Friday, November 18, 2011

I Like Winning So I Don't Trust Wall Street

"I like winning - I wish it wasn't quite that stressful" 
 - Tim Tebow after leading the Denver Broncos to a last-minute
comeback win over the heavily favored NY Jets

Silver investors probably feel like serious underdogs given the enormous amount of market manipulation exerted on the silver market by JP Morgan, especially since the CFTC is fully aware of this manipulation and does nothing to enforce the laws. 

But then again, yesterday was somewhat of a victory for the silver longs because JP Morgan's ambush on the market appears to have failed.  You are probably wondering why I say this.  Typically when the metals get taken out back and shot, like yesterday, the open interest declines substantially as the large spec longs have their sell-stops triggered, thereby enabling a big short like JP Morgan to cover part of its short position profitably.  But a curious thing happened yesterday:  the open interest in silver actually increased by 1156 contracts  And the open-interest in December silver only declined by 527 contracts, which is quite small relative to the open interest for December and the approaching first-notice date on November 30.  Recall from yesterday, the open interest in December silver is currently over 5 times the amount of "registered," or deliverable, silver sitting in Comex depositories.

Now, it's possible that the large spec hedge fund traders jumped on the short side of the market, as this group often likes to follow momentum.  I actually hope this might be the case because historically the "momentum" based hedge funds tend to be terrible market-timers in metal futures.  In fact, typically once the hedge funds start shorting into rapid market declines in gold and silver, it historically has signalled the bottom of the market and the start of a fairly rapid reversal up to higher levels.  In other words, in close to 100% tried-and-true fashion, the momentum funds are perfect contrary indicators in the precious metals market.  Similar to Dennis Gartman, I might add.  Oh, I see Dennis Gartman announced that he cut his gold position recommendation today...

Having said this, I do expect JP Morgan to take another crack at pushing the silver market lower next week because: 1)  as it stands now there's not enough silver to meet potential physical delivery demands, of which JP Morgan represents at least 50%; 2)  market volume will be light next week and usually during light-volume periods the bullion banks try to take the metals market lower; and 3)  if JP Morgan can push the market lower in order to cover part of its short position, it will create short term trading profits that will be recognized in its Q4 earnings and help JPM to reduce its overall extraordinarily unprofitable short position.  I'm not saying that I think it's a done-deal that the market heads lower next week, but it would be consistent with past manipulative patterns - just ask any of the directors at the CFTC because they know as well as any of us.

Finally, I found it interesting that Brinks - another Comex vault custodian - received nearly 1.2 million ounces of silver into its "eligible" inventory.  Recall that "eligible" silver is not yet certified for delivery and can be either silver that is intended for eventual delivery or is just silver being safekept by Brinks on behalf of investors/traders.  But per the futures delivery data, this silver was likely moved in from an external source and as such there is a high degree of probability that it was moved in for possible December futures delivery.   Again, at this point in the calendar cycle, there are a lot of open silver contracts and only 6 trading days before the first notice (a week from Tuesday).  Between JP Morgan and Brinks, there has been a lot of movement in inventory at the Comex.  This could be coincidental but my bet is that we could see some unusually high delivery stress in December, which will push prices quite a bit higher than where they are now.

On to MF Global and custodial risk - Bruce Krasting, with whom I often agree, wrote a commentary in response to some ridiculous comments about MF Global by St. Louis Fed head, James Bullard.  You read it HERE  I was quite shocked at how naive and unintelligent Bullard's remarks were and I agree with Krasting that the follow-up after-shocks caused by MF Global may actaully be worse than the MF disaster itself.  Bullard clearly has no understanding of how markets actually work, his understanding is limited to simple theory, and that was evident in his remarks.

However, Krasting opined that he believes that "money in segregated accounts at the likes of Merrill and Morgan Stanley is safe."  Au contraire, Bruce.  Ironically Krasting singled-out two of the firms which I believe have the highest risk of going under and at which I believe customer accounts are at high risk.  The third being Jeffries.  In fact, the credit default swap spreads for the debt of Bank of America (Merrill) and Morgan Stanley have really blown out to wide levels recently, signalling that the market is pricing in a much higher degree of credit risk at these two firms.  I have not seen this data for Jeffries paper, if it even exists, but the downward action in Jeffries stock price suggests that market also perceives a high level of solvency risk for Jeffries.  I will reiterate my statement from an earlier post that if you want to put your securities investment account in the best possible position of preservation - outside of investing in pure physical gold and silver - you should consider getting rid of your accounts at those three firms and move it to a brokerage firm that does not engage in proprietary trading or investment banking, like Fidelity or Schwab.  At most other brokerage firms your account runs the risk of being "MF'd" just like the Jets were "Tebow'd" last night...

