CFTC Hearing; Poised to Act!
(CFTC aiming to regulate silver market!)
Silver Stock Report
by Jason Hommel, March 30th, 2010
I was pleasantly surprised by the CFTC meeting in Washington DC
on March 25th, it was much better than I expected. I think the
CFTC is likely to do something to help stop the excessive and concentrated
short position in silver at the COMEX, and there are many reasons why, as
I detail below.
I was very impressed with the quality and intelligence of the questions
asked by the CFTC commission members. CFTC chairman, Gary Gensler
continually brought up issue of the large silver concentration as being a
potential problem to deal with. The main questions seemed to be "how
to deal with it", and "what would happen"? I don't think he would
ask that, unless he knew there was a problem that needed to be fixed.
Chairman Gensler specifically thanked Bart Chilton for bringing these
issues up repeatedly to the CFTC; everybody there seemed to know him the
best, and was recognized by Chairman Gensler as their leader on these
issues. I believe we ought to pray for all of the commissioners at
this point; for their safety, that they are given Godly courage, and
continue to gain wisdom and insight into the nature of the
silver fraud, and how to best stop it.
There were 5 commission members of the CFTC, who asked questions from
panel members that they invited to speak on their panel discussions.
They covered almost everything you could imagine, and asked nearly all the
questions I would ask, they were that good. Unfortunately, the CFTC
did not ask the public anything, so I did not get to say anything.
The full event is now online, and available here:
http://www.capitolconnection.net/capcon/cftc/webcastarchive.htm
These are my notes that I took with pen on paper, then typed up
later. I sat in the back, did not take notes on everything, and I
hope I don't mis-attribute things said to the wrong person, if my notes
are not clear, I'll try to write, "someone said".
Panel members each had 5 minutes to read an opening statement or
testimony, and questions and answers were to be limited to another 5
minutes.
The main points in my notes are as follows. The commission members
asked many good questions:
Opening Statements by Gensler, Dunn, and O'Malia:
http://cftc.gov/ucm/groups/public/@newsroom/documents/speechandtestimony/genslerstatement032510.pdf
http://cftc.gov/ucm/groups/public/@newsroom/documents/speechandtestimony/dunnstatement032510.pdf
http://cftc.gov/ucm/groups/public/@newsroom/documents/speechandtestimony/omaliastatement032510.pdf
Panel 1:
They started out asking Steve Sherrod, of their own Division of Market
Oversight (DMO), in the CFTC, and Dan Berkovits, General Counsel of the
CFTC, some key questions. They also covered the history of position
limits at the CFTC which I don't cover here; it was a chart, hard to
read.
There were several opening statements by CFTC commissioners, see
CFTC.gov.
1. A CFTC commissioner asked: Why are there exemptions to
position limits granted to "bona fide hedgers"?
2. CFTC asked: What is the difference between a bona fide
hedger and a speculator, when one reason to hold gold and silver bullion
is to hedge against the inflation of the dollar?
The day started with a startling admission: There is no
enforcement of position limits unless they are excessive, which is defined
if there are "sudden and unwarranted changes in the price". CFTC
asked their own DMO if that has happened, and the answer was, "Yes, it was
volatile in 2008", I believe in reference to silver.
3. Even more shocking: CFTC asked: If an entity has
an exemption to position limits, and they are under "accountability
levels" then what happens when they exceed those accountability
levels? (Answer, the Division of Market Oversight (DMO) does
nothing, and nor does it sanction such activity by doing nothing.)
4. CFTC asked, "What justifies exceeding the accountability
levels"? The CFTC's DMO answered, "nothing".
5. Bart Chilton even said that hiding the names of the large
traders that have such exemptions leads to less transparency, which is not
the goal.
6. It was pointed out that revealing the names of market
participants is prohibited by statute.
7. But Chilton pointed out that if they are so large that it
reveals who the trader is, then that kind of proves that there is an
"issue"! I almost applauded.
8. Chilton pointed out that current position limits appear to be
like speed limits on a dark desert highway that nobody enforces.
9. The DMO pointed out that the largest ETFs do NOT hold futures
contracts.
