Mark McHugh

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 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 (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  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).

  1. Excellent video Mark. I just love those silver shoes…

  2. I’m not sure I understand the argument Jason makes as proof that silver is undervalued based on its current mining ratio to gold compared to the ratio of availability in the earth… it just sounds like a “chicken before the egg” scenario, or maybe I’m not hearing it right.

  3. I think what he means is the initial big price correction will make industry pare back on silver consumption.

    For example, I see no reason my kid’s toy cell phone needs silver batteries (that’s right, silver batteries in a four dollar toy).

    One of my big problems with artificial supply is it interferes with the self-regulating process higher prices have on consumption. Human beings are wasting a scarce resource at an a truly alarming rate. In some applications there is not (nor will there likely be) a substitute for silver any time soon.

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