Comment Text:
Mar 23 10 02:03p
JHM
(530) 2743960
10-005
COMMENT
CL-02893
TO the CFTC:
RE: metals position limits
Published here
http://silverstockreport.com/20$0/cftc-letterohtml
to 80,000 readers of the Silver stock Report email list
Regarding the Dire Necessity of Imposing Metals Position Limits on the
shorts
others .have written to the CFTC as if they assume the CFTC is made up
of good people who would enforce position limits if only they knew
that the. markets were manipulated; and thus, two others have written
the CFTC to show the current manipulation in progress.
I'm not so gracious, as I have written to the dFTC before, and I know
that the CFTC has always evaded the issues. Therefore, I must assume
the CFTC is made up of people who only think they are doing good, who
assume that letting big banks get what they want is somehow compatible
with free market theory, and thus, not regulating the bankers'
.
position limits is somehow good, and that hiding the truth is somehow
Thank you, Bart chilton, for writing that "he does notthink his
fellow commissioners are currently willing to support a move to curb
speculation for metals contracts" so that we can help to persuade
them.
http "//www . reuters, com/arti cl e/ousiv/i dUSTRE62 L3YP20100322
I believe that the CFTC commissioners are either deceived by a faulty
philosophical foundation, or willingly in on the manipulation.
Alan Greenspa~ admitted his concepts of free market theory were
flawed. I believe that his flaw was that he did not seem to realize
that debtors are like slaves, and that slavery is. not compatible with
freedom, nor with free market theory. Futures contracts are like a
debt, and require enforced performance, which enslaves the
participants to the margin clerk.
Greenspan Misapplied Free Market Theory October 23rd, 2009
http ://si Ive r stock report, com/2009/g reen s pan-mi sappl ied. html
when theCFTC enforces position limits on longs, but lets "commercial"
banks short unlimited and excessive, amounts, that's not compatible
with free market theory! when big banks can use government force
against their trading counter parties, that's not compatible with free
market theory !
The fundamental philosophical problem is that a slave trading market
is not a "free" market, and there should not be a market for slaves at
all. Similarly, the market in futures contracts is not a "free"
market at all, it's a slave market of enslavement contracts, not a
market of products. There can be no such thing as a "free" market ofMar23 I0 02:03p
JHM
(530) 2743960
10-005
COMMENT
CL-02893
slaves; it's a contradiction in terms!
The CFTC must regulate; it cannot sit back and do nothing.
If nothing is done, it threatens the freedom, prosperity, and way.of
life of all Americans.
The CFTC has a duty to act to prevent the current fraud in progress,
that must be stopped, but it must be done wisely, so as to not
suddenly disrupt all commercial life for all Americans.
In 1980, precious metals prices were running away to the upside, out
of control, threatening the life of the dollar, and the entire
financial system.
There were primarily two mechanisms that helped to limit precious
metals prices. The first, was letting interest rates rise in the bond
market. The second, was futures contracts that diverted investment
demand away from physical, and into paper.
Please consider what will happen as the current bull market in
precious metals matures, and when futures contracts default, and
become discredited; and thus; lose their power tO pull pe0pleback to
paper? A precious metals default will likely drive people into real
tangible physical metals more fervently than ever before in the
history of paper money in the united states, suddenly destroying the
value of the currency, and ruining the entire economy of the nation,
which could lead to a collapse of most commerce, which could lead to
death and starvation on a massive scale. That must be prevented
through a smooth transition back to honesty in commerce.
The coming default in the precious metals futures markets is extremely
dangerous for all people living in the united states, as it will
inevitably lead to the crashing of: the us dollar, ormore accurately,
Federal Reserve Notes.
The current state of the futures market in precious metals shows that
it must end in default, which is to say, a failure or inability of the
shorts to deliver the silver, as they have shorted too many contracts.
A futures exchange for precious metals is inherently manipulative and
fraudulent by nature.
The public, in the real world, usually would laugh at a precious
metals coin shop.offering bullion for delivery "In a month or two"
when a coin shop down the street can deliver immediately over the
counter.
At our coin shops, we only re-order bullion from bullion wholesalers
who can deliver bullion with overnight delivery, or for delivery
within a week, at the most. Thus, we sell most bullion over the
counter.
There is no legitimate reason for a futures exchange for preciousMar23 10 02:03p
JHM
(530)2743960
10-005
COMMENT
CL-02893
metals. Agricultural commodities have a harvest season, and for them,
it might make sense. But miners, produce all year 10ng, and so do
refineries, thus, there is no need for them to lock in a price before
any sort of harvest season..
It is claimed that miners need to lock in future prices in order to
obtain debt financing. But that's not true, for ~wo reasons. First,
if a miner cannot produce metal without debt financing, perhaps they
probably should not be producing metal at all. There are other ways
to finance; such as equity financing, bootstrap financing, or private
capital deployment.
second, if debt is bad because it is like slavery and can lead to
default, and if the CFTC is supposed to regulate markets to prevent
default, then the CFTC should prevent the debt and leverage inherent
in the futures markets. In other words, debt cannot be usgd as an
excuse to legitimize debt, as that is just circular reasoning.
