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The
following is a recent email exchange between a reader and Commissioner Bart
Chilton. The last message is an email from me to the reader (with a copy to
Commissioner Chilton). I have removed any personal identification of the
reader. To my knowledge, the Commissioner sent this same response to a number
of people who wrote to him. Main article follows the exchange.
From:
John
To: Lukken, Walter; Dunn, Michael; Chilton, Bart; Sommers, Jill; Lavik, A. Roy; Obie, Stephen J.
Sent: Fri Dec 26 17:56:01 2008
Subject: Silver Short Concentration
Dear
CFTC Personnel,
There
continues to be an extraordinary "net short concentrated position"
in the silver futures market. The COT report indicate
that 2 large US Banks held short positions that total 25% of the annual
silver supply. This pattern has been ongoing to a severe degree for the
entire 2008 year and even years prior.
The 4
largest shorts in the Comex silver held a percentage of the market that was
3.7 times greater than the 4 largest long traders. The 4 largest shorts held
a net 46% share of the market, verses a12.5% net long share of the 4 largest
longs. No other market has close to this disparity.
If
this were any other commodity, there would be serious investigations. With
the recent happenings on Wall Street, an individual investor would think that
the CFTC would be on top of situations like the one taking place in the
silver market but apparently that is not the case.
I
would appreciate a legitimate and intelligent response for my records.
Sincerely,
John
From:
Chilton, Bart <BChilton@cftc.gov>
Date: Dec 27, 2008 6:43 AM
Subject: Re: Silver Short Concentration
To:
Thank you for contacting me regarding the silver. Like you, I am
concerned about some of the things we have seen, and some of the things that
appear to be troubling based upon data -- including CFTC data. I requested an
investigation, which is ongoing. I have been briefed and believe that the
investigators are making progress.
Some might think that simply because the CFTC Commitment of Traders (CoT) report contains certain data that there is obvious
manipulation. I agree that the data raises serious question and our staff
continues to investigate the matter. In fact, many silver investors-traders
have been contacted in an effort to gain further insights. I would point out
that the CoT report does not give net positions of
traders. Therefore, it is possible, in fact likely, that larger traders may
have short as well as long positions.
I am also convinced that there is a limited supply of available silver and
that the cost for any available silver is relatively high. I believe the CFTC
has not paid enough attention to this in the past.
Like you, I am anxious about moving forward. That said,
I want the CFTC to get it right. I have no interest in an investigation that
uses taxpayer dollars and isn't thorough.
I will be pleased to update you as best I can, given
that this in an ongoing investigation.
Happy new year.
B
John,
Thanks
for taking the time to write to the CFTC and for forwarding to me their
response. First, Commissioner Chilton must be commended for his consistent
efforts to communicate with those that write to him. He seems to be the only
one who responds in a timely manner.
That
said, I am troubled with certain aspects of his
response. Commissioner Chilton does acknowledge that CFTC data raises serious
questions, in fact, enough to prompt an investigation. Yet, the questions
that have been raised, centering on the net short position of 25% of world
silver mine production held by one or two U.S. banks,
are quite simple and specific. Questions such as, what is the economic
purpose of this concentrated position? Or why does this level of
concentration exist only in silver? Or what would the price of silver be if
this short position didn’t exist or was held by many traders and not
just one or two banks? There is no need for a big taxpayer-funded
investigation that has taken months so far, just direct answers to simple
questions.
I am
surprised that many silver investors-traders have been contacted in this
matter, at all, since the allegations of manipulation center on one or two U.S. banks. Also
surprising is that Commission staff has yet to contact me, although
Commissioner Chilton has suggested this to me for more than a year. The CFTC
has refused to meet with me for more than 20 years. This is the third
investigation of silver by the Commission in less than five years, something
that no other commodity has experienced. All three investigations originated
as a result of me asking readers to contact the Commission. It would seem
more efficient for them to discuss this with me than in running full-scale
reviews.
I am
particularly troubled that Commissioner Chilton is laying out the
CFTC’s plan to slough off the clear proof of manipulation contained in their own data. Undoubtedly, he is getting this from
staff. Their plan is to evade the simple questions on concentration by
introducing unrelated peripheral issues. It doesn’t matter whether the
big short position is backed by offsetting positions in other markets. The
issue is concentration.
While
I believe the big short position is "naked", that is beside the
point. The allegations involve concentration and control, not the backing of
the positions. Manipulation involves a controlling position and the ability
and intent to influence prices. It doesn’t matter if positions are held
in some other market. That will be just a convenient excuse for the CFTC to
shirk its responsibilities. The CFTC doesn’t have jurisdiction in these
other make-believe and non-transparent markets, they have jurisdiction in the
market where the concentration exists, the COMEX. Besides, if the one or two U.S. banks
holding the big COMEX short position are legitimately hedged, then why is the
CFTC investigating at all and contacting many traders? Just release the proof
and stop wasting taxpayer money on another useless and drawn-out
investigation.
Finally,
while I agree with Commissioner Chilton that the CFTC should be thorough and
get it right, this alleged silver manipulation is a crime in progress. Since
the investigation began in September, thousands of silver market investors
and participants have been severely damaged by the artificial decline in
price. When an innocent victim is being mugged on the street, the cop on the
beat should stop the mugging first, and fill out the paper work afterwards. Someone should tell the CFTC that.
Ted Butler
Theodore Butler
Investmentrarities.com
(No one can safely predict the
future and it’s possible that Israel
Friedman’s Butler’s
analysis will prove incorrect. Silver can go up, but silver can go down. It
is up to you to read, analyze, and arrive at your own conclusions. Prudence
requires we emphasize that precious metals may or may not prove to be
suitable for your consideration.)
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