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Why 95% of Traders Fail

Is JPM Covering Up a Naked Silver Short Held By China As a Claim Against the Yanks?

Commodities / Gold and Silver 2011 Jan 16, 2011 - 12:14 AM GMT

By: Jesse

Commodities

Best Financial Markets Analysis ArticleI freely admit that I have no inside knowledge of what is happening behind the scenes in the metals markets. But I do have a sense that things just do not seem to make sense, and the facts do not appear to fit the situation without some stretching.

And this is one of those cases where my curiosity gets piqued. And so this seemed to be of interest to me as it might be to you.


While looking for information about the recent CFTC proposal on position limits I came across Harvey Organ's most recent report on things affecting the metals markets. As you may recall the CFTC took a 4-1 vote to send the proposal forward for market comments, with Rep O'Malia casting the sole dissenting vote. I was specifically looking for Bart Chilton's statement on the vote which Harvey references, which is how google led me to Harvery's commentary here:

"I was intrigued with O'Malia's no vote. He seems to be wrapped up in the massive swaps by the banks and he does not know how to regulate these. He is probably scared to death if JPMorgan has to open their swap books and see the trades that I have highlighted to you to you on many occasions.

It is has been my contention all along that the real short position on silver is not JPMorgan or HSBC but mainland China. The USA needed a hoard of silver supply to compliment the banking gold supply to keep the suppression scheme alive.

China had about 300 million oz of silver inherited with the overtake of China in 1949. The gold was air-freighted to Taiwin (69 tonnes) but the silver remained in Shanghai and Beijing. In 1990 the usa had 2 billion oz of above ground silver and by 2003 their supply went to zero. They needed the Chinese supply.

Here was their supposed deal: in or around the year 2000 and events leading up to now:

1. USA gives most favoured nation treatment to China.

2. China lends silver in a swap position. China gets dollars as collateral and USA gets silver.

3. China can get their silver back at any time say past 3 or 4 years.

4. China loves the deal as they pick up gold on the cheap.

5. It is now 2010 and China want its silver back but the usa state that the silver is gone. They can keep the usa dollars in collateral.

6. China refuses and is angry. They now massively short on the comex knowing that they will not supply the metal. It is up to the bankers.

7. They use conduits on the buy side and take delivery.
This is what O'Malia is frightened of when the CFTC sees the swap book on Morgan."

The point that both Harvey and Ted Butler have made is that China is behind the big short in silver being held by JPM and HSBC (Hong Kong Savings Bank), but if pushed for delivery will throw its unsatisfied metal claim with the US on the table and will say, 'Get it from them.'

This does seem a little convoluted to me, and the first time I heard Ted mention China as principal behind the big silver short I thought it was ludicrous.

But I do think there is an element of unstated truth in this situation somewhere, and that there are serious scandals buried in the naked silver short position and the gold markets that will eventually see the light of day.

Is China black-mailing the US with evidence of market manipulation in gold and silver? It sounds like the plot of some novel, but stranger things have happened when government goes into partnership with finance.

My personal bias is to stick with the simplest explanations unless more data indicates otherwise. A short selling operation at JPM gone awry, combined with significant silver shorts they inherited from Bear Stearns, has taken the bank into the position of being unable to deliver what they has already been sold. This is complicated by the 'wink and a nod' that was likely given to the banks by a Treasury and Fed eager to keep the canary in the monetary coal mine from singing in the precious metals markets.

Given the current state of the US banking industry, the regulators are afraid of what a default on the Comex by the poster child of the Wall Street Banks recovery would do to investor confidence. So they are trying to kick the can down the road. Almost seems to be a reflex reaction in Washington these days.

The more complex scenario put forward by Harvey and Ted would certainly be a case of the Chinese hanging the capitalists with the same rope which the capitalists sold to them. But I would look for a simpler solution, with an underpinning of well intentioned perception management gone bad from the taint of corruption and cover up.

As a rule of thumb, it's never the act itself, but always the subsequent cover-ups that blossom into a gut-wrenching, career-destroying scandal.

I remember vividly how the testimony in the Clarence Thomas-Anita Hill Supreme Court nomination hearings riveted the world's television audiences each evening. The Nixon Watergate hearings were also high drama indeed, over a much longer period of time, keeping the US locked into what Gerald Ford called a 'national agony.'

Although I was far too young to watch and understand them, I even remember the aftermath of the McCarthy Army hearings, the Red Scare, and Roy Cohn, dipping back further into history of tawdry political affairs.

Wait until Ron Paul opens for business as the Chairman of the House Finance Service Committee and starts grilling Timmy and Ben about TARP and the banking bailouts, among other things.

There seems to be plenty of smoke coming out of the cracks in the Fed's stonewalling so far. Likely there is a fire in there somewhere. And don't forget there are several experienced firms with discovery orders and lawsuits in hand circling the building, looking for a way in.

This year could be interesting, maybe even 'pass-the-popcorn-Gracie' interesting.

By Jesse

http://jessescrossroadscafe.blogspot.com

Welcome to Jesse's Café Américain - These are personal observations about the economy and the markets. In providing information, we hope this allows you to make your own decisions in an informed manner, even if it is from learning by our mistakes, which are many.

© 2011 Copyright  Jesse's Café Américain - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Matty
17 Jan 11, 09:20
popcorn perspective

Jesse, I can relate to your "popcorn perspective" - what American couldn't - as that's how we've all been conditioned, and acculturated, from birth here. But the Watergate Popcorn Moment was a diversion from serious reality - in which CIA escaped all accountability for blowing open the head of the President, right in front of America, in a public plaza.

That was quite a trick. Surpassed only by the dynamiting of the two biggest buildings in the country - again, in broad daylight - and managing to have everybody blame it on people from other countries, whose oil they just happened to covet, as well.

Even leaving out all the subsequent killing overseas, the blood of those 3,000 New Yorkers, along with bits of President Kennedy's brains, are by now spattered all over "our popcorn" - it no longer tastes any good - and I, for one, am not pig enough to go on eating it, pretending that it does.

Buy silver with both hands. Not because it will make you rich - it will (and that will be the Grace of God, coming into your life) - but rather, buy it because this Firm - and this Evil - must End. And that will *really* be a show worth seeing.

Semper Fi,

-Matty in Florida


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