Political Metals

Bill Murphy | LeMetropoleCafe

“The way I see it, if you want the rainbow, you gotta put up with the rain.” … Dolly Parton

GO GATA!!!

The reason for this rare, extra commentary over a weekend is to focus on a couple of points which really stand out in their particular significance and are worth pondering in terms of what is coming down the road for financial markets.

The first is what we jumped all over on PLANET GATA from the get-go about the JP Morgan hedge trade flap gone wrong. It made NO sense from the very beginning to any of us that such a commotion was made over a $2 billion loss on a trade, for whatever reason, when they had just reported yearly gains of $18 billion. Clearly, Mr. Dimon’s public pronouncement, that caught the attention of the entire investment world, was only paving the way for future announcements that will be much more dramatic. All he was doing when he inferred the losses MIGHT get worse was protecting himself, as best he could, by going on the record.

The latest news on JPM…

14:31 JPM JP Morgan Chase struggling to unwind ill-placed bets – WSJ

While breaking no real news, this story notes that the bank’s losses could eventually prove to be even bigger than the $5B some people familiar with the matter have been predicting (see linked comment). The losses could potentially deepen if the company sells its positions into a market that has turned against said positions.
The article notes that while the bank has said that it will take its time unwinding the positions, this does not necessarily guarantee smaller final losses than trying to close out the trades sooner, as the market could turn sharply against the bank in the near term. 
Reference Link: Wall Street Journal 

14:50 JPM CFTC latest federal agency to begin investigating JPMorgan Chase – NYT DealBook

NYT Dealbook reports, citing people briefed on the matter, that the Commodity Futures Trading Commission opened an enforcement case on Friday examining the bank’s trading loss. The CFTC joins the SEC and FBI in investigating possible wrongdoing at the bank. Gary Gensler, the agency’s chairman, is expected to disclose the investigation when he testifies on Tuesday before the Senate Banking Committee.
Dealbook says that the CFTC will potentially examine whether the bank’s trading affected the market for credit derivatives, for which it has jurisdiction.
Reference Link: NY Times

This latest investigation into JP Morgan might be a big deal for the GATA camp. This is actually quite complicated, but very intriguing. The CFTC has been investigating JPM’s role in the silver market manipulation scheme for what will be four years soon. FOUR YEARS! Good friends, like Dave from Denver, have nothing but loathsome talk about the CFTC, for good reason. GATA’s rationale (speaking for myself) about this ridiculous investigation is that the CFTC really has uncovered the scam, but because it is backed by the US Government, they are flabbergasted about what to do, so they do nothing.

The reason they have not closed the case is because they are petrified the silver market might blow up down the road. Think about if you were them. They want this to go away, but if the silver market does blow up, and there is some kind of “Force Majeure” declared in silver by JPM, the CFTC would not only look like fools, but, perhaps it might be said they were more than negligent. Thus, they have done nothing.

Well, all of a sudden, Lo and Behold a new factor enters the silver scam investigation, which directly affects Morgan’s constant claims to the CFTC that their huge silver short position is hedged. Ya mean like hedged in an economic sense as per their claims re the latest credit derivatives market trade was a hedge? This just might force the CFTC to demand JP Morgan prove their claims their silver short position is really a hedged one. This is what I suspect might occur due to the growing scrutiny over Morgan’s trading activities. The CFTC people, except for Bart “Elliot Ness” Chilton, are sycophants and have toed the company line … but there is a point when FEAR makes that no longer viable. They are not going to go to jail for taking one for the team. My guess is we are getting close to that Tipping Point.

As the JP Morgan hedged losses mount and become “official,” the heat on them is going to mount. They will be scrutinized every way imaginable. How can all the class action lawsuits against them, and blatant evidence against them via just what Andrew Maquire has sent to the CFTC via their role in the silver scam, be ignored?

We have already been informed, as of a week ago, that the Morgan losses on their “hedge trade” fiasco could be as high as $15 billion, or more. Already, even the WSJ is alluding that their losses are higher than $5 billion. This is MEGA! As we have discussed on PLANET GATA, this is not just about Morgan, but confidence in the entire financial system. If the $70 trillion derivatives book at Morgan goes NUCLEAR, we could have a financial market TITANIC event which might be right around the corner.

GOOD GRIEF!

Now, for the weekend edition, number two re the understandable, but nauseating, commotion over the Facebook IPO on Friday, which was heralded by CNBC all week.

