Want JP Morgan to crash? Buy silver (1 Viewer)

[danarhea]

JP Morgan has been sitting on a huge silver short for many years, and someone has come up with a way to permanently kill the company, by having individuals buy up silver, thus forcing JP Morgan to cover it's short, a feat which would be impossible to do, therefore putting JP Morgan, and much of the US banking infrastructure, at risk.

This campaign has 100% chance of working; it falls into the category of a self-fulfilling prophecy. As more individuals buy silver and gold, all attempts to replenish the system with more paper money will only cause the purchasing power of the silver and gold to increase – thus prompting more people to buy more. Any attempts to bail out JP Morgan would have the same effect. If the US Fed was to flood the system with bailout money for JP Morgan to cover their silver short position (as they did after the collapse of Long-Term Capital Management), more inflation will ensue and the price of silver and gold will rise more, triggering more purchases. A virtuous circle is born.

This strategy would force JP Morgan to cover it's shorts in the silver market, thus bankrupting them. This is the strategy that is being pushed by Max Kaiser, who makes the claim that he wants to reverse the distribution of wealth to the rich by busting the rich and making them poor.

However, there is another side on this issue, which involves ordinary people losing their purchasing power, due to hyperinflation, if this happens.

What I would like is a discussion on:

1) Whether or not this strategy is feasible.

2) Any upside to this strategy, which would make it desirable.

3) The downside to this strategy, which would hurt others.

4) Could this strategy be considered terrorist activity, if it works?

5) If the strategy is so good, then why haven't real terrorists, and other enemies of the United States, tried it?

6) What unilateral steps could the US take to prevent it?

7) Could employing this strategy, if viable, and done by individuals, be regarded as a criminal act?

8) Could employing this strategy, if viable, and done by another nation, be considered an act of war?

From this article.

 

[oldreliable67]

The first question that comes to mind is, "Why crash JP Morgan?"

I understand selling something short because it is overvalued or whatever, and then working to make that short profitable. But is this sounds more like some kind of conspiracy theory that assigns 'evil' to JP Morgan and therefore it must be destroyed? Or what? Whats up with this?

 

[Lord Tammerlain]

A short squeeze is an easy way to make money during the time of the squeeze. JP Morgan would at some time be required to deliever the physical silver that they have shorted. JP Morgan is not above trying to destroy other investors if given the chance, so trying to do the same to JP Morgan is not an issue.


As for being feasible, yes it is. A year or so ago VW was being shorted heavily, then it was announced Porsche was going to try to buy VW out. The shorts were forced to cover, and in trying to cover they drove the value of VW shares through the roof, for a period of time VW had among the highest stock market value of any company in the world.


If JP Morgan is truely facing a short squeeze, only a change in regulation, or someone coming up with a large stock of silver that it could lend JP Morgan will extract it from the problem (or a bailout allowing JP Morgan to purchase physical silver.


The is not illegal, nor immoral and certainly not a terrorist act. It is purely how the markets operate today. JP Morgan entered their short position as a means to make money. It took on the risk of having a short squeeze applied just like any other investor

 

[oldreliable67]

A short squeeze is an easy way to make money during the time of the squeeze. JP Morgan would at some time be required to deliever the physical silver that they have shorted. JP Morgan is not above trying to destroy other investors if given the chance, so trying to do the same to JP Morgan is not an issue.


As for being feasible, yes it is. A year or so ago VW was being shorted heavily, then it was announced Porsche was going to try to buy VW out. The shorts were forced to cover, and in trying to cover they drove the value of VW shares through the roof, for a period of time VW had among the highest stock market value of any company in the world.


If JP Morgan is truely facing a short squeeze, only a change in regulation, or someone coming up with a large stock of silver that it could lend JP Morgan will extract it from the problem (or a bailout allowing JP Morgan to purchase physical silver.


The is not illegal, nor immoral and certainly not a terrorist act. It is purely how the markets operate today. JP Morgan entered their short position as a means to make money. It took on the risk of having a short squeeze applied just like any other investor

No arguments with any of your comments. Been there, done that. However, the tone of the calls for a worldwide attack on JP Morgan sound much more like populist resentment or conspiracy theorist. Is this the JP Morgan version of 'truthers?'

