big silver short position was transferred to Bear Stearns. I
believe AIG was forced to dispose and transfer their big short silver
position on the COMEX due to pressure from then-NY Attorney General Eliot
Spitzer who in turn was pressured by public petitions to crack down on the
concentrated short position. Nine years ago, I wrote a number of articles
(available in the archives) which focused on AIG as the big COMEX silver
short. I couldn’t know it at the time, but it appears most likely that
the transfer from AIG to Bear Stearns was due to Spitzer. http://www.investmentrarities.com/ted_butler_...y/12-08-03.html
I knew sometime in 2004 that AIG Trading ceased being the big silver
short on the COMEX, by virtue of its disappearance from COMEX silver delivery
transactions and withdrawal from the LBMA, but I wouldn’t learn until
late 2008 that Bear Stearns had become AIG’s replacement as
silver’s Mr. Big. Only in November 2008 would I learn that Bear
Stearns’ big silver (and gold) COMEX short position was transferred to
JPMorgan in March of that year. This revelation was due to CFTC
correspondence to various lawmakers indicating that the sudden jump in the
short position in the US bank category of the August 2008 Bank Participation
Report was due to the JPMorgan takeover of Bear Stearns. Commodity law
prohibits the agency from identifying traders by name (unless charged with
wrongdoing), so the letters to congressmen and senators didn’t mention
either Bear Stearns or JPMorgan by name; but no other institutional merger
could match with the public record. target="_blank" http://www.investmentrarities.com/ted_butl...y/11-10-08.html
This revelation was the pivotal point in the silver manipulation
timeline. For one thing, it shined an ugly light on the CFTC. The Commission
had just published in May 2008 a public denial that there was anything wrong
with the concentrated short position in COMEX silver. This was the
agency’s second public letter on the issue in four yea target="_blank"rs. http://www.cftc.gov/ucm/groups/public/@...treport0508.pdf
The only problem was that, two months before the
report was published; Bear Stearns went bankrupt, arguably, because of its
giant silver short position. In the two or three months before its demise,
Bear Stearns had lost one billion dollars on its silver short position; no
one can deny that would have contributed to the Bear blow up. For the
Commission not mention this in their 16-page report is lying by omission, as
I have previously cl target="_blank"aimed. http://news.silverseek.com/SilverSee.../1261415180.php
But what made the CFTC’s revelation that JPMorgan was the new Mr.
Big on the short side of silver so significant was that it put a name on the
seller of last resort in no uncertain terms. I can’t stress enough the
difference this has had. Until November 2008, I was forced to describe the
silver manipulators as nameless colluders or as the four or less largest
traders. Talk about boring and unspecific. Certainly, I had strong suspicions
of who the previous Mr. Big was, otherwise I wouldn’t have been writing
to and about AIG in 2003. And while JPMorgan was always included on my list
of the big firms that dominated silver, until November 2008 I never
identified Bear Stearns as a potential silver manipulator. I am the ultimate
outsider and have no inside Wall Street connections; I rely on public data
exclusively. It was that data (COT and Bank Participation Reports, plus CFTC
correspondence) that identifies JPMorgan as the current Mr. Big and main
silver manipulator. This has made all the difference in the history of the
silver manipulation and its ultimate resolution. It goes without saying that
I would not continuously refer to JPMorgan as crooks without irrefutable
evidence.
Because I could never prove conclusively, prior to November 2008, the
certain identity of the big silver short, I could only intimate or beat
around the bush; I could not point to the one specific entity backstopping
the commercials. For years, after acquiring 130 million oz
in 1998, Warren Buffett was a very big paper short seller on the COMEX
(against Berkshire Hathaway silver holdings) until he got caught short in
late 2005 and lost his giant silver hoard at $7. As was the case with Bear
Stearns, I never realized Buffett was shorting silver on the COMEX until long
after he stopped. This is what makes learning that JPMorgan is the big short
in silver so important – for the very first time, the knowledge is in
the present tense. JPMorgan is the big silver short right now.
From my point of view, it shouldn’t make a difference if we know
the identity of the entity behind the silver manipulation as long as the
public data indicate a level of concentration proving a manipulation exists.