Have a great weekend!


  1. Bye-Bye Bernanke? The Case for the Gold Standard

    "The source of the problem we have been having since late 2007 hasn't been addressed -- it is a monetary and banking problem and the banking system is still flat on its back," he tells The Daily Ticker's Aaron Task in the accompanying interview. "The elites say that it is not realistic to return to gold. [But] it isn't realistic to address a burgeoning debt problem with addition debt" as some contend.

  2. The Big Lie

    AIG chairman says that you just don’t get it

    "SM: Well, unfortunately I would say the understanding of the Occupy Wall Street crowd of what makes our country work is probably fairly limited. It’s a very simplistic view of things. No one will ever know what would have happened to our country and our whole global financial system if AIG had been allowed just to go down. All I know is that over a long weekend some very serious people in Washington, Hank Paulson and Tim Geithner and so on, made the decision to bail out AIG. They did it in a way that protected the interests of the taxpayers so that they would have the prospect of recovering all the money and that is our principal objective and we think we’ve got it in sight that we could make sure that every taxpayer got back every penny that went to AIG. And, so if it helped prevent a meltdown of the system, and you got your money back and a profit, hard to argue–

    BL: [interrupting] But that’s lost on them, though.

    SM: Of course it’s lost on them. They think, ‘You know, why are you bailing out Wall Street and not Main Street.’ And you have to have a view as to what would have happened if Wall Street had been allowed to just implode. I think it would have been devastating for our whole economy and that would have been far worse for Main Street than what did happen."

    What can one say to this without resorting to profanity? A few things.

  3. 18 November 2011
    James Turk Interviews Eric Sprott About Gold and Silver

  4. Uber leverage~Rabbit hole?

    My Friday Talk with a CME Executive

  5. Coming soon...

    On Capital Flight and Forced Repatriation

    There are some folks in America who will wake up this morning and read that Jefferies has been sued for its role in a bond deal with MF Global and they will vote with their feet (Zero hedge Link). They will close their accounts with JEF and move to a safer address. That’s an example of capital flight.

    There are people all over the globe who have looked at the rapid un-gluing of the financial system and have bought gold as a safe haven. That’s another example of capital flight.

    Every time that something stupid crosses the tape from one of the EU deep thinkers the US bond market catches a bid. Yet another example of capital flight.

    I could go on for a bit with this. There are dozens of examples. All around the globe one can find evidence that money is moving around with the sole purpose of finding someplace “safe”.

    Capital flight is a perfectly logical consequence in today’s world. Barely a day passes where we are not reminded that nothing is safe any more. Not our currencies, not our equities, not our bonds and certainly not our banks/brokers.

    There was (IMHO) a very significant development on this front last week. A move is being made in Brussels to “force” the Swiss government/banks to transfer all of the assets of Greek citizens back to the Greek banks. For a Greek this means that your money is hostage. It has been functionally expropriated. It will be transferred into a banking system that is fraught with risk. Some portion of the money that goes back to Greece will certainly be lost.

  6. Watch it and pass it to friends and family..

    Vaunted GOP ‘Top Tier’ is Reeling

    Starts off slow, with the Herman Cain harassment allegations. But the Romney and Perry sections are excellent. And the end is quite good.

  7. Hint, hint.....

    Chinese Fund Managers Sentenced to Death after Cheating Investors out of 1 Billion USD

    HANGZHOU – Two brothers and their father were sentenced to death on Monday for cheating 15,000 investors out of over $1.1 billion in east China’s Zhejiang province.

    Ji Wenhua, president of the Yintai Real Estate and Investment Group, was sentenced to death for the crime of fund-raising fraud, said the Intermediate People’s Court in the city of Lishui, where the company was based.

  8. Silent coup?

    His latest book is “The Detachment” in which the antagonists are a powerful cabal called the oligarchy. We discuss the real oligarchy, the one that represents the one percent, from the perspective of one who served the oligarchy, working inside the enforcement arm of the American Empire.

  9. I agree that MS and BOA eat shit. There are many fine people who see this economic collapse coming but will fail to profit because they are too fucking stupid to avoid the big banks.

    Even Kyle Bass, who is very bright,organized the purchase of a billion $ in gold for the University of Texas, only to store it in a Comex registered vault of HSBC in New York. What a fucking waste.

    The US government will confiscate every fucking ounce of that vault when TSHTF, under the guise of "national security " or some such shit.

