Friday, March 19, 2010

CFTC, GATA FIDDLE WHILE THE WORLD BURNS (or How I Learned To Stop Worrying and Hoard Gold)

In an article posted March 18 2010 on SilverSeek.com "Its the Message, Not The Messenger", high profile silver maven Ted Butler expresses his profound regrets for his expected non-appearance at the much heralded CFTC hearings on gold and silver position limits on March 25. Apparently Butler, who has tirelessly advocated his crusade against the manipulation of the precious metals markets for the better part of three decades has been hamstrung by allegations of financial impropriety for his 1984 involvement "in an incident involving orange juice futures" during his tenure as broker at Drexel Burnham Lambert. The CFTC has advised Butler that his appearance during the hearings would only distract from the historic proceedings with the inevitable surfacing of his past shady dealings which he admits have not been resolved. There has been a loud brouhaha over these hearings which have for some unknown reason raised the hopes of Butler and, among many others, the equally tireless though much less heralded metals chronicler Harvey Organ, concerning the"issue of establishing legitimate speculative position limits in silver along with the enforcement of bona fide hedge exemptions to those limits". Butler and other critics have pointed to the vast short positions in silver at JP Morgan Chase, HSBC, and other banks as overt attempts to suppress the price of silver.

The massive short silver position at Chase is the most instructive case history in the systemic fraud which has permeated the precious metals markets. Chase "inherited" its some 200 million ounces of silver short positioning from the now defunct Bear Stearns which it acquired in the questionable dealings following the collapse of Lehman in September 2008. Previous to that, AIG, the economic black hole that was once the largest insurance company in the cosmos, held the COMEX silver short positions along with similar shorts in gold, which it was required to cede to Bear Stearns by the Sheriff of Wall Street, Elliot Spitzer. Until its demise BS continued the salutary task of "manipulation and fleecing of the technical funds and other speculative traders" according to Butler. The acquisition of Bear Stearns by Chase resulted a massive takedown of silver from over $20/oz. to just under $9 in a matter of days, indicative of the deluge of paper silver selling that flooded the market in the engineered collapse, something not seen since the days of the Hunt brothers attempt to corner the market in 1980. This kind of naked short selling was an object lesson in the illegal manipulations employed to bail out the endemically insolvent banking system in both the U.S. and UK.

The disconnect between the exchange futures contract and the actual bullion price paid for transactions plays an essential role in this scam and will undoubtedly be one of the issues which will be addressed in the CFTC meeting. The so-called "Volcker Rule", which has been bandied about in the media overmuch these days, addresses at least in theory, the excessive leverage and amounts of risk inherent in the shady and fraudulent accounting practices which have allowed banks and other financial institutions to misrepresent their balance sheets to inflate speculative debt and asset bubbles, all the while reaping windfall profits. In this respect the supposed banking reform bill proposed by the sumptuously corrupt Senator Chris Dodd of Connecticut to limit proprietary trading is little more than window dressing much in the same vein as the staged CFTC meetings on position limits.

The same type of chicanery in the precious metals markets ultimately results in the absurdity of the physical commodity having little if any role at all in the paper contract settlement. In other words the massive short positions in silver (and gold), though legally required to be backed by at least a significant percentage of the actual physical commodity held in reserve, are increasingly "short" and lacking the physical metal to fulfill contracts demanding delivery. This questionable situation has resulted in an unprecedented backwardation of the silver price noted by Antal Ferkete in December 2008 as well as threats of legal action brought to bear against the LBMA by investors demanding delivery. Earlier this year the LBMA was offering cash settlement at 25% premium in place of gold bullion delivery indicating the critical absence of the same in the exchange vaults.

