Friday, April 2, 2010


When the open interest in silver futures contracts exceeds 800 million oz., and when the silver on deposit for delivery is a mere 50 million oz., it does not take a genius to figure out that something is out of balance. That's only a 6% backing!

When the London OTC market trades in excess of 125 million oz. of silver per day, and only has 75 million oz. of physical in the vaults, again, it does not take a genius to figure out that something is out of balance there, too. The BIS notes that the OTC "over the counter" other precious metals derivatives exceed $200 billion, which is about 12 billion oz. of silver, or almost 24 years worth of mine supply, and 160 times the 75 million oz. they have left!

It should not take any hearings or investigations. But the investigations serve the purpose of revealing the numbers to CFTC commissioners who may not otherwise know.

The London fraud is easier to understand, even though it is bigger. Why? In Europe, there is the VAT, and on silver, it's about 17% if you take your silver out of the banks, and take delivery. Therefore, most people leave it with the banks. But there is no "it", no silver.


The world's gold market is like a Ponzi scheme, or bucket shop. Around 100 years ago, there were brokerage houses (bucket shops) that let you buy stocks, and they would give you a receipt, but they would not buy the stock, they would simply buy back your receipt if the stock went up, and if you cashed in your receipt. Two big "ifs". Jesse Livermore wrote about the bucket shops in his famous book, "Reminiscences of a Stock Operator".

The government eventually put the bucket shops all out of business, because they were all fraud. (Also, the government banks don't like competition.)

Jesse notes that the bucket shop trading was different than a real market, as you would not move the market price of stocks you bought or sold, and so, you could buy the stocks cheaper, not paying such large commissions, and also, not moving the market price up against yourself as you were buying.

Same thing in the gold and silver markets. The big brokerage houses promise silver at lower commissions, but only if you don't ask for delivery.

The gold and silver markets are no different than a bucket shop, it's cheaper, but if you don't take delivery, your silver does not exist.

Watch my imaginary scenario play out today......good job numbers and tightening by the Fed on Monday with bonds trying to flatten out the curve. It is all part of the grand experiment AND it is also an attempt to extricate themselves from the Rock and a hard place....should take the market down and then squeeeeeze the shorts as they have moved back into their positions....wash rinse repeat.

update I must read this week

update II fun watch...also pick up on the right links too


  1. Here is a good short read on what Soro's is holding.

  2. Just thinking out loud, seems like the Fed/Treasury is intending to further aggressively flatten the yield curve a bit to crush stagflation speculators like Soros, while allowing their insiders to benefit from the move and allow the monetization game to continue just a little bit longer. The only way to bring long dated Treasuries down without stoking massive inflation is through a combination of raising the rate on the short end and stabilizing the rate rise on long dated bonds. $85+ sustained oil will quickly crush any employment recovery efforts.

    Whenever there is an "emergency" meeting, it makes me nervous to hold high beta positions because someone is about to screw the pooch.

    Unfortunately I am one of the endangered fewer by the day retail traders left, which means if I am not trading on the other end with GS then it's either Kli or Joe. So all discretionary positions are back in cash.

    "In the kingdom of the blind, the one-eyed man is king"

  3. Listening to bond traders and El Arian with the same suspected Fed strategy of flattening the curve. I tend to put a little more credence in these predictions than the typical equity talking heads.

  4. Red,

    Please explain what you mean by the following statement, heheeeee!

    "Unfortunately I am one of the endangered fewer by the day retail traders left, which means if I am not trading on the other end with GS then it's either Kli or Joe."


  5. Actually I suck at math (go figure) but am awesome at logic and logic dictates there is only so long before the curtain comes back and we see what is REALLY going on.*

    *no math skills required for assembly

  6. Thanks for the offer in the post above John Welsh, but can't help on that one. Keep trading those penny stocks.

  7. Just don't suck like John or you will end up on retrovirals.

  8. I don't understand JP how you can suck at math and yet be awesome at logic.

  9. Joe, it's getting closer to no bid market with each market stabilization or wipe out the most egregious speculators not trading in the FED/Treasury's interest. Only the manipulators and hard core survivors stupid enough to take the abuse for the meager scraps will be still be left.

    I used to not care holding positions over long holiday weekends, not anymore. Cash, physical gold and Alpo; as for the remaining discretionary trades win, lose or draw they get closed out.

    As for the FED they need to coral speculators out of commodities and into the short end of the bond yield curve while simultaneously keeping interest on the long end so they can get slaughtered some more later.

    Right now, I agree completely with your position of letting the FED show its hand before taking any trading position. Conviction on longer term positions will only retail traders slaughtered in the whipsaw.

  10. I thought the fed meeting was a 4-1 hoax. Raising short term rates to mute the long and and flatten the yield makes sense. How would this effect treasury auctions participation. Seems like the equities markets would not like this.

    FWIW if you throw out 1576 as a top and call it 1500 we are at 61.8. call the 76 a tail.