    If you keep cash or metal in a bank in this country, then you are begging to take it up the ass when TSHTF.

  10. The higher the gold price, the greater the amount of bonds they could issue...

    Could gold-backed bonds be the answer to the eurozone crisis?The security of gold would allow Greece, Portugal, Spain and Ireland to leave the eurozone, devalue and start growing again

    A solution to the eurozone crisis is staring European leaders in the face. Remarkably, they have failed to consider gold as the asset of last resort. Eurozone member nations and the European financial stability facility (EFSF), the bailout fund, could use gold to back new bond issues.

    The security of gold-backed bonds would encourage investors. Indeed, central banks purchased 4.8m ounces of gold worth $8bn (£5bn) in the third quarter. The application of gold backing would allow stricken nations such as Greece, Portugal, Spain and Ireland to depart from the restrictive eurozone and the accompanying depressive austerity policies, if they wished. The bonds would give them time to devalue, adjust and grow again, and also isolate the crisis from other European nations.

    Funds raised could be re-lent to Greece and other stricken nations which could default, leave the eurozone and devalue. The money, alongside foreign takeovers, could end a run on Greek banks. Moreover, IMF gold-backed bond issues would help replenish the Fund's resources. There would be no need for the institution to beg for money from reluctant members such as the US, the UK and emerging nations.

  11. TRUST....

    Ronald-Peter Stöferle, Analyst at Erste Bank, and James Turk, Director of the GoldMoney Foundation, talk about his "In Gold we trust" report. They explain why gold's high stock-to-flow ratio makes it very different to commodities. Gold is not consumed, it is accumulated, which is why it is great for monetary purposes. Mine production and supply of gold in general is not very important in setting the gold price, whereas demand for gold is. All economic goods are subject to supply and demand, including money, something that many economists overlook. The decreasing trust in fiat currencies, which are gold's real competitors, is what really drives bullion prices. It is Gresham's law that we should use to model gold's demand. ╪

  12. Mangano mangia

    Local "Crime Boss" Secret Sewer Deal with Morgan Stanley and Secret Partnership

    The local county executive politico (Mangano) "aka Crime Boss" cut a secret deal with Morgan Stanley in which the country pays $25-$175K dollars to study the idea of selling the sewage system to private hands for $700K to $1B dollars. The private parties are "Secret" entity called P3. We don't know who owns it or how the financing was arranged. The politico is willing to flush the future of the municipality down the sewer to reward friends and family in this crime heist to steal an asset already paid for by local residents. This deal was secret in that it was a line item hidden away as a line item in a double secret budget. How long can this wall-street criminality continue that infects local, state, federal, and other national governments such as Italy-Greece.

  13. False Narratives

    If you want to know what the protests are about, ask one of the protesters. Jesse LaGreca, an unofficial spokesman for the movement, said last week, “What we are doing is engaging in civil disobedience in non-violent manner throughout the country.” LaGreca says the bigger issues are things like “crimes that took place on Wall Street” and “corporations bribing our politicians with campaign funding.” No big Wall Street bankers have been jailed for causing the biggest financial meltdown in history (in 2008), and I think everyone can agree both parties are bought and paid for.

  14. Very nice call. Trade according to expected manipulation from the morgue.

  15. Another MF Global / Goldman Puzzle Piece: Rule 606: Order Flow

    As we await the results of a probe into MF Global and its missing clients’ funds that will no doubt be conducted with the same tactical zeal with which authorities across the country arrested over 4000 Occupy Wall Street protestors it’s interesting to note another component of the MF Global - Goldman Relationship. Beyond the past-leadership of Goldman Sachs by former MF Global head, Jon Corzine, and fact he was brought to the helm by former Goldman buddy, Christopher Flowers, there was also a nice little execution business-sharing going on between the firms. An examination of those transactions, each less than $200,000 , could be illuminating.

    Under Rule 606 (formerly SEC Rule 11Ac1-6), as part of its strategy to rely on the companies it is supposed to be regulating to reveal whatever part of their hand they want to, the SEC requires a quarterly report from brokerage firms on their order-routing services. Specifically, the report covers ‘non-directed’ orders, or ones that customers haven’t specifically requested go through a particular vendor for execution. The report has four sections: one each for securities listed on the New York Stock Exchange, The Nasdaq Stock Market, the American Stock Exchange and 'Other' exchange-listed options, and indicates the venues most often selected.

    So, according to MFG's third quarter non-directed routing report, guess what vendor showed up prominently? Yep - Goldman Sachs Execution and Clearing LP.