Mark McHugh

Archive for December, 2010|Monthly archive page

Did you say JP Morgan is Short 3.3 Billion Ounces of Silver?

In Open Thread on Friday, December 17, 2010 at 8:00 am

Ummmm….no.  In my last article, I quoted Eric Fry, who said:

Based on some of the latest conjecture, Morgan’s short position totals a whopping 3.3 billion ounces. If, therefore, the buzz about J.P. Morgan and silver is even half true, the prestigious investment bank could be cruisin’ for bruisin’.

I failed to identify the source of that so-called conjecture (because I didn’t know myself at the time), and I apologize for the lapse in due diligence.   That estimate was originally published by Jason Hommel of Siverstockreport.com on November 13, 2010.  Jason wrote:

If my reading of the OCC report is any indication, then JP Morgan’s short position in silver could be as high as 25% to 50% of the entire world banking system’s short position of $200 billion in silver (and that was when silver was $15/oz.)!

JP Morgan’s short position in silver could thus be as high as 3.3 billion ounces if we are conservative, and estimate their position at only 25% of the BIS report numbers.   By $500/oz., JP Morgan’s short position could be worth a negative $1.5 trillion, and that’s just for starters.  It could grow worse if they add to their short position, in a misguided attempt to manipulate a market that is clearly moving against them.

Before I go any further, let me explain something.  A few years back, I decided that Jason’s views on silver were a little extreme for me.  In other words, I concluded that Jason was probably full-blown, bat-shit crazy.  This brings me to my second apology in as many paragraphs.  Sorry, Jason.  People who are too far ahead of the curve for the rest of us often appear as cranks.

Anyway, financial blogger Kid Dynamite, published an article at seekingalpha.com (who will not be getting an apology from me today) challenging the estimate.  KD also failed to identify Jason Hommel as the source.  But Jason showed up to defend the estimate.  What followed was a remarkably civil discussion between two very sharp pencils.  The entire article can be found here, but you may have a hard time getting all the comments (350) to load (nice work, SA).  Just Jason’s comments can be found here.  I highly recommend the discussion, but there’s a couple of key points I’d like to stress:

  • Jason and Kid Dynamite have to agree to disagree on what the Bureau of International Settlement (BIS) numbers mean, thanks to footnotes like this: While data on total options are shown on a net basis, separate data on options sold and options bought are recorded on a gross basis, i.e. not adjusted for interdealer double counting.”  I am not the slightest bit embarrassed to say that I have no idea what the fuck that even might be supposed to mean.  If this isn’t deliberate obfuscation, I don’t know what is.
  • Jason makes reference to a massive (-54% or $110B), unexplained downward revision in the data, and asks in vain, “What Changed?”  I can attest firsthand to incomprehensibly huge revision to government data, made without apology, explanation or fanfare.  My frustrations stem from ownership of  Treasury securities which I wrote about here.  I sent THREE copies (two registered) of a list of questions and have received NO REPLY (not even a Christmas card).   Very few people read this kind data, fewer still notices these astronomical revisions and anybody who asks questions get stonewalled.  Think about that.
  • The discussion also reveals the role paper speculators play in inhibiting price discovery on the COMEX.  These are people that wish to be rewarded for increases in the price of silver, however they have no desire to own silver and everybody  knows it.  They are chum for JP Morgan, and rightly so.  They’re bad gamblers.  They sit at the table, knowing the other guy is bluffing, only to fold month after month after month.  Weep not for them, America, they asked to be victims and deserve to lose everything.

Which brings us back to the really cool part.  As long as JPM remains pre-occupied with running over these wishy-washy souls, the rest of us can get real silver (the shiny, klinky metal kind) super cheap.  How many ounces of silver has JPM shorted?  Lots, but only they would know for sure.  The rest of us have to guess.

If you’d like more evidence that Jason Hommel is not insane, I recommend this interview Jason did with Mike Maloney of Goldsilver.com.  At no point during the interview does Jason foam at the mouth, nor does he lunge at Mike for his repeated interruptions (which quite frankly, I probably would have).