==========
Panel 2:
Tom LaSala, of the CME Group, who owns the COMEX, said there are hard
position limits on the spot month, and accountability levels in other,
future months. He said the CME polices itself, and issues "reduce
position" instructions to market participants when necessary. Tom
specifically said that GATA lacks evidence and theory. He claimed
that inventories and hard position limits are all ok. He said that
position limits will drive trading elsewhere, (which seemed to be a big
discussion point of the day). He pointed out that LME gold trading
exceeds COMEX. (COMEX silver trading exceeds LME?) Driving
trading away from the COMEX would cause a loss of transparency, and the
other theme of the day is that transparency is good.
=====
Jeremy Charles, HSBC Bank, USA, their global metals trader, said they
hedge "long London" with a short COMEX. He said limits are
unnecessary and dangerous to USA markets, and lead to a lack of
liquidity.
=====
Mark Epstein, a private trader, who is a member on several exchanges,
said many good things. He pointed out the danger of the relative
size of the silver open interest, and that it is "too big", "irresponsibly
large" and a default could destroy the COMEX. He said that there are
often suspiciously large sell orders that knock the price back too much,
too fast, for example, someone sold 2000 gold contracts for about $215
million in 1 millisecond which knocked the price back about 1%. Such
things disrupt the price. And in silver, only just over 200 silver
contracts can knock the silver price back 1/2 of 1%. He sounded like
me, rattling off numbers of the size of the open interest, up to 700
million oz., which appears much too big in relation to the metal on
deposit in the warehouses, which is about 120 million oz., only 50 million
oz. of which are registered for delivery. Mark was one of the guys
who took delivery of silver off the exchange, and sent it to refiners to
make 100 oz. bars to sell into the spot market when silver spot was
$2-3/oz. above exchange prices, in 2008. He called it an "arbitrage
opportunity".
=====
Jeff Burghardt, of Luvata, a copper company with 6000 employees, said
he did not like high copper prices, which cause higher inventory
costs. He would want to limit long speculators. He complained
that copper prices doubled while warehouse inventories also doubled!
His suggestion was to impose higher margin limits, and said that would be
better than position limits.
=====
Diamurd O'Hegarty, of the London Metals Exchange (LME) testified
next. Apparently, he said nothing noteworthy.
=====
Gensler had a question about concentration in silver, for
Epstein.
Also, what does it mean when HSBC "hedges client activity"?
=====
Epstein said that large trades move markets. $5-10 million would
cause a massive disruption in silver prices.
=====
Jeff Burghardt complained that in copper, they now see daily price
moves that would normally take a year to happen.
=====
Michael V. Dunn, CFTC commissioner, asked, "What would happen if COMEX
was drained of silver?"
I believe it was O'Hegarty, of the LME, who replied, "It would fill
back up."
=====
Jill Sommers, CFTC commissioner, asked something like, "How do we know
if hedge exemptions to position limits are legit or not?"
I believe it was Jeremy Charles, HSBC, who danced around the issue, and
repeatedly said things like they hedge "exposure" and "have
exposure". It seemed to me he was being truthful but evading, or
trying to mislead while remaining truthful. I note he did not
say they "have metals", which I believe he hoped he was interpreted as
saying. Thus, it seemed to me that he was saying that they were
hedging their own short activity over at the LME with further shorts at
the COMEX, but not actually admitting that, but trying to make it sound
like they were hedging "long client positions", which also did not make
sense, as you don't need to hedge client positions, as client positions
are held for clients, and thus, don't have risk, unless they owe silver to
clients, and they don't want the silver price to move up, in which case
they would hedge their obligations to clients by shorting, to manipulate
the market!
=====
It was pointed out that there were 28 internal actions taken to prevent
excesses in futures, taken by COMEX, as noted by Chilton,
=====
Charles, of HSBC, pointed out there is no shortage of metal in London,
and that they can deliver bars within 24 hours.
=====
I believe someone suggested the CFTC use "position management" to
protect against a short squeeze.
Gensler, CFTC, asked, "How often does the COMEX exchange (CME) talk to
the "large 4"?
Answer, "where necessary." Clarify. "Not daily."
Perhaps once a month or every few months.
=====
Gensler tried to get them to clarify this issue of shorting futures at
COMEX to hedge "long cash" in London? Again, it seems as if Gensler
caught on to their evasiveness. Again, it appears as if they are
describing LME activity as if HSBC is describing their own "long metals"
positions by using the term "long cash". But it appears you could
use that same term "long cash" to describe that they owe cash, based on
silver prices, to their clients in London, while that was not specifically
admitted, of course.