But furthermore, excessively funding extra gold mining production is
what excessive short sellers would need most, isn't it, so that's a
poor justification for their activities.
A p. recious metals futures exchange is not a legitimate market for any
major producers or users, not as long as it is used as a last resort,
and not as long as approximately i% of contracts result in delivery.
why would I, as a dealer, ever buy in the futures market, when
delivery dates are so uncertain and over such a long time frame? And
our organization buys up to 10,000 oz. of silver in one order! Thus,
a futures market simply encourages speculation, which is to say, it
enables leveraged debt-based bets on which way prices will move
between the present and some future delivery date.
when investors fee] they are able to get such leverage on price
movements, it distracts them away from investing in the real thing,
and thus, the existence of a futures market diverts investment demand
away from real metal, thus depressing precious metals prices.
Bart Chilton wrote that "Three of the five commissioners -- Democrat
Michael uunn and Republicans Jill Sommers and scott O'Malia -- have
expressed concerns the energy proposal could drive trade to markets
outside the CFTC's jurisdiction."
TOO LATE! According to the Bank of International Settlements, the
LBMA and other "over t.he counter" precious metals markets are already
over i0 times larger than the COMEXfutures exchange.
The BIS notes that "over the counter" "other precious metals"
derivatives have exceeded $203 billion of notional value, which, at
$17/oz., is 11.9 billion ounces of silver.
see:
http://www, b.i s. org/stati sti cs/otcder/dt21c22a, pdf
The total open interest in silver futures contracts is about 140,000,Mal 23 10 02:03p
JHM
(530)2743960
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COMMENT
CL-02893
p,4
x 5000 oz. = 700 million,
The problem is that the "over the counter" markets are not
transparen, t, and thus, cannot be used by any other market participants
to set prices. It is likely that the bull( of the other precious
metals derivatives use COMEX pricing as the basis for the value of
their derivatives.
If the futures markets in precious me#als are fraudulent by nature,
how in the world can mere position limits fix things?
First of all, let's note that. currently, there are only positio~
limits imposed on the longs, those who may stand for delivery o
precious metals. There are no limits imposed on the commercial
shorts.
But that's backwards. It should never be illegal for any investor in
any market to buy what they want with their money. There should never
be any limits on longs. Thus, all longs should be exempt from all
I i mi ts.
BUt it's the shorts who can manipulate markets by depressingprices by
selling what they do not have,- which creates the p0ssibilityfor
default, which must be regulated, and limited.
Given the huge size of the OTC positions, up to 12 billion ounces,
which dwarfs the size of world annual production at 0.6 billion
ounces, systemic default seems inevitable, and long past due,
TheOCC report goes to show that ]P Morgan dominates the gold
derivatives trade, and thus, likely domlnates the silver derivatives
trade as well.
http -//www. occ. treas, gov/ftp/rel ease/2009-161a, pdf
The CFTC has continually lied to protect the excessive short selling
in the market, by releasing reports that deny "manipulation" given the
surface language, but admit manipulation if you know how read between
the lines.
For example, the CFTC has stated that as shorts cover, and buy .back
positions, the buying back of a position pushes prices up, thus
negating any negative price action. But Lhat admits that the market
prlces are lower than they would be, if the shorts are not covered and
remain open, which they continually are, as they are always rolled
over into future months.
As another example, the CFTC has stated that the market cannot be
manipulated as long as there are no restrictions preventing
participants from taking long positions, but there are posltion limits
on the longs, which prove that the market is, in fact, manipulated.
As long as the CFTC continually lies and issues hypocritical
statements, they lose credibility, and make themselves an accompliceIVl~l" ",,',..'S "1U U~:U:6p
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to the ongoing fraud. Perhaps the CFTC members today will be found to
be guilty of obstruction of justice if a more honest administration is
elected?
zn school, they teach that the futures markets create more stable
prices. But it seems to me that futures markets create more wild
price swings than there would be otherwise without futures markets.
It was ~anic short covering, and panic over the dollar failing (and
the dollar used to be a derivative of silver prices) that drove silver
to $50/oz. in 1980.
Futures markets make prices more volatile, more extreme, in my
opinion. They both allow the creation of prices that are manipulated
too high, and too low, because they allow debt-enabled leverage trades
on both sides of the market.
Default ~s ever more likely, and obviously .looms.
Default, we can see, is already being prepared for, in advance, in
three ways.
First, i see ~hat ther~ are cash s~t~lement options for precious
metals contracts.
second, futures contracts can be settled via ETF shares.
Third, the COMEX went public, and was sold to the CME, another public
company, and public companies have the protection of limited
liability, as stock holders are simply not on the hook for any sort of
debt liability at all, while the private owners of the exchange used
to be ultimately liable, that is no longer the case.
I see that it has been proposed to impose position limits on the
commercial shorts..
It has been proposed that no entity maintain any position l.arger than
5 or 10 percent of the open interest.
That's simply silly, as the largest traders could simply set up dummy
corporations to continue to short all that they want, and how could
anyone know?
Another alternative would be to maintain a certain fractional reserve
percentage of metal on deposit, such as 40% backing, to help guarantee
delivery.
That's also silly, as there could be 100% backing on the COMEX, but
the OT¢ market clearly shows derivatives that are over 10 times .as
large, and clearly cannot all be backed by real metal, so the overall
fraud in the world silver market would continue!
BUt if the other derivatives in the OT( market are priced based on
COMEX prices, because the COMEX market's prices are public, and thus10-005
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looks to the COMEX for it's price discovery function, then it's all
the more important that there be 100% backing for all precious metals
contracts at the COMEX. Furthermore, it must be insured that the
metal that backs all futures contracts is not encumbered by other
contracts, derivatives, ETFS or other obligations.
There are no solutions that are viable other than requiring a 100%
backing of all short futures contract positions. Nothing less would
insure delivery, limit liability, and prevent default.
what we are examining here is an exchange. Longs put down money, a
par~ of what they ultimately need to delivery, cash. similarly,
.
shorts should be obligated to deposit silver, prior to delivery. Each
should make a deposit of 100% of the notional value of the contract.
This should be the job of the CFTC regulators: to physically inspect
bars on deposit, and to do the calculations necessary to insure that
no futures contract is offered for sale unless there is a full 100%
backing of metal on deposit to back the position, and that such metal
cannot be used to back any other kind of short sale.
That would still not end the fraud taking place in the London market
and in the oTC ~aPEetS~ or other markets overseas, but it would at
least be a step in the right direction, as the COMEX pricing would at
least more accurately reflect.real prices for real metal.
but at least it would
All the gamblers would still have a place to go,
be an honest form of gambling, and not a rigged casino.
But a sudden ending, or destruction of futures market price r~gging or
manipulation could also lead to the destruction of the dollar. The
transition back to honesty and honest markets needs to be gradual so
as to hopefully not upset everything.
As concentration in futures has reached levels of up to 40-90%, it
needs to start out being slowly capped, and racheted down, step by
step, following along a plan, going down gradually to the more ideal
level of no more than 5% of the open interest.
Further, a precious metals backing needs to be imp.lemented gradually.
currently, with about 120 million oz. on deposit In the wa.rehouses,
and only 50 million ounces registered for delivery, which Is used to
back from 700, to 800 million ounces of futures contracts (which is
about a 6% backing). Tf such silver is also used to price, and back,
up to 12 b~llion ounces of silver in the other precious metals over
the counter derivatives (that would show about a 0.4% backing).
Thus,
so
as
the deposit requirements must be increased gradually, over tlme,
to not drive silver prices to $1000/oz. overnight, as such things can
cause an economic crisis worse than that felt In Argentina, which is
certainly counterproductive.
It is especially important for the CFTC tO at least be seen as doing
something to prevent default. After all, why else should the CFTC
exist? And after all, this selling of silver that the commercials10-005
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don't have is clearly manipulative, fraudulent, and is a .hidden at_ta.ck
on the value of everyone's money as it is allowe.d to .cgntlnue. ]:~rtne
fraud is exposed suddenly and things go badly, t~e puDlic may cry ~or
blood, literally, as history has shown. It will be.~mportant for the
CFTC that the CFTC is not seen as being complicit, and not be seen as
if they are aiding in 1:he fraud, or hiding the fraud, which is the
percep~i on today.
http: i/en. wi ki pedi a. o r~/wi ki/comp] i ci ~
An individual .is complicit in a crime if he/she is aware of its
occurrence and has the ability to report the crime, but fails to do
so. As such the individual effectively allows criminals to carry out a
crime despite easily being able ~o stop them, either directly or by
contacting the autho.ri.ties, thus making the individual a de-facto
accessory to the cr~me rather than an ~nnocent bystander.
A good first step for the CFTC, or at least, for some of the honest
people working at the CFT¢, is to admit that the excessive selling of
futures contracts is manipulative, and that steps should be ~aken to
limit this market manipulation.
For more, see
http://sil verstockrepor1:, com/2010icftc'meeti ng html
If you support the statements and philosophy in this document, please
send your own copy, with your own name, to"
written materials should be mailed to the commodity Futures Trading
Commission, Three Lafayette Center, 1155 21st Street, N.W.,
washington, pc, 20581, attention office of the secretariat;
transmitted by facsimile a= 202-418-5521; or transmitted
[email protected]. Reference should be made to
el ectron~cally to
"metals position limits."
