|
In response to my article yesterday The Chances Of A COMEX Default. (Public Article), Bob Moriarty decided to respond and attack me personally in this article. He claims me to be
a "GURU" (an insult according to him), a fool, a bad writer
with poor grammatical skills (I agree), with poor logic ...and a
liar. To start, calling someone a "liar" is a very big leap
because it means there is an "intent to deceive" as opposed to
just being wrong or even stupid. Moriarty says I "feed people's
fantasies" to entice them to subscribe to our newsletter which is
now one month old. I wonder had I written the article over a month ago
when all of my work was public what he would have claimed my motives to
be? Many have read my work since 2007 at http://www.lemetropolecafe.com/ and dozens of other sites, does anyone see a shift in my logic
since those days in order "fool subscribers"?
As for my grammatical skills, I agree, they
suck! People do not read my work to make sure whether proper tense or
punctuation is correct, they read it for the logic. I try to take
complicated subjects and break them down so the average person can understand
what is happening. The logic in this case is there are several hundred
ounces of gold/silver represented by paper contracts but backed by only one
ounce. Put simply, COMEX is a fraud. A call on this contractual
metal cannot be met because the metal simply does not exist. I believe
when the "call" for delivery comes, COMEX will be forced to declare
force majeure and settle with cash. As I asked in the article, is this
a default or is it not? In the real world it will make no difference at
all whether it is "legally" a default or not,
"practically" IT IS! In the real world the prices of gold and
silver will have exploded and the "cash" so generously provided by
COMEX to "settle" will not purchase the ounces you thought it
would. In essence, while gold and silver supplies go into hiding, you
will be left holding a pile of devaluing and worthless dollars that will not
"buy" what you were promised.
If you want to be "technical", here are
several passages from COMEX rules:
Section 702 of the rules states in part:
"In the event a clearing member fails to perform its
delivery obligations to the Clearing House, such failure may be deemed a
default pursuant to Rule 802."
Section 714 of the rules states in part:
"A failure by a clearing member carrying a short
futures position to tender a Delivery Notice on or before the time specified
by the Clearing House on the last day on which such notice is permitted shall
be deemed a violation of this Rule, except that the President of the Clearing
House may, for good cause, extend the time to present such notice. Unexcused
failure to make delivery shall be deemed an act detrimental to the interest
or welfare of the Exchange. In addition to any penalties imposed as provided
in Chapter 4, the Clearing House Risk Committee shall determine and assess
the damages incurred by the buyer."
Section 802 of the rules states in part:
"1. Default by Clearing Member
If a clearing member of CME, CBOT, NYMEX , COMEX, or an
OTC Clearing Member, (i) fails promptly to discharge any obligation to the
Clearing House or (ii) becomes subject to any bankruptcy, reorganization,
arrangement, insolvency, moratorium, or liquidation proceedings, or other
similar proceedings under U.S. federal or state bankruptcy laws or other
applicable law, the Clearing House may declare such clearing member to be in
default. For purposes of this Rule 802, each default by a clearing member
will be considered a separate default event, provided that if a clearing
member has been declared in default, subsequent failures to pay by such
defaulting clearing member shall not be considered separate default events
unless and until the original default has been fully resolved and such
clearing member has been restored to good standing."
The obvious question is this, if COMEX uses
the word "default" in their own legal language then how is it
impossible to ever occur? Would they really address an
impossibility? While these rules pertain to individual members, what
happens collectively were the longs to demand delivery of non existent metal?
What will it be called when collectively the members cannot perform and
deliver? "Default(s)" as in "plural" or just one
grand default?
Further, Mr. Moriarty wrote "If Mr. Holter
and Ted Butler want instead to make an argument that since the short position
is so large you will never be able to take delivery because there won't be
any silver, they can say that. Butler did in 2001 and managed to pick the
absolute bottom of silver in real terms in 5000 years. Not only was there a
lot of silver, it was at a low. There was no shortage then, there is no
shortage now." I would ask this, if far more "paper"
silver has been sold than actually exists, isn't this a "shortage"
of real metal in and of itself? Buyers have "paid" for
silver that doesn't even exist. This aids in suppressing
price because the paper was used as a "relief valve" to
divert real demand into fake supply. Is this not a scam?
