J.P. Morgan is short more paper silver than physically exists in the world?

So there was a thread earlier about weather to invest in Physical vs. ETF's and it got me thinking. First off I am sure that for all of you long time silver veterans and investment gurus this is no surprise, but to me it was. I had heard about a possible scandle involving J.P. Morgan and possible silver manipulation before, but never to the extent that there was only a ratio of 1 oz of physical silver available for every 100oz in paper. I believe it was equated in 2010 to an estimation of 3.3 billion oz of silver disparity. This being said, if everyone cashed in, JPM would crash. I may have my facts tangled here, but I understand the basic principle. It sounds like a ponzi scheme to me. Just another reason to buy physical silver over an ETF. The very thought of it gives me the shivers. I am not trying to stir up dust, or scare anyone that has ETFs, but check out a few of these websites below. If you have any knowledge on the subject, please feel free to share. I am also curious to know what your opinions would be on the reaction to the silver market if the paper market collapses? I assume the value of silver would skyrocket.



http://www.sfgate.com/cgi-bin/articl...inga668905.DTL


http://businesstm.com/control-your-f...-ok-with-cftc/



Read more: http://www.cointalk.com/t195967/#ixzz1fVpr63Cj​

 

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If they are short, it means they are wanting the price to go down, whereas and ETF holder is wanting the price to go up.

I think the bigger question is - who's money are they using to buy the shorts? Could it be another MS Global deal (SEC Regulation 1.25 - internal repos) where when these clowns go under, brokerage account holder's money goes poof?

 

Could it be taxpayers? Or part of the 700 Billion dumped directly into banks last year? Wouldn't surprise me if the fed has a hand in this.

 

Its a common misconception, and is reported badly by reporters who cannot be bothered to actually have to learn something.

JP Morgan is the market maker for silver. To do that they have to have derivatives of silver, "paper silver". How do you do that? The easiest way is to sell "paper silver", or short it. This is completely normal function of their business. It is also very normal to have more derivatives than physical assets to facilitate liquidity in the market and prevent anyone from "cornering" a market.

Beyond that, its debatable as to whether the levels are appropriate or not. But, people not having Financial knowledge and not understanding the points I listed above is the start of much of the PM conspiracy theories. Knowledge trumps bad reporting, unfortunately most do not know these facts.

Chris

 

Market maker or not, JP Morgan is still a bank and financial services company, who is highly dependent on other people’s money to operate - so the "who's money are they using to fund their shorts" is still valid...I think.

 

What funding? THEY have the money! They sold the shorts, meaning THEY collected the money up front. If they had went long, or bought the derivatives, then you could ask where did they get the money from.

 

I'm referring to the risk JP takes in the short sale...taking into account that these are naked shorts, where there is no physical on hand or borrowed against to cover these shorts, if silver price goes up, JP goes bankrupt. Then the question of who’s money did they use to cover their losses (up to the point of bankruptcy) comes in – that’s the MS Global scenario.

 

Ok, I understand now.

I am guessing there are plenty of gains to cover any losses, they have been doing this a very long time. Also, the size of the bank helps mitigate the risk. I am sure they also have risk management techniques in place as well, like buying the shorts back in certain situations, etc.

I don't know this specific market in that detail, (and am sure no one outside JPM knows all of their details), but was simply commenting on global "facts" reported in non-financial press and in isolation used to scare people.

Chris

 

I appreciate your point - this JP Morgan silver shorting thing is a pretty good example of how banksters, since SEC regulations began to be loosened in 2001, have leveraged their investments so much that even a slight price change in the underlying asset value could bring their business (and us) down.

 

The risk management technique is called the US taxpayer. The Federal Reserve secretly handed over $1.2T to the TBTF banks. The information only came out after they FR was taken to court to expose it. They won't let this bank fail no matter what they do and JP Morgan is taking full advantage of it.

 

That's a very good point. However, some of these bankster shenanigans are so heavily leveraged that there is not enough money on earth to cover the risks...and that is the issue...some un-elected hockey pucks are playing Russian roulette with our future.

 

Yes indeed. Yet people are still afraid to hold much gold or silver. People ought to be looking at 30%-40% these days, IMO.

