Friday, September 17, 2010

Two banks still net short 24% of total COMEX O-I silver

Silver is knocking on $21.00/oz, up a clean 15% over the last three weeks. This is happening despite the continued operations of two "undisclosed" commercial banks (ach-hoo! JPMorgan and HSBC!) which are still holding onto documented massive short positions. As Harvey Organ points out, last month's (July 2010) Bank Participation Report revealed that these two banks continue to stubbornly maintain their massive positions. How massive? How about an amazing 31,803 contracts, or 26.5% of the entire COMEX open interest on silver, massive?

And what direction massive? Well, you know the answer--26.5% of the entire COMEX OI silver in short positions--the shining relic of Bear Stearns' March 2008 position. This is just some of the valuable and perhaps frustrating information we can extract from the BPRs which the CFTC still (relunctantly?) releases. But, of course, this is old news--its from July! Things are totally different now! Since this last BPR, silver is up over 15%. These banks can see that as clearly as you and I--they're losing dough shorting contracts! They must be onto this, too---right? So what are these banks doing this month?

Well, of course--they're increasing their short positions!

That's right--the JPM-led duo (JPM likely holds 90% of these shorts with the balance in the hands of HSBC) increased its short positions by over 5% from 31, 803 to 33,431 contracts in the face of this 15% move up. Here's the BPR, see for yourself. And if you're not clear about the historical continuity of the JPM/Bear Stearns COMEX silver story, here's a previous post on the subject.

Not surprisingly, overall OI has increased since the July report to a current 139,522 contracts, as the rather small silver market has gained considerable attention lately. Therefore, while the JPM-led short position has increased 5% to 33,431 contracts, it actually represents a slightly smaller chunk of the OI pie: it is now "just" 24% of the entire COMEX OI! (Yo, CFTC: why are we paying you, anyway?) Of course, if JPM would not have increased the short position by 5%, this overall increase in OI would have further reduced their presence: in fact, if they would have just held the previous month's amount of 31,803 contracts steady, their chuck of overall OI would have been reduced to under 23% (which is still ridiculously large, granted). It doesn't look like there is an easy way out of this massive short position for JPM, and that should make us all very uncomfortable.

Don't trust these rascal for a femtosecond. We really do not know what is going on right now. Things are rarely as they seem, especially in rigged economies like ours.

Friday, September 10, 2010

Where are we gonna get $5.2 Trillion in 36 months?

An excellent and disturbing article surfaced Friday in the Wall Street Journal, titled "Treasurys and the Danger of Short-term Debt." It is an essential read to understand how bad things get when a body (the United States federal government) buys things it can't afford.

The author is Jason Trennert of Strategas Research Partners. As the title suggests, Mr Trennert details the super massive, incredibly huge, stunningly irresponsible Geithner strategy of short-term funding. To be "precise," Mr Trennert states:

"One wonders how Treasury Secretary Timothy Geithner can sleep soundly at night with the knowledge that more than 60% of America's sovereign debt is set to mature within the next three years. To be precise, $5.2 trillion of U.S debt comes due in the next three years out of $8.3 trillion outstanding."

So, exactly where are we gonna get $5,200,000,000,000 in the next 36 months? Don't ask Mr Geithner--he's too busy sleeping!

We should all wonder how Mr Geithner sleeps at night, even for reasons other than those mentioned by Mr Trennet. But, of course, I think he sleeps just fine, because I do not for one femtosecond believe that anything in the interest of US sovereignty and free enterprise, the rule of law or economic integrity is of any concern whatsoever to former FRBNY-head-turned-Treasury-Secretary Mr Geithner. Interestingly, this is consistent with a trend of recent Treasury Secretaries, as none of the above-listed jewels were of any concern to his predecessor Mr Paulson, which, of course, was a trait Mr Paulson had in common with his predecessor, Mr John Snow, and of course which his predecessors also shared, especially Mssrs Summers and Rubin. This very manifest trait is attention-worthy as we discuss short-sightedness, and can perhaps best be summarized by former president Bush's second Treasury Secretary, Mr Snow, who stated to the NY Times in December 2008 the following remarkable and completely insane admission:

“The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house."

(Pause. Blink twice. Re-read.)

