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Granted, if you are
going to label something as the greatest lie ever, it must involve something
important, both in substance and in terms of who told the lie. In this case,
the lie involves what’s at the heart of the silver manipulation and happens
to be the issue that I consider the key factor for its price. Importantly,
the lie came from the federal regulator overseeing the silver market, the
CFTC. The good news is that you will be able to decide for yourself if
my assertion is correct, given that the proof is nearly incontrovertible. The
best news is that as the lie is more widely recognized, it should have a
positive impact on the price of silver.
The key factor in silver is the concentrated short position on
the COMEX, which also happens to be the current key factor in gold. Not only
am I convinced that the concentrated short position in COMEX silver is the
central issue, I am also convinced that wider awareness of its existence will
bring about a freeing of the silver price. If the growing numbers of those
who’ve discovered the importance of the COT reports and market structure to
the price of gold and silver take one additional small step and incorporate
the concentration data in their thinking, I believe the impact could be
profound.
First, let me
describe concentration as it applies to gold and silver and why it is so
important and then touch on the history and status of the greatest lie ever.
In review, if many different traders held very large short positions in COMEX
silver and gold futures contracts, then no problem - that’s the way free
markets are structured – with many different buyers and sellers. And
you may not realize this, but quite literally, you wouldn’t be reading this
if no short side concentration existed. That’s because I would never have
started and continued to write publicly about silver if a short side
concentration didn’t exist.
The problem is that
there are not many traders short COMEX silver in terms of market structure.
Only eight traders hold, effectively, the entire net short position in COMEX
silver and those traders are mostly banks. Further, the concentrated
silver short position, represents more in terms of real world production and
inventories than the concentrated positions in any other commodity, with the
comparisons with other commodities looking impossibly distorted. For
instance, the concentrated short positions in corn and crude oil are the
equivalent of a few days of world production, with silver’s concentrated
short position amounting to more than two hundred days world production. Most
remarkable is that so few silver miners are hedging that the entire
concentrated short position is speculative on its face.
It’s important to understand that there is a big difference
between a large short (or long) position held by many different traders and a
large position held by a few traders. It’s impossible for hundreds or
thousands of different traders to intentionally conspire to manipulate
prices. Crowds may be irrational at times, but that’s far removed from
deliberate price manipulation. Only a few traders conspiring together
make manipulation possible and US commodity law recognizes that. That’s why
the CFTC monitors and publishes concentration data. Of course, monitoring and
publishing are different from preventing manipulation or busting it up when
it exists.
The concept of
preventing concentration is common in the body of all antitrust and
anti-monopoly law and, in fact, is the basis for such law. And while simple
in concept, it takes some effort to grasp why the concentrated short position
is at the center of the silver manipulation.
In my case, the
lightbulb that went off in my head when I first uncovered the COMEX silver
manipulation 30 years ago had to do with the size of the total open interest
in COMEX silver being so out of whack with all other commodities in terms of
world production. It was years later, in the mid-1990’s, that I uncovered
that the key feature was not just the size of the open interest, but in how
few in number were the traders who were short. That’s the key and because I
began to press the CFTC on the specific issue of concentration on the short
side of COMEX silver, this is what led to greatest lie in the history of
market regulation.
Because the issue
of concentration is at the core of market regulation, whenever I wrote to the
agency about the matter, particularly if great numbers of readers joined in,
the CFTC was, in essence, forced to respond. In fact, not only did the agency
respond to my concerns about the short side concentration in COMEX silver on
more than one occasion, it also did so in public releases, both in May of
2004 and 2008 in separate 15 page letters. Of course, the CFTC vehemently
denied on both occasions that there was any manipulation as a result of a
short side concentration in COMEX silver futures.
Far from resolving
the matter, the issue of concentration has never been more important than it
is today, because the concentrated short position in silver (and gold) has
never been larger than it is currently. But let me deal with the greatest lie
ever first. In the 2008 public letter, the CFTC lied through its teeth. It
took me a year and a half to uncover the lie because there was not sufficient
data available to know that at the time. I try to avoid+ incessant
linking to past articles, but this one won’t take very long. (Embedded in the
article is the link to the CFTC’s 2008 public letter).
http://www.investmentrarities.com/ted_butler_comentary12-21-09.shtml
Let me summarize
what the CFTC wrote and why it was a lie. The subject of the letter was the
activity of large short traders in COMEX silver and the agency took great
pains to dismiss any and all concerns of a short concentration causing any
price manipulation or potential clearing failure. But check the timeline and
the facts as we all have come to know them to be. The CFTC’s letter was dated
May 13, 2008, nearly two months after Bear Stearns, who we now know was the
largest concentrated short in COMEX silver and gold, went under, with its
massive concentrated short position passed along to JPMorgan at the urging of
banking authorities.
Read the CFTC’s
letter and tell me if you see any reference to the largest COMEX silver short
needing to be rescued just as silver prices were establishing near 30 year
highs just two months prior. Remember, the CFTC was responding to the
specific issue of a short concentration and left out completely the fact that
the largest concentrated short went under just as silver and gold prices were
surging to their highest levels in decades, creating margin calls of roughly
$2 billion, which Bear Stearns, obviously, couldn’t meet. Yet, in 16 pages,
the agency didn’t see fit to even footnote the matter. I ask you, what other
word, aside from lie, would you assign to an attempt to evade the clearest
proof of what could and did go wrong with a large concentrated position, than
the biggest failure ever by a concentrated short seller and leading clearing
(guaranteeing) member?