(As an aside, I'll note that if they have long positions in London, and
short positions at the Comex, to balance out, that is manipulative.
You can't manipulate the price down at COMEX with shorts, to buy silver
elsewhere based off the low COMEX prices! (We can take legally take
advantage of the low price to buy silver, but not the ones shorting
silver!) Furthermore, if they have short positions in London, and short in
COMEX to prevent their London shorts from blowing up, that's not a hedge,
that's manipulation, and exactly the type of fraudulent and risky behavior
that needs to be stopped!)
(My broker forbids me from holding both a short position, and a long
position at the same time. Why do these guys act like that's no
problem, and a valid explanation?)
=====
CFTC commissioner Dunn said he understands that it is common to hold
silver as a hedge for inflation.
=====
Jeff Burghardt, copper guy, said that futures are used for price
discovery! He complained that manipulation moves prices more than
real world events. For example, prices moved less after the Chile
Earthquake than when big guys trade, and obviously it should not be like
that. Chile produces most of the world's copper.
=====
Chilton complained that it's amazing that the CFTC cannot reveal who
has an exemption to the position limits.
=====
Question was asked, are there multiple claims on silver? The LME
guy said "no".
The LME guy also said that it's wrong of analysts to compare, or
"balance", futures with physical supply, since futures can extend 5 years
out, and shorts will always "cover later" as the time to delivery draws
near.
=====
Scott O Malia of the CFTC said that "higher margins ~ good", and seemed
to back up what the copper guy was saying and asking for.
Epstein said that the largest traders have no capital constraints (I
believe he was alluding to firms like JP Morgan with an excess of $1.8
trillion in base capital and who can receive Fed bail out money or borrow
directly from the Fed discount window). Thus, it seems to me that he
felt that higher margins would not affect, or constrain, the largest
traders at all, and obviously it's the largest traders that are the
problem.
Another said that higher margins would disadvantage US markets.
CME opined "no" for higher margins; that they do already raise margin
requirements as they feel necessary.
LME opined that higher copper prices may be bad for the Copper company
that has to inventory it, but higher copper prices are good for other
market participants such as the miners.
=====
Chairman Gensler, CFTC, said he wants to bring price discover to the
OTC markets. (Currently, when things trade on the OTC, nobody knows
what was traded or at what price. Kind of like in our coin shops,
thus, they cannot accurately function as a price guide, like the COMEX
prices can.)
=====
Commissioner Dunn said things are "too 'loosey goosy' on
accountability". (Laughing, saying "loosey goosy" is a technical
term.)
=====
CME guy spoke on "concentration". He appeared to be dancing
around the issue. Said the big companies would look at limits as a
nuisance, or barrier.
LME guy preferred "lending guidelines" instead of position limits.
It was pointed out that it's the price 3 months out that drives
markets. Most futures contracts are for in the period about 3 months
out, and are continually rolled forward to the 3 month out period.
=========
Panel 3:
Tom Callahan, NYSE Euronext
Dr. Henry G Jarecki, Gresham Investment
Management
John Lothian, John Lothian & Co.
Bill Murphy, Gold
Antitrust Action Committee
Kevin Norrish, Barclays Capital
Tom, of NYSE, said limits could be a danger to drive liquidity
overseas. They could be a particular danger to emerging markets,
such as the NYSE Euronext.
Index investors help to drive stability, as they buy low, and sell
high.
Jarecki noted that the futures markets are one of the safest markets
out there, as prices are always "marked to market", unlike in the housing
market.
He quoted in Latin, "It takes great courage to do nothing in times of
crisis."
He had 4 recommendations:
1. Position limits will force trading to other markets.
2. CFTC should get data on who, as necessary.
3. If a company is a benefactor (of manipulation?), the CFTC
should figure it out.
4. Don't say you can't find out who is doing it.
=====
Lothian called us, GATA, and me, & long physical investors, who
believe in conspiracy theories, and distrust the markets, "political
parasites" and worse!? I was a bit outraged, of course.
He said accountability should increase, perhaps hinting that we should
be held accountable somehow.
(I personally had a chance to speak to him a bit at the break. I
asked him about the huge gap between physical and the amount of paper
sold, and was it not dangerous? He replied he thought "of course
not". Then I asked him at what level would it be of a concern?
Would it be ok to sell 100 times more silver on paper than the
physical? A 1000? A million times as much? Where do you
draw the line. At that point, he seemed confused and flustered, and
it appeared time to get back to the event.)
