The Phaserl


The Inherent Unfairness of The Comex

from TF Metals Report:

Once again, paper metal prices on the Comex are being set up for a smash. The Cartel Banks, acting as de facto “market makers” are issuing huge amounts of new paper contracts in order to sop up speculator demand and squash momentum.

Please take a moment to understand how a “normal” market works. Let’s take an individual equity as an example.

Company XYZ has a outstanding float of shares that totals 1,000,000. On any given day, news flows and other events motivate the holders of XYZ to either buy, hold or sell their shares.

In this example, let’s say that something fundamentally positive occurs for XYZ. As investor scramble to buy XYZ shares, price rises. Why? Because there is a set amount of 1,000,000 shares on the market, price must rise to a point where existing shareholders are willing to sell, at which point a new price equilibrium is reached. The same is true when price falls. There are more sellers than buyers and price must fall to the point where buyers emerge and a new price equilibrium is found. The key in both situations is the finite amount of shares available. Yes, a company can do secondary offering and issue more shares but these things take weeks to organize with legal and underwriting concerns. Therefore, on any given day, the float and available “stock” to buy or sell static and finite.

OK. Sounds good. Are you with me so far?

However, sometimes things can get disorderly. Back in the old days, the NYSE has people called “Specialists”. At their own risk (and profit), these folks were responsible for maintaining their own large block of an equity for the purpose of “making a market” should there ever be a complete absence of buyers or sellers. These Specialists were charged with being the buyers or sellers of last resort and thus “making a market” and keeping things orderly. The key though was that these specialists were only dealing with existing shares that they already owned. They did not and could not simply issue new shares in response to investor/speculator demand. As noted above, the float was finite on any given day and the “market” simply had to respond by moving price up or down in response to demand.

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