 

I would like to caution any such article over a month old, as a year is almost a financial eternity when it comes to derivatives. Secondly, this article gives more details on ETFs if one is interested.
http://en.wikipedia.org/wiki/Exchange-traded_fund

One thing that I find is never mentioned is that such articles look at the shares of GLD or SLV being outstanding and then add the call options , but ignore the number of short options. In actuality, the number of call options and the number of put ( short) options such as on SLV ( so called paper silver) offset each other on expiration with payouts going in cash ( NOT physical silver). Those who hold the SLV stock in less than a basket ( 50,000 shares) can only exchange it for cash, not physical. Those over 50,000 shares must be a partner in the trust or work through a partner (such as JPM) to convert to physical with conversion charges.

What this means is that only the partners could cause a run on the trust for physical. The rest would have to settle with cash. There has not been any evidence that in the US , any member has illegally shorted "naked". Some foreign branches associated could have, as in some world exchanges, naked shorting is not monitored. But remember that the SEC gives rather long settlement and reporting dates for "naked shorting" in the US, sometimes 30 days or longer. Thus a US concern or investor ( if you are rich enough or a politician ) could legally "naked" short and cover after 29 days.

If you want physical, buy retail or buy physical futures ( also at full price), but don't buy shares of ETFs if you think it gives you rights of taking it in physical ~ it doesn't, and wasn't intended to do so from the beginning. Shorting is as necessary as going long. There must be a balance ( which is offset by cash). In real life, imbalances do occur on a daily basis, and then the marketmakers have to buy/sell their own stash to even it up.

 

Really doesn't matter if they are elected or not elected. They control the money supply and can buy whatever influence they need or want. There is the odd exception but otherwise most politicians are nothing more than puppets.
The select few who are allowed to call the shots with the taxpayers money prefer to work as appointed employees and not politicians. This way they can't get elected out of their jobs.

 

Do you have any reliable evidence that JPM is a naked short? I've never seen any. It is very possible, and perhaps probable, that JPM is basis trading silver on behalf of a large client [perhaps China?] who wishes to earn a risk free return on their silver holdings. I know this goes against what you are likely to read from authors on the internet, but keep in mind that they have newsletters to sell, or bullion, or just need to get paid for their articles and have to have something interesting to read. I think the least probable situation is that JPM management permits a small group of traders to play with naked shorts in excess of the company's capital position.

 

This theory is completely illogical because JPM won't be doing business with the communists running China at levels high enough to affect global silver prices without full complicity of the US government. While the US government might not care if it's own TBTF banks manipulate the markets, they certainly are not going to let China do it. JPM might be underhanded, but they are not stupid. I'd say that you should be providing proof of this since you are asking others to do the same.

Furthermore, China won't be shorting silver simply to get their hands on more $s. They have more than they could possibly ever spend now.

 

What if the fed was using JPM as a puppet to keep the value of the dollar in check? The Graham-Leech-Bliley act was passed in Washington. Anyhow.. I do enjoy learning from you all. I'm just a lowly undergrad, and should take these articles more objectively.

 

I don't believe that anyone or any organization is keeping silver in check with, or without any government help. If someone or some fund wanted to spend $30 million on silver in one month, the price would increase nicely, but then after that , it would sink back down, because there is no logical support beneath it. IMO, People over estimate the amount of silver used in industry, take the Solar panel industry so often quoted as a demand issue. There was only demand due to the subsidies and once they fall, there will be little demand issue. In medicine, similar issue. Oligodynamic effects of silver ( and copper) on microorganisms has been known for over 100 years, and was used more than antibiotics up until about 1945. Now they have niche uses both grossly and nanoparticle size, especially for burns and gangrene issues, but there won't be a huge demand for silver for these either. IMO. I think silver is in its sweet spot for a while $30-40, whereas gold I still see a possibility of a geopolitical run, due to world events yet to unfold, including China.

Jim

 

In the first place, I think you are overly paranoid about communism. And nobody said anything about market manipulation. If China wanted to basis trade their silver, it is natural they would want to do it on a large and liquid exchange. Basis trading is not manipulation, and it would almost be negligent for a large bullion holder not to do it. So China would need someone to execute this sort of investment program for them, and JPM is a natural.

In the second place, I didn't say the basis trading was for China. I just threw that out there in parentheses with a question mark because they are a large silver holder. In point of fact, any large holder or group of large holders may want to do this, and JPM is one of the largest institutions in this market so it is natural to go to them. So if you don't like the China possibility, then that's okay because it was only meant to be an example.

And in the third place, it is the folks making wild claims about naked shorting and market manipulation by JPM that have the burden of proof. All I am saying is that the most probable case is that this is normal legal trading. A large bank like JPM isn't going to risk letting a small group of people destroy the organization, and it is naive for you and others to believe so.

 

I would be interested in your take on the gold market as far as China is concerned.