I noted at one point that CFTC Commissioner Dunn noted that he was a
long time personal friend of Lothian.
=====
Murphy was up next. He read his paper.
GATA Chairman Murphy's
planned testimony to the CFTC
http://www.gata.org/node/8442
See also the video here:
Bill Murphy of GATA Speaks to CFTC
http://www.youtube.com/watch?v=9wIMpe9SjfQ
=====
Chairman Gensler brought up again, the problem of the "large
concentration in silver". It was a real WOW moment for me.
He asked, "Help us understand how it impacts fair and orderly
prices".
Someone said that "greater transparency can offset concentration".
In the stock market, the SEC requires that at 5% ownership in a
company, you have to reveal disclosure of who owns it. There seemed
to be no valid challenge to applying this rule to the futures markets.
=====
Dunn (CFTC) asked, "Will position limits drive trading to OTC opaque
markets?
Jarecki: Yes, its a risk. He said, "don't hamper the weak
and small copper market". (The COMEX copper market is about 10% of
world trade, not a major world copper market, unlike in silver and gold,
where COMEX trade is either first or second in world trade.)
Jarecki said that, historically, the silver markets move away from
areas of excessive regulation.
=====
(At this point, I'm thinking, "Is it even a market? Is fraud a
market? And "why keep fraud here at home, if its not a market?
Nobody's mentioning this perspective.")
=====
Someone said Shanghi is already 40% of global metals trading.
(This did not appear on the charts shown earlier, which showed LME and CME
(COMEX) dwarfing world trade in precious metals, being one and two, and
totaling up about 80-90% of world trade.) Perhaps this is the
difference between physical and paper? Were the charts earlier only
tracking paper trading, and not physical?
=====
Chilton said it's "silly fears" if position limits are very high, it's
not going to drive trading away.
Asked, What's "too much" concentration? Unanswered.
(I'd note that every trader is a "bona fide hedger" since it's
perfectly fine to hedge away your risk of holding dollars, by being a long
holder of physical silver and gold, or even futures contracts. But
that's not what they mean by "bona fide hedger" which qualifies for the
excemptions; they mean if you "have a long risk" that you can offset it
with shorts in excess of the position limits. But I'll also note
that nobody is forcing these banks to buy long gold and silver, and if
they don't want that risk, they simply don't have to take it! But I
also believe these banks are certainly NOT holding excessive amounts of
gold and silver like they claim; they don't have enough to back all their
client accounts; as can clearly be seen in the BIS reports where they have
over $200 billion in "other precious metals" notional value of OTC
derivatives, that's about 12 billion ounces of silver, or 24 years of mine
supply that they owe, and cleary cannot have; that's their risk!)
CFTC question: What will be the effect of position limits on the
price?
Jarecki: All prices are up already anyway. He opined that
exchanges themselves lower volatility in price. Therefore, position
limits would theoritically increase volatility.
Lothian: "Friction retarts markets?
Gensler differs on that. Regulation is good.
CFTC has got position limit authority; this was granted as early as the
1930's.
CFTC: There is a raional way to deal with leverage, and wants to
regulate the OTC market, too.
Hedging vs. Speculation. Hard to tell the difference!!!
Question, repeated: Can a firm separate their own risk and
accounts from client accounts? Some said it was hard or
impossible. Chilton said it must be possible.
I note I cannot separate out the two, except on the large trades, and
even then, not always on the entire trade, but only a part of the trade
sometims. I note that part of the service I provide is to break down
order sizes into smaller orders, thus, not ever order or customer trade
can be immediately covered at the prices sold. I have to aggregate
many trades together, over time, into one trade, to reach the minimum
order size to repurchase, or "cover". In other words, not every
customer order is for 5000 oz. of silver. But this is on the
opposite side of the spectrum. That's one contract, we could get it
close as one contract, of course, easily. Thus, not being able to
separate these apart is no justification for exceeding position
limits.
=====
Chilton: Is there Evidence of complicit COMEX activity?
GATA answers "YES, whistleblower testimony fingers JP Morgan".
Bill Murphy of GATA Reveals Whistle-Blower in Gold Price
Suppression
http://www.youtube.com/watch?v=e9bU0r6JP4s
A few days later, they elaborate, here:
Andrew Maguire & Adrian Douglas
Tuesday, March 30, 2010
http://kingworldnews.com/kingworldnews/Broadcast_Gold+/Entries/2010/3/30_Andrew_Maguire.html
=====
CFTC noted that buyers could get around position limits by buying large
positions into many different funds; thus, they appear useless, or only a
hurdle.