First, the background…

*The Dow is going down day after day, not with any fanfare, but all rallies are sold. In very quiet and subdued selling, general investors inherently know something is wrong and are acting upon that instinct.

*Europe is falling apart we know, but little is being said about how the US financial system is in parallel with Europe. How bad is this? Just the state of California budget deficit goes from something like $8 billion to a staggering $16 billion and it creates almost no commotion. Huh?

Getting back into the GATA aspect of this is that the US financial markets are all about market manipulation. You need to go nowhere further on what the real deal about US financial markets than this headline…

Banks spend big to prop up Facebook shares on first day of trading
By GARETT SLOANE and MARK DECAMBRE
Last Updated: 8:15 AM, May 19, 2012
Posted: 11:34 PM, May 18, 2012

It was another Wall Street bailout — but this time the banks had to cough up the cash. Facebook’s underwriters propped up the social-network’s trading debut yesterday, as the shares threatened to crash through the initial public offering price of $38. The banks working on the massive $16 billion IPO, including Morgan Stanley, JPMorgan Chase and Goldman Sachs, did their duty by buying up large blocks of Facebook stock toward the end of the day to support the price.

Facebook shares opened up 11 percent at $42.05, and traded as high as $45, before running out of steam, disappointing investors hoping for a big first-day pop. The shares closed up just 0.6 percent at $38.23.

Without the bank bailout, Facebook’s IPO would have been a loser on the day, Wall Street insiders said.

The heavy buying, however, cut into the banks’ already meager fees on the deal. The underwriters agreed to accept a smaller cut — just 1.1 percent of the $16 billion Facebook raised in the IPO — in order to land the high-profile assignment.

After splitting $176 million in fees, the firms likely spent more than they made in fees by buying the swooning stock. Sam Hamadeh, CEO of research firm Privco, believes the banks spent around $380 million on Facebook stock.

“On the heels of JPMorgan’s $2 billion ‘hedging’ trading loss, tThe underwriters have used up all the fees they made on the Facebook deal just to buy and prop up the stock to prevent a busted IPO,” said Hamadeh.

Another source said that the banks took a substantial hit yesterday, which started strong despite glitches that delayed Nasdaq trading in Facebook shares by 30 minutes past their 11 a.m. scheduled debut.

While there was plenty of finger-pointing yesterday, many blamed the bankers for setting the price too high to allow for upside. The IPO share priced at the high end of the $34 to $38 range, which had been raised from an initial range of $28 to $35.

The bankers were wary of pricing the shares too low, leaving money on the table and leading to an outrageous first-day pop. They were shooting for a modest first-day gain in the range of 5 percent to 10 percent.

Still, some observers heaped scorn on Facebook insiders who dumped their shares, saying it was a red flag that weighed on the stock.

Facebook had increased the number of shares being sold in the IPO by 25 percent, to 425 million, with most of the additional float coming from early investors looking to cash out.

The company’s sky-high valuation also made some investors queasy. At $38 a share, Facebook is valued at $104 billion — even though it only made $3.7 billion last year.

Facebook’s big day was a drag on other tech stocks. Trading in shares of Zynga was halted yesterday after a sharp drop, and the stock closed down 13.4 percent at $7.16. China’s social network RenRen was also down more than 20 percent, to $4.93.
gsloane@nypost.com

My take on this, from my Behavioral Finance background on how our financial system really operates, is the effort to hold up the Facebook IPO was an effort to hold up the stock market as a whole. For the BF folks, perception is everything. That is why they do what they do. The Counterparty Risk Management Policy Group (do a Google if new to you), led by the same firms that held up the Facebook share price, does not exist for no reason. One of their mandates is to promote market stability and that is what they just did. That Group works closed with the Plunge Protection Team (Working Group on Capital Markets) to support the US stock market at various times.

What we saw in the price rises of gold and silver at the end of the week was stunning and totally out of the natural order of the gold/silver price manipulation scheme. It was a wowser! My smeller tells me, because the dramatic rally was so pronounced, that we are headed for some serious fireworks in the financial arena.

The Gold Cartel could be in deep trouble now because their honcho, JP Morgan, is in deepening trouble. This is no minor event in terms of the gold/silver market manipulation scandal.

All hands on deck to prepare for the financial market commotion that seems to be right around the corner!

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Related Articles:

• JP Morgan Chase for Dummies
• Can you spot the Bubble(s)?

 

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Jim Puplava, president of FPS, discusses the hot topic of Silver Manipulation with four prominent players in the silver market.