The short positions now held by Chase came with interesting baggage which surfaced last year when the Chinese threatened to walk away from their derivative obligations contracted with the large U.S. investment banks. Apparently the silver positions were accompanied by equally massive offsetting OTC derivatives contracts possessed by Chinese state owned investment funds which provided AIG with the backing to carry on its shenanigans of selling of its short silver paper contracts on the Comex. With these derivative contracts passing through Bear Stearns, JPMC became the world's largest counterparty with an extraordinary derivative exposure whose notional value has been estimated at $80 to $90 trillion as opposed to $1.66 trillion in assets or roughly six times the GDP of the U.S. economy and outstripping the world economy itself by $21 billion. Butler has even gone so far as to suggest that these Chinese OTC derivative positions pose a threat to national security.


Shortly after the takeover of Bear Stearns by JPM Chase, Butler came out with a very provocative article based on his conjecture that the takeover was a government sponsored bailout of the the largest silver short position on the Comex ostensibly to avert the supposed possibility of an imminent and severe national economic destabilization.(shades of Paulson's threats about Lehman) The newly acquired short position by JPMC amounted to a massive 33,805 contracts, more than 169 million ounces, equal to 25% of the world mine production,causing a 50% plunge in the price of silver "in spite of a widespread shortage of retail forms of investment silver".

Such a massive concentration of any commodity is unmistakable evidence of overt manipulation which, in addition Butler claims, was undertaken with the active collusion of the CFTC. He insists that the short squeeze which would have inevitably occurred if market forces had been allowed cover "would have driven silver prices to the $50 or $100 level" exposing the systemic manipulation of the precious metals markets which in this particular instance netted Morgan tens of billions of dollars in profits as they gobbled up shorts on the engineered fall in silver prices due to the combined agency of their COMEX and OTC derivative short positions.

It is scarcely surprising then that the CFTC would sanction and effectively silence Butler's testimony with such transparent blackmail as he alludes to above. The whole sordid story reveals the stranglehold the large commercials hold on the precious metals markets and bodes not well for the much ballyhooed March 25 CFTC hearings on gold and silver position limits under the chairmanship of yet another governement Goldman retread, Gary Gensler. Though the "historic nature" of such proceedings have raised much hope among the gold and silver writers, I think we can be assured that the eventual outcome will be little more than the usual tiresome whitewash, which we have come to expect from any government inquiry.

The singular and unprecedented positions of JPM Chase and HSBC in silver are exclusive to that commodity alone and symptomatic of the control exerted by the bullion banks and commercial interests in regard to the precious metals in general. In addition to reaping huge windfalls from their exclusive positions as they manipulate the price downwards, collecting on their massive shorts in the process, they build large positions on the way up for another round of profit taking on the tops. This apparently failsafe method of illegal insider trading has gone on for decades with the CFTC turning a blind eye to the con game and in all likelihood in on the take themselves. The following chart gives a graphic indication of the effect of massive short selling on the price of silver.

Meanwhile the Gold and Silver writers themselves expectantly await their deliverance from the wasteland of investment marginalization to which they have been consigned and from where we hear the wailing of their voices in unison proclaiming that their vindication is near at hand with new and equally vain prophetic utterances concerning "moon shots" and "parabolic blow offs" which never quite seem to materialize. Other than providing a constant supply of fodder for the banksters in the way of a constant stream of credulous speculators who buy into the effervescent enthusiasms which accompany each pump in the market and then subsequently are flushed out of their holdings with the inevitable elevator ride down, the "writers", as Stewart Thomson derisively refers to them, as they await the signal "event" which will translate them into the promised land of unlimited returns on gold and silver, are a generally forlorn and ineffectual lot mooning after a perpetually retreating expectation.