=====
Jareski: preventing fraud is GOOD. Said it was the first
time he heard the 5% rule, that at 5% concentration you have to reveal who
you are, sounds good. Regulations, like stoplights, are good.
===========
Panel 4:
Richard Straight, Triland USA, a Division of Mitsubishi
Corporation
Simon Grenfell, Deutsche Bank
Mike Masters, Masters
Capital
Harvey Organ, Individual Investor
Jeffrey Christian, CPM
Group
(Before I start, I should note that Jeff Christian should be nominated
both for the Moron of the Year Award, and also for the "worst and most
unconvincing liar award." I note he claimes to have helped pioneer
the invention of the futures contract, so it seems like he's trying to
protect his baby from criticism. He also gathers the industry
statistics on silver supply/demand, which is what you would need to walk
this tightrope of trading futures safely, and yet, while the fundamentals
appear wildly bullish, it appears he earns his money from the short side
of the street, working for the shorts, and being one of their
apologists. Clearly, they can afford to pay more. If you could
say the silver market fraud is not a conspiracy, but rather it must be the
actions of one insane main, it would be him -- but he's probably not short
himself, but long. I think he's both a deceiver, and a rather
deceived and pathetic character in this amazing drama of our age.)
Richard Straight: On the issue of position limits? NO!
Masters: Passive specs, the "massive passives" the fund investors
who are always long, are a problem. They reduce liquidity. (I
note that while that might be accurate, that's not a problem! As if people
should be forced to trade more?!)
Harvey Organ: (GATA) Produced GREAT statistics, the BIS
report! He requested a 40% margin of physical silver, as a
solution.
Jeff Christian (CPM): Position Limits would do nothing. Or
they would risk driving trade away. Position Limits on
non-commercials are good. (What?!) Funds pose risks by buying
longs, and selling too fast. Passive Funds create the risks.
Arbitrage happens fast. Position limits would be bad, "like Sarbanes
Oxley".
Chairman Gensler retorted, "I helped to co-author Sarbanes Oxley", and
think it's a good thing. Funny moment.
=====
Straight: Said the Clearing Houses know and clear both OTC
trades, and COMEX, thus, it should be possible to regulate them.
Why and How are position limits on one, and not the other?
DUNN: Is there a need for another market in silver, say, for 100
oz. bars?
Straight, or someone said: No, probably not enough demand.
(Let them think that! On the other hand, demand for 100 oz. bars has
gone dramatically down since late 2008 and mid 2009).
Regarding Platinum and Palladium; they are strategic metals, and thus,
it's "insane" to let investors stockpile them. (Like whoever said
that has absolutely no concept of freedom!)
Someone asked, "Why does the SEC have jurisdiction over the ETFs and
not the CFTC?"
Masters: "Massive Passives" consume liquidity. (As if
liquidity is a goal, and not freedom?)
Chilton retorted: It's impossible to limit longs by category like
that; how do you limit it; do you limit the old, or the new, or do you
make the old sell to the new, or do you limit new longs in that category;
it's just impossible to figure out how to regulate a category like
that.
Masters sumbitted a 55 page paper. If there are limits; it should
apply to the paper he sent in to the CFTC, (laughter).
Masters said, "to hedge dollar decline, the currency markets for the
Euro and Yen are perfectly acceptable alternatives. (As if he did
not know that gold and silver have outperformed all currencies and are in
bull markets in all currencies over the last ten years. What an
idiot.)
CFTC question: "Can the shorts deliver?"
Jeff Christian attempts a 3 point answer:
1. They have never defaulted in the past.
2. There is a cash delivery settlement option.
3. They hedge OTC longs.
=====
Harvey (GATA): Says there is huge risk! China and Russia
can take and clean out COMEX! TheY, COMEX, WILL have a failure!
Adrian Douglas (supporter to Harvey) piped in, and was almost shut down
by Gensler, as he was not slated to testify, but in the public audience,
but had a microphone. Gensler said "No" a and then clarified with,
"No, I don't know who you are."