What The Silver Vigilantes Understand That You Probably Don’t (Arithmetic, Human Nature and other Stuff)

In Open Thread, Silver, stocks finance, Treasuries on Wednesday, December 15, 2010 at 6:03 pm

Sorry about the insulting headline, but every last shred of evidence I can find suggests that the most people remain utterly clueless about silver, despite the efforts of the silver vigilantes, led by Max Keiser and Mike Kreiger.  Their brilliantly simple plan (go get some physical silver) promises to topple the criminally insane fraud that has become US economy.  It doesn’t require politicians or regulators to lift a finger either, you simply take advantage of what is undoubtedly an artificially low price.  I can completely understand anyone who is skeptical of that last statement; I’m sure you’ve been burned before, but that doesn’t mean you should stop seeking truth.  

Part 1. A little math.

I’m not sure when performing basic arithmetic made you a conspiracy theorist, but here we are.  

The 2009 World’s population was about 6.8 Billion.  According to the Silver Institute, total silver supply in 2009 was 889 million ounces.  That means there was .13 ounces of silver produced for every human being on the planet.  That looks like this:

Yep, your fair share of Worldwide silver production is a little less than the silver content of two pre-1965 dimes.  That’s all.  A bargain at about four bucks when you consider the amazing properties of this element.  FYI: World oil production per capita is 190 gallons. 

This….

 …represents more than ten years of  worldwide silver mining production divided by 2009 population.  Less than $35, and hell of lot easier to transport than 7,600 quarts of Quaker State.  Please note that so-called “World production” includes government sales and scrap.  Government sales and “scrap” have accounted for more than 25% of  “World Silver Production” from 2000 to 2009.  I’m not sure I believe that one out of every four ounces of silver gets recycled, but understand that without that bonus production, demand exceeds supply by 37%. 

Part 2. Who needs silver?

Just about everybody, it turns out.  Sadly, another way to get yourself labeled a conspiracy theorist is by reading government documents like the Constitution, or the Department of the Interior’s 2009 U.S. Geological Survey which states:

The physical properties of silver include ductility, electrical conductivity, malleability, and reflectivity. The demand for silver in industrial applications continues to increase and includes use of silver in bandages for wound care, batteries, brazing and soldering, in catalytic converters in automobiles, in cell phone covers to reduce the spread of bacteria, in clothing to minimize odor, electronics and circuit boards, electroplating, hardening bearings, inks, mirrors, solar cells, water purification, and wood treatment to resist mold. Silver was used for miniature antennas in Radio Frequency Identification Devices (RFIDs) that were used in casino chips, freeway toll transponders, gasoline speed purchase devices, passports, and on packages to keep track of inventory shipments. Mercury and silver, the main components of dental amalgam, are biocides and their use in amalgam inhibits recurrent decay.

 Yet you can actually find dunces out there claiming that digital cameras have made silver obsolete.  You should live so long…

Fun Fact:  Silver (not gold, copper or anything else) is the element with the highest electrical conductivity.

Part 3. People lie…..

“…I want to make it equally clear that this nation will maintain the dollar as good as gold, freely interchangeable with gold at $35 an ounce, the foundation-stone of the free world’s trade and payments system.”

John F. Kennedy, July 18, 1963 

“That we stand ready to use our gold to meet our international obligations–down to the last bar of gold, if that be necessary–should be crystal clear to all.”

William McChesney Martin, Jr. (Federal Reserve Chairman) December 9, 1963

And…..

Lesson:  When someone says you can exchange paper for precious metals – make the swap before they change the rules.

Since the invention of paper, people have been writing bogus notes, and if there are two time-tested methods to become wealthy beyond your wildest dreams, they are:  1)Selling stuff that doesn’t exist and 2) Selling stuff you don’t actually own.  Unless you believe there has been a sudden outbreak of integrity in the banking industry, there’s no reason to believe these dynamics are not still in play, is there?  As recently as 2007, Morgan Stanley settled a class-action lawsuit with 22,000 clients who bought and paid storage on “phantom” silver (check out the Ted Butler article Money for Nothing).

At today’s prices, a million dollars in gold weighs less than fifty pounds, but a million dollars in silver weighs more than 2,300 pounds!  So ask yourself, how many rich people are storing their own silver?  How many hedge funds hold physical silver in their own storage facility?  Or have they entrusted the storage to the big banks?