 

[Ahlevah]

Is this the JP Morgan version of 'truthers?'

Honestly, after the Enron "Grandma Millie" fiasco, I'm tempted to believe anything.

Much of this affair can be traced to London metals trader Andrew Maguire:

Maguire -- in an exclusive interview with The Post -- explained JPMorgan's role in the metals pits in both London and here, and how they can generate a profit either way the market moves.

"JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses [on their short positions] by the Fed and/or the US taxpayer," Maguire said.

In the gold pits, Maguire sees HSBC betting against the precious metal's price without having any skin in the game in the form of a naked short.

"HSBC conducts an ongoing manipulative concentrated naked short position in gold. Silver is much easier to manipulate due to its much smaller [market] size," Maguire added.


Read more: Ex-Goldman trader blows whistle on silver and gold manipulation by JPMorgan, HSBC - NYPOST.com

So it really comes down to whether or not one believes this guy. Personally, I don't think the idea that the Fed used (uses) an investment bank like JP Morgan as a proxy to try to manipulate the price of silver is that far fetched. After all, at various times through our nation's history we fixed the price of the dollar relative to these metals. The Fed makes no bones about the idea that it's trying to "manipulate" interest rates by buying longer dated Treasuries, so why not attempt to manipulate confidence by buying and selling the two metals that serve as the greatest measure of confidence (or lack thereof) in the currency the Fed issues? Any central banker can tell you the important role confidence plays in supporting the value of a fiat currency.

Another possibility is that the Fed backstopped Morgan's trading activities in an attempt to avoid a Lehman-style strain on the financial system. Apparently, when JP Morgan took over Bear Stearns, it assumed a huge short position the bank maintained in silver. Morgan's alleged manipulation could have been the result of an attempt to organize an orderly unwinding of these short positions. In any case, it looks as though JP Morgan is exiting the metals business, since it announced last September that it was closing its London proprietary trading operations. Coincidentally, the price of silver has been on an upward trajectory ever since that announcement came out. Looks like it may be the "poor man's gold."

 

[ARealConservative]

I have long believed the central banks have worked in unison to suppress the value of silver and gold in order to make their own practices seem more viable then they actually are.

So I do believe JP Morgan and their ilk are merely an extension of the Fed and foreign central banks, but have no proof, just a gut instinct.

In the long, long run, an orderly destruction of these central banks would be great for humanity, but it will be hell being the people that have to live through it, because I don't believe they will allow an orderly destruction.

/tin foil rant

 

[oldreliable67]

Personally, I don't think the idea that the Fed used (uses) an investment bank like JP Morgan as a proxy to try to manipulate the price of silver is that far fetched. After all, at various times through our nation's history we fixed the price of the dollar relative to these metals.

The Fed does not, I repeat, does not, manipulate the price of silver or of gold. The prices of gold or silver (or copper or potatoes or whatever) are simply irrelevant to the execution of monetary policy at this time. We are not on the gold standard. There is no de facto gold standard. Gold does not play a role in the creation or destruction of bank reserves or the money supply in the US.

The Fed does from time to time participate in the gold market. But it is as either agent for foreign central banks (because we hold a great deal of gold for their accounts in our vaults; these constitute the majority of their precious metals transactions) or to perform desired adjustments in our domestic holdings of gold (given the very seldom but occasional international transaction settled in gold).

The e-mails attributed to Maguire describe typical action in a commodities pit. There is nothing sinister or unusual about the scenarios he described. Having traded in the bond pit, and having traded as an "upstairs" trader, I can assure you that nothing he described is out of the ordinary; it describes nothing more, nothing less, than the usual workings of the old-fashioned open-outcry auction market for any commodity. He describes perfectly a favored saying in the pits: "If it goes up, sell it. If it goes down, buy it."

The only thing a bit surprising is that he doesn't spend more time focusing on the electronic trading away from the exchange floor.

Bottom line: before one buys into this, one should demand a lot more evidence. Given what is available at the moment, it appears to be a load of bull-dookey concocted by adolescents (in maturity if not in years).

 

[Ahlevah]

The prices of gold or silver (or copper or potatoes or whatever) are simply irrelevant to the execution of monetary policy at this time. We are not on the gold standard. There is no de facto gold standard. Gold does not play a role in the creation or destruction of bank reserves or the money supply in the US.