The level of concentration on the short side of COMEX silver leaves no
possibility that the price isn’t manipulated. That’s why the CFTC
has stalled for more than four years in its investigation. That investigation
began shortly before it was revealed that JPMorgan was the big short. But if
the case alleging manipulation by reason of excessive concentration was
compelling enough for a third silver investigation, the revelation that
JPMorgan was the manipulator raised the matter to a completely different
level. It would not be an understatement to say that JPMorgan’s
involvement has created an unprecedented circumstance.
I have never experienced, or even imagined, a situation where a major
financial institution could be openly and continuously accused of violating
the law with no strong rebuttal from that institution. I doubt any of you
have experienced or imagined such a situation either. But life is about
learning and experiencing and that includes the silver manipulation. I can
understand JPMorgan’s silence, as I can’t imagine they would
desire an open discussion based upon the public facts. Better for JPM to
ignore the allegations and hope they will fade in time; why inflame the
situation? Unfortunately for them, the last thing that is happening is any
fading in the finger-pointing at JPMorgan. Based upon recent indications that
JPMorgan has markedly increased its concentrated silver short position, the
bank may be stuck and unable to gracefully exit its silver short position.
One thing that I don’t think that JPMorgan can easily pull off is
something that previous Mr. Big’s in silver
managed, namely, transferring the silver short position to someone else.
Under the threat of bankruptcy or legal pressure, Drexel, AIG and Bear
Stearns all dumped the short silver position on someone new. But few knew
these firms were the big silver short at the time of the transfer. In
contrast, many are aware that JPMorgan is the big silver manipulator, making
a transfer of the manipulative position much more difficult.
The real-time knowledge that JPMorgan is the big concentrated silver
short not only represents the pinnacle of the history of the silver
manipulation, almost by definition that knowledge must also be at the core of
the manipulation’s future. JPMorgan has been the prime price
determinant since the Bear Stearns takeover in March 2008 and they will
remain responsible for the price of silver as long as they maintain their
concentrated short position. Seeing how there is little likelihood of a transfer
of the concentrated short position, the question becomes – can JPMorgan
maintain and increase its COMEX silver short position indefinitely? I say not
a chance.
While I can’t pinpoint the timing, there is no way that JPMorgan
can continue to manipulate silver forever. I’m assuming that the CFTC
will not start to deliberately misreport the data in the COT and Bank
Participation Reports because they never have done so in the past; but even
that would only postpone JPMorgan abandoning its silver price manipulation. I
know that many believe that JPMorgan is invincible, fortified by protection
from the US Government, but some things transcend even the most powerful of
large organizations. Forces of nature and basic laws of physics and supply
and demand will always overwhelm human attempts to subvert those forces; the
only question is when. In any market, an artificial price level caused by an
intentional manipulation distorts the law of supply and demand and must end
violently at some point.
Silver’s price level is and has been artificially depressed due to
JPMorgan’s concentrated short position. In addition to the negative
publicity that has been attached to JPM, this concentrated paper short
position has impacted the underlying host physical market in a manner that
can’t be sustained. By artificially depressing the price, JPMorgan has
set in motion a more powerful counter-force of stronger physical silver
demand and weaker physical supply than there would have been otherwise. The
artificial low price makes it a certainty that physical demand must overwhelm
real silver supply and at that point, additional paper short sales by
JPMorgan will not matter. If the market is demanding physical silver and that
metal isn’t available, paper silver will not be accepted as a substitute.
The minute that occurs, there will be a radically different price structure
in silver; quite literally almost overnight. That hasn’t occurred yet,
despite the long term climb in the price, but the signs are growing that we
are drawing close, mainly in the form of unusually frantic movements in the
big silver depositories. The important thing to remember is that regardless
of how many years and decades that the silver manipulation has been in place,
when it ends, it will end in a virtual instant. That’s why it’s
better to be positioned early in silver, rather than late.
Ted Butler
November 21, 2012
For subscription info, ple target="_blank"ase go to www.butlerresearch.com
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