Monday, April 18, 2011

Silver Is Still The Best Revenge

Face it, former Goldman Sachs CEO Hank Paulson, who served as US Treasury Secretary just long enough to loot taxpayers is never going to jail. Neither are Alan Greenspan, Ben Bernanke, Angelo Mozilo, Phil Graham, Franklin Raines, Barney Frank…(I could do this all day).  Justice (much like truth) is a luxury Americans can no longer afford.
Silver is something most Americans can still afford, but aren’t smart enough to buy.  Maybe it’s because the concept that the supply of anything could be less-than-infinite is rejected here.  Or maybe they’re afraid someone might laugh and call them a conspiracy theorist.   Too bad, because they’ve already missed out on some really good laughs, with more to come.   The latest round of  jokes came from the CME group’s year to date metals delivery notices report.   Since December 2010, only 11 firms have been foolish enough to be net sellers of physical silver at the COMEX.   Here they are:
Net, JP Morgan delivered 12.2 million ounces of the shiny metal from December 2010 until last week; more than four times as much physical silver as all other market participants combined.  So the idea that JPM is the entity holding down the price of silver is an incontrovertible fact, not a conspiracy theory. It’s not even worth discussing.
What is worth discussing is how much longer JPM can continue delivering silver at this blistering pace.  JPMs 4-month total would be more than 90% of US mining production for the period.  So how JPM acquires its silver should be of interest, and that requires some speculation.   The largest silver stockpile in World history is a good place to start.  On June 1, 1955 The Wall Street Journal reported that the US government had a “useless” stockpile of about 3 billion ounces of silver, and blasted the Treasury for paying the outrageous price of 90.41 cents for an ounce of silver (click here for excerpt, or here  if you are inclined to pay $4.95 for proof the WSJ was a worthless rag 56 years ago too).
 Fun with Math: If you had 3 billion ounces of something on June 1, 1955 and began selling 1 million ounces per week, you’d run out 57.49 years later, on Tuesday November 27, 2012.
The point is that in 1955, the US government was in possession of more than 10 percent of all silver ever discovered up to that point in human history. Fifty years later, it was all gone according to the 2005 US Geological Survey.   The price of silver has now risen more than 4,000% despite the complete liquidation of the largest stockpile of the stuff ever known.   That’s better than stocks, houses, oil and just about everything else you can imagine, with the exception of gold, which was illegal for US citizens to own in 1955.  One can only wonder what the price might be without that liquidation.  Well, that and who the US government sold all that silver to, and under what terms exactly.  That’s probably a good question to ask your congressman the next time he tells you Social Security is broke.  Anyway, the US government says it doesn’t have any silver left and apparently JPM and the customer(s) they represent have lots and lots. Nothing odd about that, right?
I say “apparently” JPM has lots and lots of silver because they delivered more than 12 million ounces in four months.   I have to wonder how many more times they can pull a rabbit that big out of their hat. In March 2011 folks at the COMEX decided to make JPM’S vault a certified COMEX vault.   As of April 11, that vault contained 30,844 ounces of silver. JPM has averaged about 150,000 ounces in physical settlement per trading day during the past four months. Which means that stash should last about two hours….
Maybe JPM still has lots and lots of silver elsewhere, right?  Certainly they should.  In November 2010, Jason Hommel estimated that JPM has silver obligations totaling 3.3 Billion ounces.   So if Jamie Dimon is in fact the man on the silver mountain (and maybe that explains the picture), why is he sending customers to the COMEX floor?  From the CME group’s YTD metals report:

JPMs customer(s) were by far the biggest net sellers of silver in March 2011, selling 374 contracts (5,000 t oz each), while buying none. So far in April, 119 silver contracts have been issued and JPMs customer have taken 94 of them (79%). Sentiment shifts don’t get any less subtle, even if you ignore the fact that they sold low and bought higher. So either they’re: 
  • suddenly expecting much higher prices 
  •  the most misguided investors on planet Earth, or
  • desperately in need of silver (after all, the stuff is very useful).
(This is the part where you need to think for yourself)
I’ll tell you right now, JPMs apologists are going to scream, “Obviously they’re not the same people!”  and you are free to accept that explanation.  The question remains however that if this party wanted physical silver why wouldn’t they just purchase it directly from JPM?   Wouldn’t JPM be happy to sell some of its hoard, now at 30-year highs directly to a customer?   They should have lots and lots, remember?   And who (besides the US government) would sell everything they have, only to buy it back for more in a month?

Fun Fact:  JP Morgan’s London Branch is the custodian of the iShares Silver Trust (SLV) and neither the SEC nor the CFTC seem the slightest bit concerned.
The SLV is the largest silver ETF, holding more than 360 million ounces of the element with the best electrical conductivity. As the prospectus says, “The custodian is responsible for safekeeping the silver owned by the trust….and is responsible for any loss of silver to the trustee only…Because the holders of ishares are not party to the custodian agreement, their claims against the custodian may be limited.”
I expect we will be seeing more silver showing up at JPMs COMEX vault shortly, if only for appearance’s sake.  Remember this:  The supply of a natural resources is finite, the ability to make promises you can’t keep is not.  Few questioned AIGs ability to honor its obligations until it was far too late.  The same kind of ignorance is in play in the silver market today.
Silver has now embarrassed every pie-charting, asset allocating, Fibonacci retracing, Elliot waving, reversion-to-the-meaning dimwit trying to pass himself off as a “financial professional.”  Most have never recommended silver, and they know tough questions will be coming shortly from their future ex-clients.  So right now they’re praying, to whatever diety people who have based their World view on ignoring the difference constants and variables pray to, that silver is a bubble.  Fat chance.
More Fun Facts (and a bizzare comparison):  As of this writing, the US Treasury has sold 13,803,000 ounces of silver YTD.  At $40 each, that’s about $552mm, or  0.012% of GDP.  Meanwhile, Treasury’s net issuance of new paper has totaled $239B or5.13% of GDP.  If you charted that difference in height, it would be like comparing Dubai’s Burj Khalifa  to a Port-a-Potty (I’m not going to do that).  The Port-a-Potty may not get much respect (and I’ve seen a few woefully disrespected) but is absolutely necessary.  I’m not sure how necessary a giant needle (requiring the cooling equivalent of melting 22 million pounds of ice per day)  in a barren wasteland is. 
Draw your own conclusions regarding  bubbliciousness.  Still I can’t help but getting a little misty when I see the paperbug’s concern for the silverbugs.  Thanks guys, but your sentiments are about as insane as people on the Titanic  screaming to those already in life boats, “Come back!!! This ship is unsinkable and we’ve got technical analysis to PROVE it!”  Sure you do, but methinks you’re just after our lifeboat.
In case you haven’t noticed, the same people who call record numbers of Americans on food stamps a “recovery”, while piling up unpayable debts on others to stay large and in charge, call silverbugs crazy.  They act like trading infinitely printable paper for an irreplaceable vanishing resource, that has also served quite nicely as money throughout human history, is a silly idea.  Last time I checked, scientists haven’t yet found a way to turn bullshit into silver.
In April 2010, Jason Hommel filed an antitrust complaint against JP Morgan with the US Department of Justice, who still haven’t managed to send a single bankster to prison ( Madoff turned himself in), so don’t hold your breath.  Taking silver at the artificially low prices still being offered is as close to revenge as the common man is ever going to get.
I leave you with lists of the top five contributors to the campaigns of financial reform “champions”  Chris Dodd and Barney Frank from


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