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Ted Butler explains the Silver Manipulation Scheme. iPad users, tap here.

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Virtual roundtable discussion with Eric Sprott, David Morgan & CFTC Commissioner Bart Chilton. iPad users, tap here.

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Source: Financial Sense Newshour

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In 2011, silver averaged a loss of 6.8% against 75 selected fiat currencies, while gold charted a corresponding gain of 14.3%. That occurred in a year when gold itself saw a plunge of 20% in USD terms from its high of $1920.

Was there any fundamental change in the silver market that could account for such a drastic plunge in silver prices? I know of none, and industry watchers concur.

Not once, but twice in 2011 did the silver market plunge by 35% in a matter of days on deliberate price moves lower. It is impossible for a world commodity to suddenly plunge 35% in days without some radical change in real supply and demand in a free market. Aside from proving that the silver market is still manipulated, these price plunges would not have occurred had the Commission acted expeditiously in concluding its current silver investigation – Ted Butler.

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Market manipulation. Price suppression. That’s why silver’s prices in all currencies did what they did in 2011. Ted Butler, in his most recent article “Enough is Enough” recounts the history of CFTC’s investigations into complaints of price suppression in the silver market.

The journey to justice and truth is often long and arduous, but must never be abandoned. The alternative is to live a life lacking substance. But neither should the journey be unnecessarily prolonged. These things tend to creep up on you day by day, but we have passed the point of the CFTC taking too long for deciding if the silver market has been manipulated in price. Enough time has passed.

Having started in August 2008, we are now at the 3.5 year mark in the current investigation into silver by the Enforcement Division of the Commodity Futures Trading Commission (CFTC). Never has a similar investigation taken this long. Considering that the current silver investigation is the third such inquiry by the Commission into alleged downside price manipulation by large commercial participants on the COMEX, the agency has spent most of the past decade investigating silver. As recently as this past November, the Commission reaffirmed that the silver investigation is ongoing. Still, the issue is unresolved.

The current silver investigation began due to revelations I discovered and wrote about in the CFTC’s Bank Participation Report of August 2008. This report indicated one or two US commercial banks held a concentrated short position which was unprecedented and uneconomic in terms of real world supply and demand. I asked the question – how can one or two US banks holding a short position equal to 25% of annual world production not be manipulative? That question has not been answered by the Commission to this day. Later, I discovered that it was basically only one US bank, JPMorgan, which was the big COMEX silver short.

Not for a moment do I believe that the CFTC initiated the current silver investigation (or the previous two) just because I wrote a few articles. The key was that so many readers took it upon themselves to write to the Commission and their elected officials about the issues of concentration and manipulation in the silver market. Simply put, there would have been no silver investigations had not great numbers of you petitioned the regulators. Please think about that for a moment. It is beyond extraordinary that the agency has investigated and continues to investigate such a small market like silver. That can only be because of public pressure and that the evidence was compelling. Most remarkable of all is that the core allegation in all three silver investigations has remained the same – manipulative short selling by large commercial interests on the COMEX.

In the two prior investigations of May of 2004 and 2008, the Commission’s Division of Market Oversight (DMO) concluded that the silver market was not manipulated.

Particularly puzzling in the 2008 report was the contention by the DMO that the concentration on the short side in COMEX silver wasn’t unusually large and that the biggest short sellers regularly changed places, so that there wasn’t one big permanent short. The report was issued on May 13, 2008 or two months after JPMorgan acquired Bear Stearns and its concentrated short position in COMEX silver. How the DMO could overlook the transfer of the most concentrated short position in the history of the commodity markets is beyond comprehension. Subsequently, I have come to believe that Bear Stearns’ forced acquisition was caused by the giant silver short position going against it (silver was at a 27-year price high at the time of the takeover) and not mortgage-related difficulties. In this article, I accused the DMO of lying.

Unlike the current silver investigation, the previous investigations were concluded by the Commission in months, not years. Timing aside, all three silver investigations share a commonality apart from stemming from the same basic core allegation of manipulative short selling. That commonality is the Commission’s refusal to conduct a fair and balanced investigation. I confess to being the instigator behind all three silver investigations (with you being the enabler). Not once, in any of these investigations has the agency ever contacted me or anyone I know who is familiar with the allegations. I even complained to the CFTC’s Inspector General about the one-sidedness of the process. How can you conduct a balanced investigation on manipulative short selling when you only question one side, the shorts?

