Mark McHugh

Archive for May, 2011|Monthly archive page

SLV Trading Volume Soars – While Shares (and Silver) Vanish?

In Open Thread on Thursday, May 5, 2011 at 12:16 pm

Nowadays everybody has to learn to do more with less.  For reasons I’m not smart enough to understand, the SLV is becoming a shining example of that old adage.  Since its inception in 2006, the SLV has traded more than 100 million shares exactly 10 times, 9 of which occurred consecutively (April 25, 2011 – May 5, 2011 (today)).  In fact today was all-time, #1 volume day for the SLV (295mm).  So no doubt the SLV is doing more.  What’s utterly amazing is they are doing all this crazy volume 33 million shares less (and ounces of silver) than they had just 7 trading days ago.  So in the last 9 trading days, trading has totaled more than 4 times the number of shares currently in existence.

Now that’s doing more with less! 

SLV shares outstanding chart from , they also have historic shares outstanding data available for download.

Even mighty Apple at its mo-mo-mo-iest never came close to this kind of volume relative to shares outstanding.  In October 2008, AAPL traded 160% of its outstanding shares for the entire month.  At the present pace, SLV will trade well over 1000% of its shares outstanding in May.  Un-believable.  Maybe Blackrock’s Kevin Feldman would like to write another letter explaining to all us conspiracy theorists how the world’s larget ETF is 97.5% backed by silver, and how more trading volume = less silver held in trust.  Maybe Kevin would also like to explain exactly when Blackrock decided to deviate from its 2009 SLV prospectus…..

 (Screen capture from 2009 SLV prospectus)

Fun Facts:  Despite having exceeded the 264.5 million ounce limit in 2009, JP Morgan is still the sole custodian of SLV.  As of this writing, JPM still has exactly zero ounces of registered silver in its COMEX vault.

Maybe Kevin would like to retract that statement about “protecting shareholders interests” now, or maybe he would like to publicly thank Jamie Dimon for holding even more silver than the trust intended him to be responsible for. 

Selloff, what selloff?

I think it rains because I left my sun roof open, but I don’t go on national television declaring that to be the case.  Saying that the CMEs recent margin hikes are responsible for the plunge in silver is supported by even less evidence (open interest in the July futures contract has risen by 50% since April 20).  Furthermore, would somebody please explain to CNBC’s Bob Pistrami that there hasn’t been a selloff in the SLV, and even if there had been, it would have zero impact on the price of silver.  Now if Bob wanted to report that 33 million ounces of silver vanished from the trust for no apparent reason, that would be accurate reporting.  If you look at the COMEX report, you’ll see that there’s not much going on there, but once again, JPMs “customer” is  the preeminent seller of silver.  Keep in mind, they were buyers a couple weeks back at higher prices.  Buy high, sell low.  That would be even funnier if I didn’t believe the US taxpayer was subsidizing this trade.

…And the COMEX supply of registered silver remains tighter than ever:

Recap:  More volume = fewer shares; Tighter supply = lower prices.

Kidding aside, the time to capture criminals is when the crime is in progress, and if you’ve ever wondered what “yellow journalism” looks like, turn on CNBC today.


Remembering the Great Silver “Bubble”……..of 1974?

In Open Thread, Silver on Tuesday, May 3, 2011 at 10:16 am

2011 is not a replay of 1980 for silver.  No way, no how.  But recent price action is reminiscent of another time period.  Does this sound familiar?

In less than 12 months, silver doubled.  After a brief consolidation, silver surged another 33% in just six weeks, and without taking a breath, it exploded another 70%.  The shiny metal skyrocketed by more than 275% in 25 months, and prices stood 5 times higher than they had been  just ten years prior….

1980?  Hells no.  That’s what silver did from 1964 (the last year the US mint produced 90% silver coins for circulation)  until 1974.  I’m sure it seemed parabolic too, especially considering stocks had been stagnant since 1966 (and would remain so until 1978).  Here’s a chart comparing the interim high of $6.76 (times 10) reached on February 6, 1974,  and the 330 trading days ending 4/21/2011 (silver @ $46.26).

37 years later, I can still hear the stock momos of the day screaming Bubble, bubble, bubble, BUBBLE!  And for a brief moment in time, they appeared to be correct.  In the next 6 years, silver would “collapse” by 40%….only to explode again by more than %1000.

(Author’s note: The recent pullback in silver is not reflected on the chart, but closely mirrors its 1974 counterpart….I made the graphic last week and was just not inclined to redo it.)

But 2011 isn’t 1974 either…….

  • In 1974 US Gross Domestic Product was $1.49 Trillion,  today it is more than $14.6 T (+880%).
  • The US National Debt was $475 Billion in ’74, today it is more than $14.3 Trillion (+2,900%).
  • The US government  had a stockpile of 189 million ounces of silver vs. 7 million ounces today (-96%).

As big as the government’s 1974 silver stockpile might seem today, it was teeny-tiny sliver of what they once had.  From the end of World War II until 1974, the US government sold or consumed 3.8 Billion ounces of silver.  No one seems to know exactly how much was sold, to whom, or at what price, but surely most was sold for less than $2/oz.  

The late seventies run to $50 silver was characterized by a dominant buyer (the Hunt Brothers).  The US government, the Federal Reserve and the COMEX had to take drastic action to prevent the Hunts from cornering the silver market (and when crooked referees have to change the rules to make you lose, I consider it a win).  When the Hunts were disposed of, prices dropped sharply.  In recent years, the silver market has been dominated by a seller (JP Morgan).   What do you suppose happens to prices if the dominant seller is disposed of?  

In 1980, Federal Reserve Chair Paul Volcker had the testicular fortitude to raise the Fed funds rate to 20% to stop inflation.  It was the last time any serious attempt was made to defend the dollar.  Since then we’ve developed new “statisical methods”,  whose purpose is to ignore honest measures of money supply, unemployment and inflation (who needs food and energy?),  to justify suicidal monetary policy. 

 The other key development in 1980 was the enactment of the 401(k) laws: The biggest, bestest bailout Wall Street ever got.   The tax revenues anticipated by allowing tax-deferred (read tax-free) dollars to flood Wall Street will never materialize because the money isn’t there.  Consider this your hidden bonus track:

This is simply the greatest scam ever conceived and nobody has noticed yet.  Someday everyone will understand that chart,  I urge you to understand it now.

You can dress it up in your own mind however you want, but in late 2008, Wall Street went on life support.  It survival is now based upon the Federal Reserve’s willingness to print money,  Washington’s appetite for deficit spending and abandoning justice.  And the only “recovery” we’ve seen is in the bonuses of those most responsible for putting the system at risk in the first place.  Take away their silver before someone else does.

Silver is still in the early stages of another +2500% move, but despite all the chatter about having “adult discussions” regarding this or that, there aren’t any grown-ups present.  The odds that they will take the actions necessary to defend the US dollar are zero, and that’s all you really need to know.

But if you insist on having a sell signal…..

One of the side effects of killing the last big spike in precious metals was raising mortgage interest rates over 15%.  When that happens again, it might be time to sell silver.

Source: LBMA historical silver fixings