This by the way is "manipulation" pure and simple, something
Moriarty denies. Deutsche Bank has graciously now moved
what was "conspiracy theory" into the category of FACT!
After discussions with the CFTC, Harvey Organ
has told me "the CFTC insists cash settlement is a no no, gold or
'equivalent' must be delivered for settlement". As a side note, I
find it quite odd COMEX which trades in 100 ounce gold bars continually
reports ".000" (triple zero) movements which is a statistical
impossibility. They have also been reporting many movements and
adjustments that are divisible by 32.15 indicating these are kilo bars.
It is also odd because the 100 ounce bars are only 99.5 fine while kilo bars
are 99.99 fine, how is this accounted for if kilo bars are used to
settle? Something fishy here?
Mention of "naked shorting" definitely
needs mentioning because there certainly IS such a thing. One needs
look no further than COMEX itself. What exactly are the contracts sold
over and above available metal? Or look at shorts in various
stocks, there have been times where more stock was sold short than authorized
and issued. What would you call this? "Naked shorts"
are the reason for the old saying "he who sells what isn't his'n, buys
it back or goes to prison".
As for fake bars of gold, they have already intermittently
shown up at this point. Rob Kirby is cited in this article saying
6,000 400
ounce bars were discovered in China. The New York Post reported on fake gold in New York followed
by more fake gold
found in New York. As I see it, when the call for delivery comes,
either fake bars, no bars or cash will be the only options available.
When it comes to derivatives, Mr. Moriarty wrote "I
only know of three people who seem to understand derivatives. That would be
Adam Hamilton, me, and a guy named Jim Sinclair". He followed
later with "Maybe Mr. Holter could get someone to introduce him to
Jim Sinclair. Sinclair knows who does and doesn't understand derivatives. He
also knows about commodities and how they cannot default. I don't think he
would dream of charging people $119 a year just to feed people's fantasies."
Isn't this interesting? I am not sure I understand, at the beginning of
his piece he acknowledges Jim Sinclair as my partner but now someone
"should introduce us"? And ...there are only three
people in the world that he knows of who understand derivatives ...and one of
them is my partner Jim Sinclair? I'm pretty sure the feeling is not
mutual on Jim's part, he wrote me prior to my first
article written
"Bill, I dismissed Moriarty for poor knowledge
many years back. His insistence derivatives net out to zero was
evidence of real world ignorance. Denial of notional value as total
true value is warped logic. Notional value will bcome full value
at that very moment in time they are called on to perform. As long as
derivatives have no need to perform they remain unimportant. As you
have written, what is a contract worth that cannot perform? COMEX comes
immediately to mind. Ry, Jim"
I must confess, I wrote poorly and incorrectly when writing "I
do want to point out, this is the same man who said a derivatives blowup can
never happen."I should have included "because of 'notional'
value". For this I apologize publicly. Failing
to include "because of notional value" is the main point
to where we disagree. This is where he and Jim Sinclair vehemently
disagree. We believe notional value when markets become stressed will
become real and TOTAL VALUE. Jim and I believe too much "notional
value" is exactly what will cause a de facto default on the
COMEX with gold and silver. You see, the notional value of all the
futures contracts, the puts and calls, and OTC derivatives simply dwarf COMEX
inventories. The derivatives on gold and silver dwarf ALL THE METALS
EVER MINED IN ALL OF HISTORY FOR THAT MATTER! THIS is where we
disagree. Notional values will ultimately be the root cause of cross
party defaults in EVERYTHING ...INCLUDING COMEX GOLD AND SILVER!