All true enough, but, as I said, the value of a fiat currency is based on confidence. In fact, it's based ONLY on confidence. There's a growing movement in this country among assorted Tea Party types and such to acquire physical silver and use it as a form of barter when the "inevitable" hyperinflation comes. The Fed has to be at least cognizant of this growing distrust of its money. It's asleep at the wheel if it's not. (I hope these people are wrong. I just bought more shares of longer-dated Treasury ETFs at the close of the 10-year auction. Maybe I should have listened to them instead and bought silver earlier this year. :lol

 

[oldreliable67]

All true enough, but, as I said, the value of a fiat currency is based on confidence. In fact, it's based ONLY on confidence. There's a growing movement in this country among assorted Tea Party types and such to acquire physical silver and use it as a form of barter when the "inevitable" hyperinflation comes. The Fed has to be at least cognizant of this growing distrust of its money. It's asleep at the wheel if it's not. (I hope these people are wrong. I just bought more shares of longer-dated Treasury ETFs at the close of the 10-year auction. Maybe I should have listened to them instead and bought silver earlier this year. :lol

Accumulation of gold/silver holdings while one awaits the 'inevitable' hyperinflation is not new, nor is it unique to the Tea Partiers. This has been around since we went off the gold standard. It was en vogue even before Nixon's move to cut the final link in '71 and ended Bretton Woods. It has ebbed and flowed in terms of mainstream popularity, having long been popular among the doomsayers and the survivalists. Remember the Hunt Brothers attempt to corner the silver market in the late '70s - early '80's? A number of ****-a-mammie scenarios were concocted and trotted out to try and juice silver's popularity - and price.

Heck, I remember buying a slew of Krugerrands in about '75 - '77. Still got them in the safety deposit box (the use of which is a definite no-no in some circles!). Along with the Krugerrands, which I (unfortunately) halted accumulating, I've continued to be a long-term buyer and holder of numismatic coins, and added bullish call option spreads on silver about a month ago. So I'm all for the Tea Partiers and everyone to buy silver! Lets hear it for the JP Morgan short squeeze! So far, so good. And instead of owning treasuries, I'm expecting rates to go higher, and am long ProShares Ultrashort 20+ Year Treasury ETF (symbol: TBT) which is short treasuries (profits with higher rates). Bot it way too soon and was way underwater for several months, but it is now going in the right direction and I'm almost back to even. Whew.

Near-hysterical stuff like the JP Morgan short squeeze historically smacks of desperation, often marking a near-term high in the underlying (whatever it might be).

 

[Ahlevah]

And instead of owning treasuries, I'm expecting rates to go higher, and am long ProShares Ultrashort 20+ Year Treasury ETF (symbol: TBT) which is short treasuries (profits with higher rates). Bot it way too soon and was way underwater for several months, but it is now going in the right direction and I'm almost back to even. Whew.

Yeah, I think in the shorter run longer term rates might very well head higher (in which case I'll be averaging my cost on the TLT and TLH ETFs down and praying a lot. When you get even, consider going long. :mrgreen But if rates keep rising, what happens to the "recovery," especially in housing? Mortgage rates tend to closely track the yield in the 10-year Treasury, so, once again, we end up with a large addition to the monetary base with little to no lending (since banks have, in recent decades, focused about 2/3rds of their lending activity in real estate). I think a lot of the recent positive stock market sentiment is built more on hype than reality, so I'm sticking with the bonds. One thing that has gone largely unnoticed is the massive amount of deleveraging taking place in the private sector. I expect state and local governments to join the party beginning next year, extending into 2012 (and culminating with the end of the world on December 21st ). The federal government's "stimulus" will continue to be underwhelming, just as it has up to this point.

California Budget Gap May Reach $28.1 Billion Over 18 Months as IOUs Loom - Bloomberg

 

[Paschendale]

The Fed does not, I repeat, does not, manipulate the price of silver or of gold. The prices of gold or silver (or copper or potatoes or whatever) are simply irrelevant to the execution of monetary policy at this time. We are not on the gold standard. There is no de facto gold standard. Gold does not play a role in the creation or destruction of bank reserves or the money supply in the US.