This is coming from the TREASURY SECRETARY of the UNITED STATES of AMERICA!

Oh heavens. So, of course Mr Geithner sleeps like a baby. In fact, word at the Bankster Report is that "jobs" funding from the American Economic Recovery and Reinvestment Act of 2009 actually including a project to retrofit the walls of the US Treasury building with the latest space-age sound-dampening technology to make certain that they are utterly and completely incapable of being penetrated by any noise, static, or information whatsoever from the outside real world, particularly the deep, rumbling groans of the international debt market or incessant clamour of the bond vigilantes as they chisel away at their chains!

Nevermind the tick, tick, ticking of the clock as this Ponzi scheme's lifespan grows ever shorter. The revolving door of debt-financed-by-more-debt is the only option for Treasury. Repeat: more debt is the only option. The huge problem here is, of course, that with the Fed funds rate at effectively 0% (officially zero to 0.25%), the price of money will only increase. The Treasury will be forced to buy money at a higher price--but that's not all. Remember how Treasuries work: besides the fact that debt eventually matures over a specific time frame (3-months, 5-years, 10-years, whatever), there are also coupon (interest) payments that must be made periodically. Currently, the strategy for satisfying these coupon payments is largely to--you guessed it!--borrow yet more money. But as rates rise, which is an absolutely and indisputably inevitable reality, so will the coupon payments and yield of this US debt also rise.

If you have time for only one link in this post, make it this one: US Treasury: Monthly Treasury Statement. This is the August 2010 checkbook of the US government. Its very nicely put together, excluding the choice of Treasury to actually denote surpluses with a "-" mark (yeah, a minus mark for surpluses), as surpluses are so rare. Scroll to page 4, however, and you'll see the importance of this report in the discussion of the cost of the funding spending and making interest payments. Firstly, note that these figures are in Billions. Next, scroll down to the line titled "Department of the Treasury." Here's what you'll see:

"Department of the Treasury:
Interest on Treasury Debt Securities (Gross):

1.) This month: 20,521
2.) Current fiscal year to date: 395,769
3.) Comparable prior period year to date: 367,839
4.) Budget estimates for full fiscal year: 419,732"

1.) In the month of August alone, the Treasury paid $20,521,000,000 in interest payments.
2.) From January 1 through August 31, the Treasury has paid $395,769,000,000 in interest payments.
3.) Compared to this time last year, the Treasury has paid 7.5% more in interest payments.
4.) Treasury is expecting to fork over $419,732,000,000 in interest payments for the year 2010.

This is not good.

Here is another great page for seeing this horrible fiscal recklessness in glaringly full color: From the homepage:

"Suppose you want to spend more money this month than your income. This situation is called a "budget deficit". So you borrow (ie; use your credit card). The amount you borrowed (and now owe) is called your debt. You have to pay interest on your debt. If next month you don't have enough money to cover your spending (another deficit), you must borrow some more, and you'll still have to pay the interest on the loan. If you have a deficit every month, you keep borrowing and your debt grows. Soon the interest payment on your loan is bigger than any other item in your budget. Eventually, all you can do is pay the interest payment, and you don't have any money left over for anything else. This situation is known as bankruptcy."

And this is nicely and appropriately demonstrated with very alarming colors and tons of data from the Treasury itself. If you can look at these facts that not become alarmed, then congratulations, you are officially qualified to enter the pool of potential future Treasury secretary candidates! For the rest of us--you know, people who actually understand the financial, political, and moral gravity of debt--this is just horrible! So lets pick at this wound some more.

According to the US Treasury, the 2010 estimate for total interest payment outlay is inching closer to half a trillion dollars, at $419,732,000,000. Another way to look at this is:

$1,149,950,684 per day
$47,914,611 per hour
$789,576 per minute
$13,309 per second

In the time it takes you to make a pot of coffee, your government's interest bill has increased by nearly $8 Million dollars, a total which 95% of Americans will never make in their entire lifetimes. But this is, of course, not anything new, as the US government has been spending more that it recieves for 41 years. What Mr Trennert is drawing attention to is that $5.2 Trillion in maturities is coming due over the next 36 months--on top of this $1.15 Billion of interest due each day.

