Silver Wildcats - And The Day Futures Died - Part 1

From Legends to Bankers

Yes, there has always been price manipulation.

There will always be price manipulation.

From the time of Caesar, through the American Civil War and into the 20th and 21st centuries.

Equities, interest rates, bonds, currencies, and futures. 

From wheat to silver, the Maine potato default, and the onion debacle, futures trading has been subject to all manner of interference. 

The technology has changed over time. From carrier pigeons, the telegraph, the telephone, or today’s laser-assisted high frequency trading algorithms - the strategies and tactics remain.

No commodity has been spared. 

A long list of colorful characters litter the landscape.

Legends like Jesse Livermore, Jay Gould, King Jack Sturges, Ed Parker and The Chicago Bear Ring, or The Wheat Kings of Chicago to name a few.

From J. Pierpont’s  “Goldroom Manipulation” at the turn of the 20th century, to the modern day equivalent of the massive commercial bank silver short.

It wasn’t always easy…

"To commit murder is very simple. The trouble is to bury the corpse".

So said famed industrialist and manipulator P.D. Armour, in reply to a the question of why he did not corner the delivery when such massive speculative short interest appeared in December Pork.

The corpse is the sequestered supply that always makes it way back into to the market, therefore diminishing profits of the squeeze. 

(Something tells us that when JPM Chase decides to corner the LONG side of silver - they will have no problem covering the cost of ‘burying the corpse’.

Especially if much of the silver they control has yet to be melted made ready for delivery).

The Hunts Must Be Green With Envy

The Hunts experienced the impotence of the CFTC first hand in soy beans. Then they moved on to the silver market, foreseeing the great accident Bunker would come to characterize.

In their forced liquidation, all who remained to fill the vacuum were the market makers - a few deep pockets who eventually morphed into the big concentrated short sellers that exist in COMEX silver futures today.

This profit center hot-potato has been passed along the line from J. Aron to Drexel to AIG, onto Bear Sterns, and finally to JPM and the Bank of Nova Scotia.

In fact, the big eight commercial banks maintain a concentrated short, yet ultimately temporary (paper) promise to deliver of more than 200 days of world mine production. 

Unprecedented by any measure or comparison. An elephant so big and dangerous that few see it - many still refuse to consider it. 

The Eternally Absent Regulator

The history of futures market manipulation and enforcement is a testimony to the difficulty of imposing equilibrium from the outside.

To enable is to cause. To cause the dislocation of supply and demand from price is a harmful and in this case, a potentially devastating agenda. 

Much like today’s financialization-driven fiat-fiasco, regulatory impotence formed its roots in parallel many decades ago.  

Financial market enforcement has deep and rich history of failure.

In 1921, Commerce Secretary Herbert Hoover testified that large volumes of (futures) short-selling “deliberately intended to suppress the price had caused injury and worked a great injustice on the public…”

The Hatch Act was early attempt to rein in the wild cat speculators. And the Sherman Anti-Trust Act failed to incorporate futures regulation as well.

Regulation fails because it is reactionary and corrupted by power and special interests.

Of course, simple solutions could be adopted - by the exchanges themselves - to maintain order and stability.

Positions limits would be the easiest place to start. 

But sadly, that ship sailed long as the exchange (hint: Chicago Mercantile Exchange (CME)) morphed from facilitator into one of the largest of the  ‘systemically important’, ‘publicly owned’ institutions.

Today the ‘self-regulated’, for-profit behemoth enables the mechanisms and tactics of price manipulation across the market landcape: spoofing, layering, front-running, banging the close, to name but a few of the most visible.

Because the largest sellers of COMEX (owned by the CME) Silver are essentially, the only sellers of silver on the exchange, their departure will undoubtedly come with systemically felt disorder as price re-adjusts.  

(For now, world silver price discovery begins with COMEX). 

As Bunker Hunt stated (for reasons of physical supply and demand) more than 40 years ago - silver is an accident waiting to happen.

Today, instead of the colorful wild cat legends we have the multi-national JPM Chase as part of the big 4- a death star such grand import that it’s existence must perpetuate, and cannot possibly continue. 

In part 2….we’ll discuss…

The natural developing corner (and congestion) that may ultimately separate the paper tail from the physical dog…

…And more on the burying corpses.

Stay tuned…


*Note — Special thanks and credit. Many of the historical references above were sourced from excellent work of Professor Jerry Markham, former CFTC enforcement attorney.

Intimate knowledge of the inner workings of price formation and manipulation would not be possible with the work of Ted Butler.

If you are not already a member... For early access to Part 2 and private discussion of all things silver in a unique, private community, discover more at the 47 Forum.  

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