Adrian: $5.4 trillion in London Gold; that's NOT METAL; it's a
fractional only system. The LBMA admits this is "unallocated" and
that it's "unsecured". It's not physical, they can't hedge, it's
paper hedging paper, nothing but a Ponzi scheme!
(Big truthful testimony after a day of lies, half truths, and willful
obfuscation.)
Jeff Christian tried to retort, admitted that there is 100 times as
much paper as physical, and seemed to get confused at one point.
=====
Chilton (CFTC) "Migration of markets, your take?"
Masters: It's an "Empty Threat". Would markets go to
Dubai? Why, they failed!
=====
Gensler & Dunn (CFTC) to Christian: "How would a short to
cover a sale?" (This appeared to catch Christian, almost.)
"What are they hedging on the other side?" (Question nailed
it! I was impressed.)
Christian also tried to pull out the "I'm a Goldman Sachs alum" card
with Gensler.
Gensler retorted: "A lot of people worked for Goldman Sachs, and
I don't agree with you."
(It was another pathetic moment for Christian, and one of the
highlights of the event!)
Christian: Says "Look at their gold book; it's gold from
miners, jewlers, producers sell immediately before smelting &
refining, so they, the bullion banks, short it to "cover" the long
purchase. Fund longs are hedged with a short! (?? does this
admit manipulation ??)
Christian says "we" (implying him and the CFTC) don't help explain, and
we are confusing to investors.
This last part of the testimony is reviewed here:
Former Goldman Commodities Research Analyst Confirms LMBA OTC Gold
Market Is "Paper Gold" Ponzi
http://www.zerohedge.com/article/former-goldman-commodities-research-analyst-confirms-lmba-otc-gold-market-paper-gold-ponzi#comment
==========
end
==========
End of my notes: My further observations.
(Christian nearly reveals the manipulation several times with his
"garbled comments".)
What's ironic about Jeff's comments is that the gold books of the
bullion banks are NOT public information; and probably not even the CFTC
commissioners can get a good look at them. Furthermore, it's
ludacrous to think that miners have hedged silver 24 years into the
future, as an explanation for the $200 billion OTC market size in "other
precious metals", as reported by the BIS, the Bank of International
Settlements. If Jeff has even seen a gold book, that shows who he is
the apologist for; those doing the manipulation: namely, JP Morgan.
=====
People and opinions change slowly sometimes. I have changed my
opinion of the CFTC; they are awakening and becoming the good guys.
I felt that they would have apolgized for prior CFTC commission members
lies about the silver market, perhaps if only they knew what the lies
were. But this was better; they admitted their own fault, that they
currently "do nothing" when position limits and accountability limits are
exceeded! Wow!
=======================
Gensler kept asking two questions.
1. How are we going to regulate this oversized silver
position?
2. What will our regulations do to the market?
This was great, because I don't think Gensler would ask those kinds of
questions unless he really sees a problem and really wants to do something
about it.
If you look up Gensler's wikipedia bio, under his career, it's
revealing. Every time he regulated, it resulted in good. The
times he did not, resulted in blowups. This man has been taught by
personal experience to be a regulator! He wants to regulate, knows
he needs to regulate, and I think he will.
http://en.wikipedia.org/wiki/Gary_Gensler
After
the event, I ran back to get my coat, and noticed Gensler speaking to
a small crowd. I listened in. He said he learned a lot from
the event. He refused to sum up. He said that it would be easy
to act, as it's simply the five of them that can come up with
solutions. He was asked, "Is Dunn the swing vote here?, which
implies that the reporter who asked, noted that between Gensler and
Chilton, they needed a third to get something done. In a
break in the questions, I asked him if I could take 60 seconds to
give the answer to the two questions he was asking all day. I
was told, perhaps by a reporter, this was a meeting for reporters only,
and I was told I could wait outside. After a few minutes I
left.
======
The main answers that kept coming back, to Gensler's two big questions,
mostly from industry insiders, were "you can't do anything; limits would
do nothing", and "if you try, you will drive markets overseas".
Chilton noted that those answers are just not true, it's kind of an
empty threat. At some point, you could set position limits so high
that there would be no effect. Thus, at some slighly lower
reasonable limit, could only help the market, add legitamacy to it, and
not destroy it.
One of my readers already noted that if you drive fraud overseas,
that's not a bad thing; we don't need fraud here, and we should not
confuse "fraud" with "markets".