Instead, the Federal Reserve just makes up numbers in a computer and creates money out of thin air. Then they loan it out to the banks, who must then pay interest, which goes directly into the pockets of the few people who own the Federal Reserve, which is a privately owned company. And since all money is basically fictional at this point, and interest is owed on all of it, that debt can never be repaid. Technically these guys own everything.

 

[washunut]

A short squeeze is an easy way to make money during the time of the squeeze. JP Morgan would at some time be required to deliever the physical silver that they have shorted. JP Morgan is not above trying to destroy other investors if given the chance, so trying to do the same to JP Morgan is not an issue.


As for being feasible, yes it is. A year or so ago VW was being shorted heavily, then it was announced Porsche was going to try to buy VW out. The shorts were forced to cover, and in trying to cover they drove the value of VW shares through the roof, for a period of time VW had among the highest stock market value of any company in the world.


If JP Morgan is truely facing a short squeeze, only a change in regulation, or someone coming up with a large stock of silver that it could lend JP Morgan will extract it from the problem (or a bailout allowing JP Morgan to purchase physical silver.


The is not illegal, nor immoral and certainly not a terrorist act. It is purely how the markets operate today. JP Morgan entered their short position as a means to make money. It took on the risk of having a short squeeze applied just like any other investor

Do you have any knowledge that JPM really has this short position or is this just someone spouting trash. Who holds the other side of this transaction? Has this ever been disclosed on their balance sheet annual report or auditor findings? If this were true the position would be about $100 billion and probably $50 billion under water. Wall street would be all over this if it was real.

 

[Lord Tammerlain]

Do you have any knowledge that JPM really has this short position or is this just someone spouting trash. Who holds the other side of this transaction? Has this ever been disclosed on their balance sheet annual report or auditor findings? If this were true the position would be about $100 billion and probably $50 billion under water. Wall street would be all over this if it was real.

This would be best I could find regarding JP Morgan and its silver position


From May 16 2010

Federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals market, The Post has learned.

The probes are centering on whether or not JPMorgan, a top derivatives holder in precious metals, acted improperly to depress the price of silver, sources said.

The Commodities Futures Trade Commission is looking into civil charges, and the Department of Justice's Antitrust Division is handling the criminal probe, according to sources, who did not wish to be identified due to the sensitive nature of the information.

snip


JPMorgan increased its silver derivative holdings by $6.76 billion, or about 220 million ounces, during the last three months of 2009, according to the Office of Comptroller of the Currency.



snip


It is alleged that in shorting silver, JPMorgan sells large blocks of silver option contracts or physical metal -- actions that would bring down the price of the metal -- closely following news that would otherwise move the metals higher

With the extended time frame of this story I wouldnt doubt that JP Morgan had at one time a large short position in Silver. If is still has one is another question entirely

Other related stories

http://www.thetradingreport.com/2010/08/02/butler-jp-morgan-covering-its-silver-shorts-like-crazy/

NIA Discusses Whether JP Morgan's Silver Manipulation is Over

JP Morgan, HSBC accused of manipulating silver price | The Australian

 

[Ahlevah]

Do you have any knowledge that JPM really has this short position or is this just someone spouting trash. Who holds the other side of this transaction? Has this ever been disclosed on their balance sheet annual report or auditor findings? If this were true the position would be about $100 billion and probably $50 billion under water. Wall street would be all over this if it was real.

Apparently some attorneys at Hagens Berman seemed to think the manipulation by JPM and HSBC was real enough that it merited a lawsuit in U.S. District Court:

Hagens Berman Sobol Shapiro LLP announced today that JP Morgan Chase & Co. (NYSE:JPM) and HSBC Securities Inc. (NYSE:HBC) face charges of manipulating the market for silver futures and options in violation of federal commodities and racketeering laws in a new lawsuit filed Tuesday in the U.S. District Court for the Southern District of New York.

The suit -- which alleges violation of the Commodity Exchange Act and the Racketeering Influenced and Corrupt Organizations (RICO) Act -- alleges that the two banks colluded to manipulate the market for silver futures starting in the first half of 2008 by amassing huge short positions in silver futures contracts they had no intent to fill, but did so to force silver prices down to their benefit.

