Silver Manipulation
Research for Online Investors

by John Dalt

12/09/10

What happened when J.P. Morgan (JPM) bought the assets of Bear Sterns?  Rumor has it they inherited a huge short position in the Silver market.  That would be great, except the price of silver has more than doubled since J.P. Morgan bought the investment bank.

What does it all mean?  The Guardian carried an article last week about J.P. Morgan’s short positions in the silver market.  According to the article Morgan may have a 3.3 billion ounce short position in the Silver market.  These are naked shorts, which means they don’t have the physical silver to deliver.  They either have to buy the contracts back, or buy silver on the spot market to make delivery.

Why doesn’t Morgan go into the market and buy physical silver for delivery?  3.3 billion ounces of silver is one-third of the entire world’s known silver deposits.  Put another way, 3.3 billion ounces is twice the world’s stockpile of silver, or four times the annual mined supply.  Even more worrisome, 3.3 billion ounces is four times the inventory of silver available at the COMEX.

What does a trader do when they have amassed such a short position that it is impossible to get out of it?  Eighty years ago, they jumped out a window to leave someone else to clean up the mess.  But I don’t see Jamie Dimon jumping out any windows.

There may be a reason why.  Let’s go back to March of 2008.  Bear Sterns was sold to J.P. Morgan for $10 dollars a share with the Federal Reserve providing a non-recourse loan of $29 billion on collateralized mortgage debt.  The N.Y. Federal Reserve Bank made a $30 billion loan to J.P. Morgan collateralized by Bear Sterns assets.

At the time Fed Chairman Ben Bernanke defended the bailout of Bear Stearns stating that a bankruptcy could have caused a “chaotic unwinding” of investments.  At the time many thought this was referring to all the “dodgy debt” Bear Sterns had in mortgage back securities (MBS).  As of 11/30/07, Bear Sterns had $13.4 Trillion in derivative contracts, of which $1.85 Trillion were listed as futures and option contracts.

The week of the Bear Sterns sale, the SLV etf was trading for about $13.50 per share. Today, SLV is quoted at $28 per share (roughly one ounce). Every dollar increase in the price of silver costs J.P. Morgan $3.3 billion dollars!  (If the massive short position is true.)

J.P. Morgan has a problem that gets worse every day the silver market goes up.  Actually it gets worse every day no matter what the silver market does.  When you own more contracts for delivery than can possibly be delivered you cannot push a button and sell them.

Trying to sell massive amounts of contracts would spiral the price of silver to infinity.  Who would buy a contract for delivery, when there is no physical commodity to fill the contract on the spot market?

There are rumors of shortages of silver for delivery.  Silver on the spot (cash) market is now higher than six month futures prices.  The market is in “backwardation.”  Normally, futures prices are higher than the current spot price.  This is called “Contango.”  In other words, if you can wait for delivery the price of silver is cheaper than if you want it right now.  The market is trying to bring additional supply into the spot market with these higher cash prices.

The rumors about J.P. Morgan’s predicament have traveled on the Internet, and some people see it as a chance to “pile on.”  There is a “Crash J.P. Morgan, buy silver” campaign.  The idea is if people started buying just one ounce of physical silver (a silver dollar) it would drive the cash price of silver so high that J.P. Morgan would have to start covering their short positions.  This would push the silver market into parabolic territory.

Since (if) J.P. Morgan inherited this position when they took over Bear Sterns, some people believe that the Federal Reserve is continuing to backstop the silver position.  Ben Bernanke does not want precious metals to grab headlines with a price spike higher.  This would be counterproductive to the Fed’s efforts to print more dollars but not crash the value of paper money.

This may all sound like a lot of conjecture and rumor, if you have not heard about it before. The San Francisco Chronicle reports that in November 2009, a London metals trader, Andrew Maguire contacted the Commodity Futures Trading Commission (CFTC) to report market manipulation by J.P. Morgan.  He had inside information and gave the CFTC the exact planned manipulation for Feb. 5, 2010 around the Non-farm payroll report.

The manipulation occurred exactly as Maguire said it would, and the CFTC could witness it.  You can see the emails between Andrew Maguire and Eliud Ramirez of the CFTC.  This is great reading.  How do you spell “served on a silver platter?”

What amazes me is the absolute insolence of the CFTC.  The emails reveal a lack of interest by the regulators.  Is it any wonder that Bernie Madoff got away with his ponzi scheme so long?  J.P. Morgan is currently under investigation by the Commodity Futures Trading Commission (CFTC) for allegedly manipulating the price of silver.

We are invested in silver to profit from the possible parabolic price spike.

To the mailbag:
What a great day for investing with LINE, AGQ, & AGNC!  The main thing that must be remembered is to take your profits and get out before the individual investors start to do it.  Good investing .-paid up long-term subscriber R.A.

John’s reply: I know some of our subscribers get tired of waiting on my prices, but this is one of those days that should help us realize patience is a virtue.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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