If anything, my
description of the CFTC telling the greatest lie ever in 2008 is understated.
That’s because the lie is still being told. For weeks, the concentrated short
positions in COMEX silver and gold have risen to new historical extremes, yet
the CFTC ignores the obvious price manipulation and dangerous market
structure created by concentration. Again, it’s not so much that the short
positions in COMEX gold and silver are so high; it is much more that the huge
short positions are held by so few traders. A big short (or long) position
isn’t necessarily manipulative on its face, but a highly concentrated
position contains the necessary elements of manipulation, requiring it to be
thoroughly examined.
The CFTC can’t and
won’t thoroughly examine this matter because it has painted itself into a
corner. After coming out on so many past occasions and forcefully denying
even the slightest possibility of a silver manipulation, there is no way for
the Commission to turn around and enforce the law now, no matter how extreme
the concentration grows. It’s more than being laughed out of existence, such
an about face would likely doom the agency to losing its independence and
being folded into the SEC. Let’s face it – the continued existence of the
silver market manipulation by means of a concentrated short position is a
failure of the agency’s prime mission. It’s like the Department of Defense
not defending us from foreign invasion.
For this reason, I
have no intention of petitioning the agency to change its ways because I know
it can’t. Despite that, I am convinced the short concentration remains the
key feature to silver and gold and the proper attention to it could break the
backs of the concentrated shorts. There is an ocean of world investment money
looking for alternatives to zero percent interest rates and it will not take
much more than a handful of big investment funds to stumble upon the issue of
the short concentration and how little physical silver is available for
purchase to end the COMEX scam.
Any objective
investigation into the matter, moreover, will confirm that not only is the total
net short position in COMEX silver (and gold) held by too few traders, those
traders have no real economic reason to be short in the first place. There
are no silver mining producers represented by the 8 big shorts and aside from
JPMorgan, none of the big shorts hold big quantities of physical silver
(unless they are hiding it on the moon, because it isn’t on earth). The big
shorts are just banks and other financial firms speculating their butts off –
just as Bear Stearns did. Talk about a double whammy – eight big shorts hold
the entire net silver short position and not one of them has legitimate
economic reason to be short, save for trying to zoom the technical funds. Any
big investor learning of these facts would buy all the silver available
(which isn’t much to begin with).
Until the physical
market overwhelms the COMEX concentrated short scam, the big shorts may
continue to prevail, although they have been seriously underwater of late,
for the first time ever. Being the key factor in silver and gold, it will be
the resolution and eventual dissolution of the concentrated short position
that will drive silver prices in the future. Since the more observers that
recognize the real nature of concentration the quicker it might get
dissolved, I want to do what I can to steer attention to the matter.
Particularly for
those already writing about the extreme COT market structure, recognizing the
concentrated nature of the short side in silver and gold, as well as its
eventual resolution should come easily. After all, there is now near
universal coverage of how large the commercial net short positions are in
COMEX gold and silver that considering just how concentrated those large
positions are should be a snap. We all know that the resolution of the
current extreme positioning will affect prices greatly, even if we can’t be
sure of the timing and short term outcome of the resolution. By superimposing
the concentration data onto the extreme market structure, the true extent of
price manipulation and potential disorderly market conditions is amplified
greatly. That’s because only the few can engineer a manipulation, not the
masses.
For those seeking
to determine concentration levels on your own, here’s how to do it. Take any
long form futures only COT report and go to the concentration data at the
bottom of each commodity. Take the percentage listed under the net
short positions of the 4 and 8 largest traders and multiply the total open
interest given on top to the left to get the concentration in numbers of contracts.
It changes every week, but for this reporting week in COMEX silver (July 5),
the percent held net short by 4 or less traders was 32.4% and the percentage
held by the 8 largest traders was 46.4%, which given a total open interest of
211,347 contracts results in the 4 largest shorts holding 68,476 net
contracts short and the 8 largest traders holding 98,065 contracts net short.
In silver ounces, these short positions come to 342.4 million oz and 490.3
million oz respectively.
http://www.cftc.gov/files/dea/cotarchives/2016/futures/other_lf070516.htm
These are the largest concentrated short positions in history
and as such take on a much deeper meaning than if 500 million oz were held
short by hundreds or thousands of traders. I suppose one could make a case
that a silver short position of half a billion ounces was no big deal if held
by hundreds of independent traders, but that supposition is impossible when
the number of traders is eight or fewer. Why would so few traders dare to be
that heavily short in silver on any legitimate basis?
Ironically, the
CFTC asked that same question, in different words, in its 2008 letter. In its
own words, it noted that the advocates alleging manipulation (me) failed to
explain how the manipulators might profit and what could possibly be their
motive in a long term manipulation. Failed to explain? How about the
manipulators never taking a loss when adding short positions and the desperate
economic survival motive of adding to shorts to prevent prices from rising
after full short positions were established? Illegitimate profit and
financial survival at all costs sound like sufficient motives for a crime to
me. Isn’t this what motivates all financial crime?
The issue of
concentration on the short side has been my main focus for decades and it is
truly a shame it hasn’t been embraced fully. As and when it is embraced, the
silver manipulation is not likely to continue. I encourage all to dig into
this issue and would only ask for proper citation if it results in public
commentary.
Ted Butler
July 18, 2016
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