So what is that $5.2 Trillion over 36 months, excluding interest? Try $144.4 Billion per month: yeah--that huge $20.5 Billion paid in interest in August 2010 alone will be dwarfed by the $144.4 Billion in principal payments due per month for the next three years! We obviously do not have the money for this, so that leaves us one option: borrow more. And more. And more....

...and at higher, and higher, and higher rates.

Ever hear the one about the camel and the straws?

Wednesday, September 1, 2010

Yeah, COT's matter: Visualizing the silver short

Many of us will never forget that crazy, foreboding weekend in March 2008 when the cards began to fall. In a matter of weeks, the mighty Bear Stearns had metamorphosed from a perceived Wall Street giant to a pulsating pile of toxic waste, and the legendary investment bank's share price had fallen from $93 per share to $2. Whatever really happened on that weekend in March, we may never fully know: information from the same source (ah-eh, Mr Paulson) conflicts even with itself. All we can say is that our wonderfully shortsighted Mr Geithner and his utterly corrupt FRBNY, along with the aforementioned Treasury Department head crook Mr Paulson, arranged for the orchestrated insta-bankruptcy and massive firesale of Bear Stearns and its non-toxic assets to JPMorgan Chase. The balance--that is, the remaining fantastically toxic debt--was jammed down the throat of the US taxpayer, first via the Fed's Maiden Lane LLC, and later via the inevitable bailout of zombie bank JPM. It is a long story that has been covered here before, but the reason this move from over two years ago remains important--beside the BILLIONS in debt that the taxpayer will be stuck with and massive payoff to JPM that the taxpayer footed--is because of the silver mystery embedded within it.

Full disclosure: I think the crime against the American taxpayer committed in the bailout of Bear/JPM is something that far surpasses in both gravity and significance the possible side-line manipulation of silver which I am about to mention. Besides the mere scale of this grand larceny (in Billions) being larger than the entire silver market, the utter disgracefulness that the US government and its so-called officials demonstrated in "saving" these fraud-laced institutions is what did cement the path upon which all of the subsequent bailouts and financial bloodletting travelling, the path straight to the pocket of taxpaying, dollar-using Americans. The silver story is important, but I do not personally think that the JPM-Bear bailout happened because of silver manipulation. Unfortunately, I have no confidence in this government or the one before it, and I believe it would have happened with or without any interest in a shiny white metal.

That said, something very, very big in silver happen during those hectic weeks in March 2008, and we cannot be sure just what. Somebody knows (okay, more than one somebody: I would guess Mr Paulson, Mr Geithner, Mr Kohn and Mr Dimond, oh--and can't forget Mr Bernanke and, of course, Mr Cayne, and Mr Schwartz), but no one is saying. That leaves plenty of room for speculation, and given these last two and a half years, plenty of time, too.

The Bankster Report frequently harps on the
paper positions in gold and silver and the CFTC's refusal to address them, but here I just want to speculate on the silver short. Remember back to 2008: In January, the Fed and Bank of America absorbed the sub-prime leader Countrywide. By March, Bear Stearns was down, and the real tremors started. By summer, a dozen banks had failed, and Fannie and Freddie were in big trouble. By September, Lehman was under, and every single one of the top five banks were in serious, legitimate risk of insolvency. The rug was out from under the market, LIBOR rates were at records highs, and credit was frozen. By October, financial terrorism and threats of Congressional martial law had the once-defeated TARP bill successfully forced through Congress after the DJIA crashed 777 points in one day. By November, gold was under $750/oz, Treasuries were starting a path to negative yields, and markets of every kind all over the world were nothing but red. Take a minute to remember this (because its going to happen again, but that's another post): do not forgot how fast things fall apart.