The problem with position limits are that, first of all, they are
almost ignored by market participants and the CFTC as it is, and second,
they are only a hurdle. There are ways around them, as multiple
dummy corporations could be set up overseas to take on the short
position. Or, it was also pointed out, that a long investor could
set up 5 funds, and each fund could buy up to the position limit, and
thus, evade and exceed the limits. Thus, position limits are only a
good first start.
Another solution would be to reveal the identity of any trader who has
a position that exceeds 5% of the open interest. It was pointed out
that this is the situation when you buy a stock, so why not apply it
here? Nobody objected.
The problem is that the statute currenly says that the CFTC cannot
reveal names of traders. Problem is that statutes can be wrong, and
can contradict other law. For example, there are also other laws
called "obstruction of Justice" and "misprison of treason" that should not
be violated, such that if you know there is a crime taking place, and if
you do nothing, then you can be held to be guilty as an accomplice, by
being complicit in the crime by doing nothing.
I think the CFTC now knows there is a crime taking place, a crime that
is a direct threat to the nation, one that may require a massive bailout
if it is not corrected, and, thus, the CFTC will try hard to avoid doing
nothing.
What they should do exactly, well, that's still another question
entirely.
I believe that regulations to end the fraud of excessive short selling
will make our markets more fair. If fraud in silver stops here, and
goes overseas, then USA silver prices might be slightly higher than world
silver prices. This would have the effect of luring silver here,
from overseas, which, in light of the silver shortage, can only be a good
thing.
Some at the CFTC said they wanted to avoid creating an "arbitrage
opportunity" between markets. But if fraud is limited here, and
unlimited elsewhere, there will be an arb opportunity; prices for silver
will go up here.
As it is, gold prices are nearly always
higher in India than compared to world market prices, and this is what it
takes for India to import from 250 to 800 tonnes of gold per year.
That's not a problem that needs to be fixed, that's how markets work and
should work.
The "arb opportunity" is how the free market corrects imbalances.
This is why the manipulation is global; they have massive short positions
in the OTC, and they hedge their short liability with further shorts to
manipulate and keep prices down.
Again, the BIS numbers say the "other precious metals" notional
liability is $203 billion, which, in silver terms, is about 12 billion
ounces. This means they lose $12 billion for every dollar that
silver prices rise. This means they stand to lose $120 billion if
silver prices rise $10. They stand to lose $203 billion if silver
prices merely double, and if no new buyers enter the market, and that
could result merely from their own short covering.
=====
As I walked through the halls past many congressmen's offices, I
learned a few things. Staffers are so young, maybe aged 25-35, or
younger. Usually, you have to book an appointment in advance, if you
want to get somebody to hear your concerns. But not always.
Some of them would say, "Understanding this is beyond my pay
grade." Perhaps meant to be a joke, or just said to get me to shut
up, I'm not sure.
Understanding the problem is not beyond anyone's ability.
Understanding the solution, that's a bit more difficult.
Understanding the personal solution, that's easy. Buy real
physical silver, the kind you lift, and carry home. Call us at the
JHMINT.com to order bullion. (530) 273-8175
And what is the national solution? Well, they'll have to figure
that out for themselves, won't they?
But, the CFTC is on record saying they want YOUR HELP to figure out the
solution. My dad and I used to sit around and moan about the
stupidity we saw in Government and big finance, and we would laugh and
conclude with a loud ironic sigh, "But they didn't ask us, did
they?!" But now they ARE ASKING. Deadline for comments from
the public is April 30th.
Never has the CFTC been so open to hearing our cause for honest
markets. Now is the chance. Now is the time.
Send your comments by mail, fax, and email, to:
Written materials should be mailed to the Commodity Futures Trading
Commission, Three Lafayette Center, 1155 21st Street, N.W., Washington,
DC, 20581, attention Office of the Secretariat; transmitted by facsimile
at 202-418-5521; or transmitted electronically to metalshearing@cftc.gov.
Reference should be made to “metals position limits.”
=====
A few days later: Not sure if the CFTC is warming up, or
what.
CFTC Charges Ohio-based Defendants Enrique Villalba, Jr., and Money
Market Alternative, LP, with Operating a Multi-Million Dollar Futures
Ponzi Scheme
March 29, 2010
http://cftc.gov/newsroom/enforcementpressreleases/2010/pr5801-10.html
To continue to follow this saga, see:
http://www.gata.org/taxonomy/term/2
http://cftc.gov/
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