JP Morgan is the custodian of the ishares Silver Trust (SLV), which now holds over 350 million ounces of silver, provides  sovereign and corporate investors with precious metals solutions (JP’s website), and is the largest short seller of silver in the history of the world.  Berkshire Asset Management’s  Eric Fry writes:

Based on some of the latest conjecture, Morgan’s short position totals a whopping 3.3 billion ounces. If, therefore, the buzz about J.P. Morgan and silver is even half true, the prestigious investment bank could be cruisin’ for bruisin’.

For perspective, 3.3 billion ounces is roughly equal to:

1) One third of all the world’s known silver deposits;

2) Two times the world’s approximate stockpiles of silver bullion;

3) Four times the annual mined supply of silver;

4) 30 times the inventory of silver at the COMEX.

If you can, forget about the conflict of interest, and ponder the enormity of the explosion.

 

Part 4. A little more math. 

 Estimates of total silver production since the dawn of man range from 46 to 53 billion ounces (roughly 11x gold production), but unlike gold, we’ve used pretty much all of it (although squandered might be a better word).  It’s in our cemeteries (fillings) and scattered throughout our landfills.  There hasn’t been a significant surplus since 1990.  Ted Butler and others estimate that there is far less silver bullion in the world than gold bullion and they back up their case with numbers  that the paperbugs have never even bothered to refute.  So why does gold trade at more than 45 times the price of silver?  Because JP Morgan, the US government, and every other psuedo-capitalist parasite wants it that way.  But that’s a truth for another day.

Part 5. Other things you should know.

 The Treasury has sold 34 million one ounce American Eagles so far in 2010.  Those sales total less than one Billion dollars. Apple (AAPL) trades about that much every hour the market is open.  Meanwhile the Treasury has issued more than 1.5 Trillion in new debt (1,500 times more) in 2010.  Just for fun, let’s multiply 1500 by 34 million.  A transaction of that size would have equaled every last bit of silver ever discovered at $30 an ounce.    Yet you can actually find people who believe silver is the bubble.

Treasury doesn’t make it easy to buy silver.  They’ll sell you bills, bonds and notes directly online, but not precious metals at anything close to market price.   The mint only does business with  11 Authorized Purchasers (a list can be found here),  Why the lack of savvy?

China can blow up the COMEXs silver market in the blink of an eye, at any moment.  They can do it with their pocket change, as a goof.  And if we piss them off enough, they will.

Part 6. So what’s silver worth.

The short answer is: more.  If silver were priced based on its occurrence relative to gold, it would be over $125/oz.  If it were priced on its availability – somewhere around $2,000.  But if you are content to let the likes of Blythe Masters dictate the value based on truckloads of worthless paper promises, you can expect ultra-low prices until the whole thing blows up.  Of course at that point, we’ll be so busy killing each other for food no one will have time to say, “I told you so.”

The silver vigilantes just want you to re-learn what the phrases like, “cold, hard cash,”  and “payment in full” are supposed to mean.  There not asking you to sink everything you have into physical silver,  just a little.  Silver can’t be printed into oblivion, or stolen by a cyber attack.  Why wouldn’t you want to own some of your very own? 

A paper dollar from 1960 is worth exactly the same as a paper dollar in 2010, but  four quarters from 1960 are worth more than $21.  Given the fiscal insanity of the US government, I can’t imagine the US dollar surviving another 50 years, but I’m quite sure that silver will still be useful.  Please consider getting some.

***

 

 

 

 

Update: All indications say this piece is the most widely read thing I’ve ever written.  I would like to thank everyone who helped make that possible especially Max Keiser, Steve Quayle and my friends at Zerohedge.  For the record: ANYONE (except seekingalpha.com – long story) is welcome to my original content here (which is like 99.9% of what’s here).  It would be nice if you mentioned me, but I won’t hunt you down if you don’t.

Some Personal Favorites:

M. C. Escher – Economist   (This graphic in particular)

Giant Leaps  – My best (and most ignored) work.

Tin Foil Hat America (the Eskimo Test) – provides insight into my madness

I can’t believe it’s no Capitalism! – graphic

Candy from Strangers – Who’s buying our debt? (I still don’t know)

“Shut-up And Eat Your Paint Chips, Kid” – Miseducating America (the ZH discussion  was great, and I love the Daily Bail’s graphic (not mine))

Understanding the National Debt (Sesame Street Edition) 

Hopefully there’s other wortwhile stuff here, but I think that’s all the shameless self-promotion any of us can stand.

Thanks for stopping by!