Even the old hands cannot escape this unfortunate assignation to some extent. One has to only think of the great Goldmaster Jim Sinclair and his dire predictions for the impending collapse of the US$ to be accomplished with finality on a mysterious red letter day last November and the subsequent moon shot for Gold to $1224 and to the nether regions beyond. Well at least his sibylline augury proved half right, before Gold crashed hard and the dollar started its surprising recrudescence. Then there was his prognostication that, with the anticipated volatility in the markets, Gold would be rising by $100/$200 a day...a day! This in a market which has seen on the average, at best, a 1% to 2% daily gain due to the inevitable price capping by the bullion banks. Though his predictions were more modest, Jim Willie fared little better when he called for $25 silver by the end of last year. Oh well...meanwhile Gold has inched upwards at its usual tortoise-like pace, oblivious to all the furious clamoring attending its inevitable glacial ascent.

As the CFTC trots out Commissioner Brad Chilton to run interference for its March 25 meeting, he faces a motley assemblage of investors, activists, "writers", and other assorted gold bugs, all intent on exposing the decades long conspiratorial underpinnings of the bullion bullies. GATA's day in the sun however is bound to be a short one, as Chilton mincingly suggests that although he is in profound sympathy with their long standing opposition to the lack of position limits in the precious metals commodity trade, he is convinced that the other commissioners, including apparently, former Goldman Sachs honcho Gensler, do not share his support. Surprise, surprise. The hope that stirred among the gold bugs was occasioned by CFTC action last year regarding similar heavily weighted positions in the energy commodities sector.

While the assembled knights errant of precious metals tilt at the CFTC windmills and congratulate themselves on this meeting as a significant milestone in their long struggle to secure their rights, some other less publicized and yet relevant issues of a more pragmatic nature might be admitted which pose the distinct possibility of a much less sanguine outcome to their noble and yet quixotic quest. These involve the same powerful agencies of international high finance at their avowed nemesis JP Morgan Chase who, under the aegis of Alan Greenspan, created the financial instruments today known as Over the Counter(OTC) derivatives way back in the Clinton regime. What was briefly alluded to above concerning the Chinese involvement in OTC derivatives contracts offsetting the massive JPMC silver short positions provides only an indication of the potential for the slow motion economic holocaust which is presently unfolding in the global economy.

On the global casino gaming tables otherwise known as the international financial markets, stock exchanges, and currency exchanges, the money masters are now calling in all their OTCD bets. The greatest crap shoot in history is now over, the house lights have gone up and the losers have been gamed. Just as there are two sides to every trade, the same is true with these bets; the bankers have won on their OTCD bets and the losers who made the mistake of betting against the house are just about everybody else.

"The Banksters have turned the G-men into their collection agents for a giant protection racket. One designed to make them Quadrillionaires... The mechanism of the collection is the devaluing of paper money that is a defacto repo of nonpaper assets. The coming global paper currency devaluations against gold, what those are is the MECHANISM for the banksters to collect hundreds of trillions of dollars they WON in OTCD bets against the fundsters, cities, states, nations and really against joe blow price chaser as well...The Golden Rule is that he who has the most gold rules. The banksters have the most gold and so they rule. And their rule is to collect the trillions that they are owed... the banksters are going to fade you away and suck the blood out of you one drop at a time, you're somebody with financial cancer that is incurable. It will be a decades long death of horrors..." Stewart Thomson

So as the usual melodrama and playacting goes on in Washington with its equally predictable sonorous reverberations in the echo chamber of the mainstream media outlets, the script has already been written and well rehearsed with the appointed dramatis personae departing not one jot or tittle from their prescribed roles. All the fustian and nonsensical posturing about open markets and "position limits" is but so much froth on the lips. The corrupt martinets on the dais of government agency smile condescendingly at these earnest and credulous citizen- petitioners as they flail and gesture in a great display of the futile and impotent assertions of the rights incumbent upon their status as "free men". As Goethe once averred "There is no one more enslaved than he who falsely believes he is free". Well, I suppose it's to their credit that they are aware of the gross indignities of being circumscribed in their acquisitions by the detestable CFTC bureaucrats and their cohorts at Morgan Chase. It must be some consolation to realize that they have at least been granted the great and rare privilege of being acknowledged by the castle gatekeepers.

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