The real problem with the findings of the CFTC of no manipulation in their previous investigations is two-fold. First, it provides a shield and comfort to the perpetrators of the manipulation in that they can continue to hide behind the agency’s findings in the furtherance of an active crime in progress. The longer the CFTC takes to act or report on its current investigation the comfort to the manipulators is maintained, at a cost to nearly everyone else. Second, the prior findings put the agency in a tricky spot. Because the Commission had previously found nothing amiss in the silver market on two separate occasions, if the agency uncovers any wrongdoing in silver in the current investigation it will, effectively, contradict its former findings. Obviously, it will be loath to do so.

The fact that the Commission will contradict its former findings should it now find something wrong in silver may explain the unprecedented delay on the part of the Enforcement Division to act. But the reluctance to reverse the former findings is a weak excuse for the Commission to fail in its most basic mission, namely, preventing fraud, abuse and manipulation. Most importantly, the silver manipulation is a crime in progress and the Commission’s delay in terminating it has allowed for untold continuing damage to thousands of market participants at the hands of the manipulators.

Full article at SilverSeek.com

Related articles:The latest on Silver Market Manipulation

• Silver manipulation
• The latest on Silver Market Manipulation

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More than 3 years into an investigation over alleged manipulation in the silver market, the CFTC released the following statement yesterday.

CFTC Statement Regarding Enforcement Investigation of the Silver Markets

Washington, DC – The Commodity Futures Trading Commission today issued the following statement:

“In September of 2008, the Commission announced the existence of an enforcement investigation into the possibility of unlawful acts in silver markets. Since that time, the staff has analyzed over 100,000 documents and interviewed dozens of witnesses and obtained expert advice. It has been a long, detailed, and thorough investigation, and it continues in an appropriate and considered manner.”

Bart Chilton, one of the commissioners of CFTC was interviewed, I believe for the first time by Eric King of KWN yesterday:

I can tell you based on what I have been told by members of the public and reviewed in publicly available documents, I believe that there’s been violations of the law, The Commodity Exchange Act.

What was he told by members of the public that convinced him to believe that the silver market has been illegally manipulated? Probably referring to whistle blower Andrew Maguire’s emails to CFTC in February 2010, Chilton had this to say:

But when people email me and say, ‘You watch the market (silver) between 9:15 and 9:45 tomorrow and it’s going to tank or it’s going to do this or it’s going to do that.’  I hold on to it and I watch the market and what they say happens, and I’m not saying this always happens, but it happens even 50% of the time, 60% of the time, there’s no way that doesn’t raise my antenna, like major, electric antenna goes up.

With the derivatives market on the verge of implosion in the wake of the Eurozone crisis, any further announcement implying JP Morgan et al may well be what’s required to nudge us over the tipping point. The next few weeks/months could turn out to be very interesting times. However, updates will be few and far in between while I’m taking a break in the Andeas until Feb 2011.

Stay prepared.

Update: 

ZeroHedge just reported a very significant event that may affect global markets next week:

… the CME just made the maintenance margin, traditionally about 26% lower than the initial margin for specs, equal. For everything. Which means that by close of business Monday, millions of options and futures holders will be forced to deposit billions in additional capital to the CME just so they are not found to be margin deficient, and thus receive a margin call. Naturally, since it is very unlikely that this incremental amount of liquidity can be easily procured in one business day, we anticipate the issuance of hundreds of thousands of margin calls Monday, followed by forced liquidations of margin accounts across America… and the world. Just like when Lehman blew up, it took 5 days for Money Markets to break. Is this unprecedented elimination in the distinction between initial and maintenance margin the post-MF equivalent of the first domino to fall this time around?

Update:

There’s another update from ZeroHedge based on a clarification from CME following yesterday’s release.