The suit was filed on behalf of Carl Loeb, an independent investor in silver futures and options, by Seattle-based Hagens Berman Sobol Shapiro LLP, a class-action and complex litigation firm.

"The practice of naked short-selling has long been a serious issue on Wall Street," said Steve Berman, co-counsel and managing partner at Hagens Berman. "What we know about the scope and intent of JP Morgan and HSBC's actions in this short-selling scheme dwarfs any other similar attempt to manipulate a commodities market."

According to the complaint, JP Morgan amassed a sizeable short position in silver futures and options in part through its March 2008 acquisition of investment bank Bear Stearns. By August 2008, JP Morgan and London-based HSBC controlled more than 85 percent of the commercial net short position in silver futures contracts.

The suit alleges that, starting in early 2008, the two banks began manipulating the silver futures market by accumulating unusually large "short" positions and then secretly coordinating enormous sales of silver futures contracts on the Commodity Exchange, which is known as "COMEX" and is part of the New York Mercantile Exchange.

According to the lawsuit, JP Morgan and HSBC used a variety of methods to coordinate their manipulation of the market for silver futures contracts, signaling when to flood the COMEX market with short positions which caused the price of silver futures and options contracts to crash.

The suit describes two "crash" events that were set in motion by JP Morgan and HSBC, one in March 2008, and the other in February 2010, after the defendants had amassed large short positions. In the wake of both events, the suit alleges, COMEX silver futures prices collapsed.

"We believe that JP Morgan and HSBC's scheme was carefully conceived and coordinated to maximize their profits at the expense of innocent investors who believed that they were trading in a market free from manipulation," Berman said.

Hagens Berman Announces JP Morgan and HSBC Face RICO Charges in Silver Futures Class Action Lawsuit - WSJ.com

 

[oldreliable67]

But if rates keep rising, what happens to the "recovery," especially in housing?

Rising rates per se will not derail nor hinder the recovery, as long as opportunities exist to put money to work at rates of return in excess of borrowing cost. On the other hand, diminished credit availability will quickly dampen economic activity, as we saw in the recent recession. In sum, as long as it's available and can be put to work profitably, rates are a secondary consideration.

Likewise, mortgage rates per se will not hinder housing as long as incomes permit affordability - which is a pretty big if in a slow growth economy. Nonetheless, some stability in employment (doesn't necessarily have to get a lot better, just has to quit getting worse and perceived to be stabilizing) will begin to stabilize housing and help start to work through the foreclosure overhang.

State and local government deficits do indeed continue to pose a very large risk to the economy, and are likely to continue to be the focus federal government stimulus. In one way, the situation with state and local governments is analogous to that of the financial sector and the auto industry: they all have a very large and pervasive influence on the overall economy. Yet very little criticism has erupted at the need for the federal government to 'bail out' state and local governments. At any rate, we have now seen the compromise tax deal packaged to include a 13-month extension of unemployment benefits, paid for by the feds instead of the states. We should expect other programs will also make funds available to the states to help mitigate their situation.

 

[oldreliable67]

which goes directly into the pockets of the few people who own the Federal Reserve, which is a privately owned company.

The Fed remits its profits to the Treasury. For 2009, the Fed remitted approx 45B to Treasury. Here is a chart of Fed net income of remittances to Treasury since 2000.

 

[oldreliable67]

From the quotes above regarding the suit brought by Hagens Berman Sobol Shapiro LLP:

The suit -- which alleges violation of the Commodity Exchange Act and the Racketeering Influenced and Corrupt Organizations (RICO) Act -- alleges that the two banks colluded to manipulate the market for silver futures starting in the first half of 2008 by amassing huge short positions in silver futures contracts they had no intent to fill, but did so to force silver prices down to their benefit.

Re: 'they had no intent to fill...' It is quite unusual to stand for delivery in the futures markets for physical commodities. While the facilities for doing so are in place and are occasionally utilized, the usual practice is close out positions with offsetting trades. It is, therefore, somewhat unusual for any market participant to enter into a silver futures contract with the intention of standing for delivery.

The exception is the financial futures, where making/taking delivery constitutes the mere exchange of pieces of paper, resulting in a much higher percentage of deliveries.