As was astutely
covered by GATA during the thrashing rolls of the market in November 2008, besides all this very visible financial deterioration, something else was up. At the time of the GATA article, silver was sitting under $10/oz (back up the truck!) after having lost over 50% of its value from the March 2008 prices of $21/oz. In March, before its collapse, Bear Stearns was sitting on up to 25% of all COMEX silver contracts in a short position when silver was a near 25-year highs. This entire position was acquired by JPM, because if the Fed would not have transferred these positions, then attempting to close this huge short of the metal while it was at record highs would have only unleashed it further. Silver is not the only commodity position JPM accepted. Yet, within 8 months, silver had last over half this price, and JPM was reaping the profits of this massive short position and the massive 50%-plus crash. The November GATA article presented evidence from once-skeptic turned long-time mega silver-bug, Ted Butler (and I do mean mega silver bug, which is appropriate to consider in viewing his analysis). From Mr Butler's November 2008 article:

"This week, I received a copy of a letter, dated October 8, sent from the CFTC to a California Congressman, Gary G. Miller. It discussed allegations of a silver market manipulation because of the data in the monthly Bank Participation Report. The data in that report for August showed that one or two U.S. banks held a massive short position in COMEX silver futures of 33,805 contracts, or more than 169 million ounces. This is equal to 25% of annual world mine production, and was up more than five-fold from the prior month’s report. After this position was established, silver prices fell more than 50%, in spite of a widespread shortage in retail forms of investment silver. Never before had there been a such a large concentrated position in any market, including every manipulation case in the CFTC’s history. Concentration and manipulation go hand in hand. You can’t have one without the other."

Here, Mr Butler is referring to the JPM-held post-Bear short.
Check out this detailed post for more information on this bank participation (BPR) than you would like to know, and for plenty of information on the documented short positions of JPM. This is all very important, but for now, let's just fast-forward all the way to last week, and last week's COT report. The COT's, or Commitment of Trader reports, are commodities market participant disclosure reports released by the CFTC. COT reports are notoriously difficult to interpret. They are somewhat like looking at a chess board from above, so theoretically they allow a view of each side (long and short) and side interest (speculative, commercial, hedgers/producers), but they don't necessarily reveal moves or direction. Click on this COT example, and see if you can extrapolate any of this data. Can you read the moves on this chess board?

Well? It is possible, but its not simple. So this is why I'm so pleased to share this very nice
visual version of the CFTC's COT reports release, courtesy of Libanman Futures. Thank you, Libanman! Yes, even if the information contained within it is frustrating, perplexing, and perhaps even evidence of massive commodities market manipulation, this is sure a pretty chart! It is quite different from the example above--the COT as issued, as a bunch of numbers which is not easily discernible. However, pump this data in Excel, and you'll receive a visual version that is quite easily understood. Or, just check out Libanman's great work.

So let's visually compare the COT's of different commodities to determine if we can spot a trend.
Here's an example of the cocoa COT:

The light blue is net commercials (banks), darker blues are swap dealers and small speculators, and the pink is net managed money. Positions below the axis are short, positions above are long. The line with red dots is open interest. What we're really looking at here is how the net shorts (which happen to be commercials) respond to the net longs: you'll see that it is very close to a mirror-image. This is what you would except if the net commercials were engaged in the kind of normal activity banks do in future markets to make money, activity such as smartly hedging against the bets they've taken either to insure long positions they've guaranteed for, say, a producer, or to hedge their own proprietary long bets. There are other smart reasons to do this, as a successful bank can figure out how to turn a profit no matter how the commodities markets move (to a point), they just play the markets to move.

Now, let's compare this cocoa COT to the same week's silver COT:

Can you see any differences? Let me rephrase that: is there something wrong with this picture? Where is that mirror-image we saw before? What's with the large changes in long positions and virtually no reflection of these changes in the shorts? What kind of investor can run this gambit without getting burned? Are these some kind of rolling short positions? Don't look at me--your guess is as good as mine!

For one last comparison, let us look at the gold COT. You'll see that despite the constant claims of overspeculation in gold (claims that may or may not be accurate), it looks a whole lot more like cocoa than it does a fellow precious metal, silver. Click here to see the whole Libanman COT collection, and judge for yourself the uniqueness of silver's COT.

Here's the gold COT:

You tell me? Are we looking at JPM's continued massive short when we look at that silver COT? Perhaps: we should have more information with today's COT, considering the huge move in silver that has occurred since last week (about +8%). I might attempt to read it, but I'll most likely just wait for Libanman to make a nice pretty picture of it, and post the link for anyone interested.

That's waaaaay easier. Enjoy.