Yesterday, in what is the worst-phrased and most misleading press release to ever come out of the CME, the exchange issued a notice that going forward all Initial margin would be equal to Maintenance margin. Our gut interpretation was that “Unless we are completely reading it incorrectly, it is nothing short of a margin call for tens if not hundreds of billions worth of product.” Judging by the broad response, our initial reaction is what a prudent, logical human being would assume: after all, it is precisely the undercollateralization of customer accounts, and general underfunding at MF Global that is what brought that particular company down. Well, we wrong wrong. The CME, it appears has taken a page right out of the European playbook, and less than a week after an exchange-cum-Primary Dealer collapsed due to excessive risk taking, the CME has followed up its vague press release from yesterday by inviting even more risk in lowering the initial margin. Why is this a cause for even greater concern? As the CME itself says, “Initial margins are set to provide an additional buffer against future losses in the account” – so going forward that buffer has been reduced by about 30%. But what is the reasoning provided by CME: “The intent and effect of these changes is to decrease the size of any margin calls resulting from the bulk transfer of MF Global customers to new clearing members, not to increase them.” So basically the CME is implicitly putting all of its existing and current clients and customers at further risk by onboarding the accounts of those clients who, like lemmings, held on to their MF Global accounts until after it was too late. Because while the lower Initial margin may apply to MF accounts, it will also apply to any Tom, Dick and Harry beginning Monday, who will suddenly see a 30% reduced gating threshold to put on a position. Any position, no matter how risky. Read full report here.

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Related Articles:

• Providing Oversight With One Eye Closed
• Silver Manipulation

An independent approach from the Commodity Futures Trading Commission could raise questions about coordation and embolden banks to challenge the Volcker rule, although the agency — which polices futures and derivatives markets – is not believed to play a central role in implementing it.

Gary Gensler, the head of CFTC, is taking a “wait and see” approach to the rule, a key provision in last year’s Dodd-Frank oversight law that would prohibit banks from trading for their own profit in securities, derivatives and certain other financial instruments.

It also would prohibit banks from investing in or sponsoring hedge funds or private equity funds.

“He said we might, if it’s the will of the commission, put forward … a virtually identical proposal with the other regulators, or we could go it alone,” said Scott O’Malia, a Republican commissioner at the CFTC, who said he had spoken to Chairman Gensler on Friday. “He’s not committing either way.”

Both the Federal Deposit Insurance Corp and the SEC are scheduled to vote next week on the Volcker rule, which has already forced banks to scale back previously lucrative proprietary trading.

O’Malia said the decision was a bit of a surprise because in past rules, such as financial product definitions with the SEC and documentation with the FDIC, the CFTC worked with the regulators on the rules.

“It is odd when you look at in the past when there’s been a kind of a negotiated solution of otherregulatory agencies that we must do this,” he said.

A source familiar with the CFTC’s thinking said Gensler is waiting to see how Congressional lawmakers react to the Volcker rule proposal before deciding how to move forward.

A CFTC spokesman could not be reached for comment.

TANGENTIAL

A person familiar with the rulemaking process said the CFTC is only tangentially mentioned in the Volcker rule, and it is unclear what the implications would be if the CFTC takes an alternative approach.

The futures regulator could chose to define a hedge fund and private equity fund in a rulemaking with the Securities and Exchange Commission, or it could chose to embrace the rule drafted by the SEC, this person said.

A September 30 draft of the rule that was leaked earlier this week listed the staff of 4 different regulators that had worked on the plan, but the CFTC was not among them. It later said the staff had consulted the CFTC on the proposal.

Supporters such as Democratic Senators Carl Levin and Jeff Merkley say the Volcker rule, will prevent banks, which enjoy government support through deposit insurance and access to Fed funding, from engaging in risky trades and force them to focus more on their customers’ needs.

Wall Street banks such as Goldman Sachs and Morgan Stanley are watching whether the rule will still give them flexibility to hedge risk, and whether it will have a broad enough exemption for market makers.

Banks have said that if the regulations written to enforce the Volcker rule are too stringent, it could strip billions of dollars from Wall Street profits, hurt market liquidity and place U.S. financial companies at a disadvantage .

 

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Here are two great interviews discussing the reasons & implications of the recent price action of gold & silver.
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Sean (SGT Report) discusses the recent silver price take-down with David Schectman.

• Place of technical analysis in a manipulated market
• Silver is so oversold “It’s a License to Steal”
• Difference between physical silver and paper silver prices
• Why hedge funds sold their winning positions in gold & silver
• While hedge funds, Soros & Paulson sold paper silver in the Comex, the Indians, Russians, Chinese, Arabs and retail buyers bought up all the physical silver they could get their hands on. (Make sure you watch part 2)

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Al Korelin (Korelin Economics Report) discusses the recent silver price take-down with David Morgan. Some key points:

• Have the fundamentals for silver changed?
• CME margin hikes favour the shorts
• Political events and how they affect the price of silver
• If you don’t want to lose any money, stay out of the futures market. They are for professionals
• Stay out of this sector if you don’t have a high degree of accumen in the industry or can’t take wild swings