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_...y12-21-09.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/...er_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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