"The practice of naked short-selling has long been a serious issue on Wall Street," said Steve Berman, co-counsel and managing partner at Hagens Berman. "What we know about the scope and intent of JP Morgan and HSBC's actions in this short-selling scheme dwarfs any other similar attempt to manipulate a commodities market."

It is quite true that the practice of 'naked short-selling' has been a serious issue on the street. However, 'naked short-selling' has zero to do with commodities futures markets. It refers to the practice of shorting stocks and not borrowing the underlying shares with which to effect delivery to the purchaser. This practice has been the subject of a great deal of controversy, resulting in revised rules and regs by the SEC.

According to the most recent CFTC 'Bank Participation in Futures Markets' report, a total of 12 banks held 23% of total short futures positions, significantly less than the percentage suggested by the various suits. Of course, that could mean that the shorts have been aggressively covering, which would be consistent in at least the case of JPM, which has announced their withdrawal from proprietary trading, including their commodities unit.

 

[washunut]

This would be best I could find regarding JP Morgan and its silver position


From May 16 2010



With the extended time frame of this story I wouldnt doubt that JP Morgan had at one time a large short position in Silver. If is still has one is another question entirely

Other related stories

http://www.thetradingreport.com/2010/08/02/butler-jp-morgan-covering-its-silver-shorts-like-crazy/

NIA Discusses Whether JP Morgan's Silver Manipulation is Over

JP Morgan, HSBC accused of manipulating silver price | The Australian

Wow, thanks. If they still have a large position in this short they are losing a bundle. Maybe the large runup the last few months ( silver up about 40%) was a short squeeze with Morgan trying working to exit.

 

[Ahlevah]

While the facilities for doing so are in place and are occasionally utilized, the usual practice is close out positions with offsetting trades. It is, therefore, somewhat unusual for any market participant to enter into a silver futures contract with the intention of standing for delivery.

No doubt, but look at the whole quote:

The suit -- which alleges violation of the Commodity Exchange Act and the Racketeering Influenced and Corrupt Organizations (RICO) Act -- alleges that the two banks colluded to manipulate the market for silver futures starting in the first half of 2008 by amassing huge short positions in silver futures contracts they had no intent to fill, but did so to force silver prices down to their benefit.

 

[Kandahar]

This whole thing is pretty juvenile, akin to the stupid Facebook campaigns to boycott gas on one particular day (or from one particular supplier) as though it would do anything.

1) Whether or not this strategy is feasible.

No, it's not. If people start buying silver and bid up the price beyond its inherent value, then savvy investors will unload as much of it as they can and drive the price right back down.

2) Any upside to this strategy, which would make it desirable.

That's what I don't understand. What's the point of crashing JP Morgan? Did JP Morgan do something wrong, do people want to create another banking crisis, or is it just about sticking it to The Man?

3) The downside to this strategy, which would hurt others.

If it worked (which it wouldn't), it would hurt the US taxpayers since they'd be on the hook for bailing out JP Morgan. But mostly it'd just hurt the morons who believed this nonsense and bought silver at inflated prices.

4) Could this strategy be considered terrorist activity, if it works?

No, nothing wrong with speculation as long as the activities are legal.

5) If the strategy is so good, then why haven't real terrorists, and other enemies of the United States, tried it?

Because it makes no economic sense.

6) What unilateral steps could the US take to prevent it?

Laugh at the morons advocating it, and dare them to try.

7) Could employing this strategy, if viable, and done by individuals, be regarded as a criminal act?

8) Could employing this strategy, if viable, and done by another nation, be considered an act of war?

No.

 

[oldreliable67]

1. Total open interest in COMEX silver is running about 135,000 contracts, or about 1.4 billion ounces. A far cry from the 3.3 billion touted by the 'silver truthers.'

2. The OCC June 30 report on derivatives holdings of the top 25 banks lists JPM with a total precious metals position of $8.441 billion. For comparison, at the same date, JPM had $382.372 billion in equity derivatives exposure.

3. In almost all commodity futures, including COMEX silver, the holders of long positions initiate delivery. If there was a big short, and the longs wanted to put on the squeeze, all they have to do is hold onto their contracts and stand for delivery (or until the very last moment before first notice day if they don't want to or can't take delivery).