Mark McHugh

Why Silver Is Still The Best Revenge

In Government, Open Thread, Silver, stocks finance on Thursday, April 14, 2011 at 10:21 pm

Author’s note:  Some of the info contained in this piece was published rather hastily earlier this week.  Please excuse the redundancies. 

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 deity 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 Opensecrets.org.
 

 

 

Previously:
If you don’t know why you should own silver, please read:
http://acrossthestreetnet.wordpress.com/2010/12/15/what-the-silver-vigilantes-understand-that-you-probably-dont-arithmetic-human-nature-and/
 

CME group metals data links:
Daily
Month to Date
Year to Date
Silver Stocks (XLS)
 

Disclosure: Author is an unapologetic conspiracy theorist.

UpdateThis has now been the busiest day ever on the blog (and there’s three more hours to go) .  Thanks to everyone who made it possible, especially Coinflation.com, Max Keiser , and Steve Quayle

Another Update: If you are a silverbug (in case you haven’t noticed, I’m proud to be called that), I highly recommend About.Ag.  The site is 100% dedicated to providing accurate information on silver (chemical symbol Ag).  The page explaining the COMEX futures market is a must read.

About these ads
  1. Well said.

  2. Thanks, DK

    It’s not the time to sell out….

  3. Mark: Thanks for your work on silver. We’re using some of your ideas (with attribution) on the blog today and meshing it with our own articles. Hopefully this meets with your approval.

    http://tradewithdave.com/?p=6031

    Regards,

    Dave Harrison
    http://www.tradewithdave.com

  4. Absolutely Dave,

    This ain’t Major League Baseball, so help yourself to the pictures accounts and descriptions (unless you are seekingalpha.com). Attribution is very polite of you. I don’t get paid for any of this.

    P.S. I can’t prove that JPMs customer is the US government, it’s just the only answer that makes sense to me. And for the record, I no longer make any distrinction between the Fed and the US government.

  5. I am an alien rapper from endotron. My brother and I have been collecting silver american coins for the last 2 years now. I just want to remind everyone of a few things as I become a true silver tsar.

    1. Silver is going up,up,up,_______! (Fill in the blank)
    2. The us economy is going down,down,down,_____! (Fill in)
    3. As melt values continue to increase I think a lot of people have forgot one thing. The rarity of coins. What happens for example when 3/4 of the 1952 washington quarters are melted down and don’t exist? The value of the coin will top the value of metal. Thank you.

  6. Funny but informative article! Silver, especially physical bullion and coins,represents on of the last bastions of value in the chaotic sea of fiat money and multi-trillion dollar deficits engulfing our country. A good article is Silver – What Better Investment http://www.blogger.com/posts.g?blogID=1114926101804356708

  7. Funny but informative article! Silver, especially physical bullion and coins, represents one of the last bastions of value in the chaotic sea of fiat money and multi-trillion dollars deficits engulfing our country. A good article is Silver – What Better Investment! http://survivalus.blogspot.com/2011/04/silver-what-better-investment.html

    THIS IS THE CORRECT LINK – sorry!

  8. [...] awesome article on silver can be found here VN:F [1.9.8_1114]Rating: 0 (from 0 votes) Tagged with: silver • SLV  If you [...]

  9. The leaders of this nation are such a vile lot that I suspect they will pull an FDR and start confiscating gold and silver when they get a chance. Obama seems intent on repeating every trick FDR pulled to turn a recession into a depression.

  10. You mention “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. ”

    Im no expert (hence why im commenting asking for opinion) but isnt JPM able to settle those contracts in cash? meaning that they dont have to have the silver but just the money to settle losses?

  11. Great article! LOVE it!!!

  12. Mex,

    Overall, most contracts are cash settled, physical delivery occurs rarely. The report tracks when physical metal at the COMEX changes ownership. I don’t see how they can report an ownership change, and then settle in cash. Also, an ownership change does not mean that metal is necessarily leaving the COMEX. The same lot can ping-pong around over and over. Hope that helps.

  13. Thank you Stratojava,

    Believe it or not, I sweat blood trying to make these posts interesting, accurate and informative. The previous two were done on the fly. I spent a lot more time putting this one together.

  14. [...] Why Silver is Still the Best Revenge | Across the Street [...]

  15. I read several articles on the net that say Libya has a huge stockpile of physical gold & silver, let alone oil. That would be a good reason for their invasion, so the banks can cover their losses.

    I believe it was Gen. Butler who said the military was at the corporations beck & call.

  16. Thanks, Dog!

  17. What is the best way to make the most money on the upward movement of Silver? Will SLV crash if JP runs out of silver or will it skyrocket?

  18. That’s not a question I feel qualified to answer. Obviously those who bought SLV call options or a leveraged silver ETF like AGQ have made an absolute killing in the last year. BOTH OF THEM ARE FAR TO RISKY FOR ME. You get caught in a downdraft and you will get wiped out quick. Given the fact that JPM has such a key role in SLV I don’t want to guess what may happen there. Some people buy mining company stocks, but that’s not for me.