I am not sure I get it, while talking about markets AND
DERIVATIVES blowing up, Moriarty believes none of this can or will happen
because of notional value? These derivatives that will blow up are all
paper contracts based on stocks, bonds and currencies but not commodities nor
silver or gold because those members and exchanges cannot default? I
would suggest this, if an exchange settled with bananas instead of copper,
that would be a default. Just as if COMEX settled gold or silver with
dollars? Are not fiat dollars and physical precious metals the exact
opposites of each other? Who wants dollars if they were expecting
gold? Technically, under a situation of force majeure, settling in
dollars may not be a legal default (though COMEX itself says it is in their
own rules)... it is however a real world and de facto default settling in the
exact opposite currency to what you were "betting" on as a
speculator. Man up and call a spade a spade Bob!
To finish, I would like to address the most egregious personal
attack Mr. Moriarty levelled against me. He called me a liar. As
he obviously did not know Jim Sinclair and I are partners, he may not have
known I was a stockbroker for 23 years and a branch manager for 12 of
those. In a highly litigious business world, I worked 23 years
without ever an arbitration, lawsuit or any type of settlement. Of more
pride, none of my brokers were ever involved in any type of arbitration,
lawsuit or settlement. After the Dot Com bust, of the 711 branch
offices at AG Edwards, less than one dozen offices were not litigated
against. Mine was one of those! A "liar" cannot go 23
years while supervising others and doing business on a handshake and verbal
order without being sued multiple times in multiple venues. I tell it
as I see it, if you disagree then that is your option. Call me what you
want, liar is cannot be one of them.
Mr. Moriarty may not like my spelling or grammar (my schoolteachers
did not either!), he may not like or agree with my logic though I believe it
is sound. He may believe whatever he would like to, it does not make him
correct nor logical. I tried to take the high road with this and simply
argue the logic, or lack of. I would hope Mr. Moriarty would extend the
same courtesy in the future. Lastly, so sorry for the spelling and
grammatical errors but in reality I don't give a damn!
As an addendum, Jim Sinclair felt it necessary to chime in after reading
the above:
"Mr. Moriarty and I had a serious disagreement
extremely early in the recognition of the severe problems that derivatives
and their financial interdependence threatened the financial community based
on lack of full grasp of the impact of bankruptcy a complexity of contract
law thereupon many years back. His insistence that derivatives net out
to zero was correct in a theoretical and prefect world in which all
parties to all derivatives performed as to what and when the contract called
for. He even had a professor write an article to sustain his view. What they
both missed was the critical financial factor and entirety of the problem OTC
derivatives have landed us with in the trillions. His denial of
notional value transmuting to total true value in default is under contract
law simply untrue. Notional value will become full value at that moment
in time they are called on to perform. If either party can't come up with
the huge funds then called for or physical gold, then bankruptcy of
one party leads to the initial default. The danger lies
should this default be of size to become systemic in nature. If
either party to the Comex contract buyer or seller fails to perform
according the varied contract stipulation the agreement under contract law,
default occurs and the agreements in nominal value becoming real cash value
which is an enormous financial swing. It is in the present discussion to
recognize that default occurs at the point of non performance of the
contract. All that Force Majeure does in the Comex contract is to
outline a possible form of a solution to which there is no guarantee of
Under the logical outline by Bill of events you can anticipate
the Comex contract will default by not being able to perform in the contract
manner called for. As far as the called for remedy by the halt that Force
Majeure it is also theoretical in a perfect world. This is exactly what Bear
Sterns and Lehman Brothers faced for the same reason which broke them both.
Bill's argument is totally correct in the real world of finance"
Standing watch,
Bill Holter
Holter-Sinclair collaboration
Comments welcome bholter@hotmail.com
Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a
retail stockbroker for 23 years, including 12 as a branch manager at A.G.
Edwards. He left Wall Street in late 2006 to avoid potential liabilities
related to management of paper assets. In retirement he and his family moved
to Costa Rica where he lived until 2011 when he moved back to the United
States. Bill was a well-known contributor to the Gold Anti-Trust Action
Committee (GATA) commentaries from 2007-present.
|
|
