It has become apparent, through my ongoing upkeep with economic news online, that silver is garnering growing interest. Youtube vlogs, viral videos, market reports, and the general press are all painting a picture that pits silver and JP Morgan as central characters in a possible market upset going down in the NEAR future… Here’s what I found so far. As you read on, click on the links included for supporting information.
JP Morgan seems to be holding a huge short position on silver contracts, most of which was inherited from Bear Stearns during the absorption of the latter. It sounded like a big deal, but my understanding of currency and metals markets is limited, so I had to educate myself a bit and do some research. A short position transaction means that a bet is being placed that the asset being traded will go down in price. The trader ‘borrows’ the asset from an ‘owner’, sells it to someone else, and waits for the price to go down. If it does go down, the asset is bought back at the lower price, and returned to the owner. The profit is made from the difference in the sale, and the repurchase, minus whatever borrowing costs are involved. Here is a Wiki page explaining in greater detail.
In the case of this silver, it turns out JP has some large amounts of physical silver, but apparently it’s trading positions are leveraged 100 to 1, so that it can only cover 1% of the outstanding contracts if physical delivery of the silver is requested. I forgot to mention that these trades are paper ETF’s, but at any point a buyer can request the underlying asset. So JP Morgan is essentially betting that silver prices are going to to down. Anyone watching the news knows by now that silver is at a 40 year high. In fact, it is poised to break $30 US this month, if it follows the trend set in the last 6 months. Silver and gold are partially going up because of lack of confidence in fiat currencies, namely the Euro and the Dollar, but also because the currencies are actually losing value due to inflation (thank you, quantitative easing). In other words, silver price is skyrocketing both because demand is increasing AND because the dollar is weaker, relatively. So why would a smart financial institution like JP Morgan bet that silver is going to go down, when economic fundamentals signal the contrary? Seems weird, right?
As it turns out, taking a short position is a long known market manipulation tactic. I suppose it works on a psychological level. When the market is flooded with short contracts, it must create a climate of uncertainty, after all, what do these people know? Others may follow suit in ridding themselves of their holdings of the asset in question, to avoid tragedy, others yet might take a short position anticipating the loss. Others as well, may be in on the plan and engage in fraudulent circular trading. The end result is that the market price of the asset is restrained, kept low artificially. This is illegal market manipulation. And apparently it’s working, too, because silver, it seems, is undervalued. Some believe that silver should be trading at $50 right now, the value which represents historical gold/silver ratios.
This Youtube video presents an interesting course of events regarding JP Morgan’s silver market activity, as well as this article . The whistle was blown by a trader in London, and an attempt was apparently made on his life. The CFTC is investigating JP Morgan, and a RICO suit was filed against the bank. RICO statutes are a set of laws passed during the Reagan years to viciously prosecute drug cartels and inflict heavy penalties. They are meant to punish organized crime structures and you do NOT want to be tried under RICO offenses. So this looks to be some serious, serious stuff. The author of this article seems to know what he is talking about; and if the data is true, it greatly substantiates the claims of a concentrated short position of such magnitude that there isn’t enough silver produced in the world, by a factor of multiples, to back up all the paper trades outstanding.
By now you should be wondering why JP Morgan would be taking such an insane risk, not only to risk bankruptcy in betting against the rise of silver, but also in committing fraud on such a GRAND scale that it makes Madoff look like a boyscout. I wonder, as well… Some argue that the pushing down of silver is done to keep fiat money prices from dropping too much. And it makes sense to me. Large amounts of contracts were placed on silver just before QE2 was announced. Could this be a way to mask the Dollar tumble by manipulating precious metal prices? This implies collusion with the Federal Reserve, and a much larger scale conspiracy. It could point to a key aspect of the futile monetary war being waged against systemic default of the currency and banking systems now in place. If you have read the links included, you understand that the soaring price of silver spells doom for JP Morgan. You will also understand that the possible consequences of this collapse could send precious metals through the roof, which would adversely affect the Dollar. There is a psychological price threshold to traded assets, including currencies, and crossing these price points usually causes widespread panic selling and further collapse. While some people have explained that the Fed may want to devalue the Dollar ( to control sovereign debt exposure and to facilitate export), they still want to maintain control, and not have the markets go haywire on them. So as it turns out, the underlying risk that concerns us all is not JP Morgan’s failure (good riddance), but rather, a collapse of our Dollar precipitated by people investing in commodities such as the silver market. How likely is this to happen? Well, when you consider, as mentioned above, that one of the factors feeding the rise in silver, and gold, is the current depreciation of the Dollar and the Euro, you see that there might be a self-feeding, snowballing effect going on.
Is this all nonsense, or some large disinformation campaign? Probably not. Do your own research. Time will tell. Currently, there are about 6 times more delivery requests for March 2011, in volume, as there is available physical silver in COMEX. I’m no trading maven, but that has a lot of people freaking out if you believe the info on the Internets…
Could this be another nail in the coffin for the current financial-political establishment? It could certainly be just that. All it takes would be a concerted effort by a few wealthy individuals, to buy the contracts and request physical delivery, or just buy plain physical silver, enough to drain the silver and cash reserves that JP Morgan holds, to free the silver market. This might happen with much less money, depending on how the price of silver reacts to the actions. Of course, if we see the Fed bailing out JP at any cost, we can bet that it is because they don’t want their Dollar to crash miserably once and for all…
This entry was posted on Monday, December 6th, 2010 at 1:09 am. It is filed under Current Events and tagged with collapse of the dollar, comex, economy, Federal Reserve, investing, JP Morgan, markets fraud, precious metal trading, RICO suit against JP Morgan, silver, silver market manipulation. You can follow any responses to this entry through the RSS 2.0 feed.
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