    I trust physical silver, the various casino games not so much. I’ve thought of comparing the so-called “price discovery” games of silver to the whole world betting on what Joe Schmoe from Newark is going to pay for his next car – the aggregate value of the all the various side bets makes the price of the car completely irrelevant (hope that makes sense). More money can be made rigging the game. I don’t trust the price discovery process for that reason.

    I believe the silver supply is tight and will get even tighter. That should mean higher prices, but here in bizarro World anything can happen, especially in the short term. So I’m not interested in playing any of the games. Nor do I think anyone should use their food money to buy silver, but I think everybody should try to have have a little.

    So yes, it just took me 3 paragraphs to evade your question. Good luck with whatever you decide.

  19. Warning! Buying silver can be habit forming! Especially when it is on the rise. But a friendly warning to those who cannot afford to lose their investment in precious metals, silver or gold… Do not invest more than you can afford to lose! Do not get me wrong, as I am buying silver as I write. But no more than I can afford to lose! Always remember, it can go down even faster than it went up! But, the ride up that is happening now puts me on a high like nothing else. I am having fun! But only as much fun as I can afford to lose! Don

  20. [...] Why Silver Is Still The Best Revenge Author’s note:  Some of the info contained in this piece was published rather hastily earlier this week.  Please [...] [...]

  21. Dear Mark,

    I’ve just come across your fine blog and am working my way through the archives, and I have only a couple of quick, random comments, not necessarily related to this particular post (can’t find a direct email address).

    The melt value of a nickel is $.07, according to Coinflation.com. I’m not buying $100 boxes, ’cause I’m broke and stupid, but I am asking for nickels instead of dimes as change, and enjoying my 40% profit.

    40% Kennedy halves were made through 1970, and the silver was eliminated in 1971.

    Thanks. Keep up the good work.

    B51

  22. Thanks, B51
    If anyone wants me to contact them directly, just leave a comment saying so.

    I have discussed Nickels on at least two on two occasions:
    http://acrossthestreetnet.wordpress.com/2010/09/14/the-nickel-change-we-can-believe-in/
    http://acrossthestreetnet.wordpress.com/2009/07/26/giant-leaps/

    Giant leaps contains info on 40% silver coins too. I always try to be diligent and truthful, but I never go back to update changes in the value, so they serve as snapshots. I’d like to point out that I do this for free too.

    I visit coinflation.com regularly myself.

    I don’t “buy” $100 boxes – I withdraw them when my bank irks me. I can take them back and exchange them for a hundred paper dollars anytime.

    Thanks again.

  23. Good Post, I especially like the conspiracy theory thing. I avoided buying $38 2 year LEAPS for $3 a few weeks ago because people were making fun of me. Guess what they say is true let the haters hate!

    Thanks again!

  24. Great article, think it should be deity, not diety.

  25. Excellent article and analysis. Everybody who’s riding the silver boat is laughing all the way NOT to the bank right now.

  26. Thanks, all.

    (thanks for pointing out the misspelling me, I will correct).

  27. Awesome ….thank you,inflation has been happening right under our noses and we as Americans have not paid too much attention ,we have been talking about Dancing with the stars,American Idol….and chatting with who ever cares about the lousy day that we are having on facebbok…instead of looking at whats really happening in the world….ok back to inflation,about 3 years ago when the bailout occured something changed in America…the packaging of the products that we use/consume,funny thing is that the prices have not changed in fact in many cases have went up…hmmm funny how that happened…then we come to big oil last time we had $4.00 gas the price of a barrel of crude oil was 150’s range,now it is $100 range…funny how this all it works,Tim Gietner was on TV last week and the question was ” do you think that $ 4.00 gas is going to hurt the economic progress we are in ” he said “no …mabee a little but all of the indicators are pointing up” what world is he living in? …REALLY….what a liar,unemploymen is @ 9 % thats progress ? everyone that has been out of work for the last 2 years are not being counted…whats the true unemployment rate 12-14 – 16% ? I am really dissaponited in the American public,I have posted on facebook for a month every other day about buying silver I have aproximitly 150 on the friends list….want to guess how many have added a commet or a thumbs up ZERO….so my last plea last week was to buy food and store because of the coming hyperflation.. that was 3 days ago…guess how many people responeded …ZERO nothing,zilch,nada…but instead everyone is interested in midless conversation…I just want to come out of this coming depression better than I went into it….I think that we will see $100 silver befor the end of the year !!

  28. Awesome post, wow Mark, you have been busy…

  29. “Last time I checked, scientists haven’t yet found a way to turn bullshit into silver.”

    Maybe not but the damned politicians have sure found a way to turn B$ into gold! X-p

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: