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The Greatest Lie Ever Told

by Ted Butler, Silver Seek:

Granted, if you are going to label something as the greatest lie ever, it must involve something important, both in substance and in terms of who told the lie. In this case, the lie involves what’s at the heart of the silver manipulation and happens to be the issue that I consider the key factor for its price. Importantly, the lie came from the federal regulator overseeing the silver market, the CFTC. The good news is that you will be able to decide for yourself if my assertion is correct, given that the proof is nearly incontrovertible. The best news is that as the lie is more widely recognized, it should have a positive impact on the price of silver.

The key factor in silver is the concentrated short position on the COMEX, which also happens to be the current key factor in gold. Not only am I convinced that the concentrated short position in COMEX silver is the central issue, I am also convinced that wider awareness of its existence will bring about a freeing of the silver price. If the growing numbers of those who’ve discovered the importance of the COT reports and market structure to the price of gold and silver take one additional small step and incorporate the concentration data in their thinking, I believe the impact could be profound.

First, let me describe concentration as it applies to gold and silver and why it is so important and then touch on the history and status of the greatest lie ever. In review, if many different traders held very large short positions in COMEX silver and gold futures contracts, then no problem – that’s the way free markets are structured – with many different buyers and sellers. And you may not realize this, but quite literally, you wouldn’t be reading this if no short side concentration existed. That’s because I would never have started and continued to write publicly about silver if a short side concentration didn’t exist.

The problem is that there are not many traders short COMEX silver in terms of market structure. Only eight traders hold, effectively, the entire net short position in COMEX silver and those traders are mostly banks. Further, the concentrated silver short position, represents more in terms of real world production and inventories than the concentrated positions in any other commodity, with the comparisons with other commodities looking impossibly distorted. For instance, the concentrated short positions in corn and crude oil are the equivalent of a few days of world production, with silver’s concentrated short position amounting to more than two hundred days world production. Most remarkable is that so few silver miners are hedging that the entire concentrated short position is speculative on its face.

It’s important to understand that there is a big difference between a large short (or long) position held by many different traders and a large position held by a few traders. It’s impossible for hundreds or thousands of different traders to intentionally conspire to manipulate prices. Crowds may be irrational at times, but that’s far removed from deliberate price manipulation. Only a few traders conspiring together make manipulation possible and US commodity law recognizes that. That’s why the CFTC monitors and publishes concentration data. Of course, monitoring and publishing are different from preventing manipulation or busting it up when it exists.

The concept of preventing concentration is common in the body of all antitrust and anti-monopoly law and, in fact, is the basis for such law. And while simple in concept, it takes some effort to grasp why the concentrated short position is at the center of the silver manipulation.

In my case, the lightbulb that went off in my head when I first uncovered the COMEX silver manipulation 30 years ago had to do with the size of the total open interest in COMEX silver being so out of whack with all other commodities in terms of world production. It was years later, in the mid-1990’s, that I uncovered that the key feature was not just the size of the open interest, but in how few in number were the traders who were short. That’s the key and because I began to press the CFTC on the specific issue of concentration on the short side of COMEX silver, this is what led to greatest lie in the history of market regulation.

Because the issue of concentration is at the core of market regulation, whenever I wrote to the agency about the matter, particularly if great numbers of readers joined in, the CFTC was, in essence, forced to respond. In fact, not only did the agency respond to my concerns about the short side concentration in COMEX silver on more than one occasion, it also did so in public releases, both in May of 2004 and 2008 in separate 15 page letters. Of course, the CFTC vehemently denied on both occasions that there was any manipulation as a result of a short side concentration in COMEX silver futures.

Far from resolving the matter, the issue of concentration has never been more important than it is today, because the concentrated short position in silver (and gold) has never been larger than it is currently. But let me deal with the greatest lie ever first. In the 2008 public letter, the CFTC lied through its teeth. It took me a year and a half to uncover the lie because there was not sufficient data available to know that at the time. I try to avoid+ incessant linking to past articles, but this one won’t take very long. (Embedded in the article is the link to the CFTC’s 2008 public letter).

http://www.investmentrarities.com/ted_butler_comentary12-21-09.shtml

Let me summarize what the CFTC wrote and why it was a lie. The subject of the letter was the activity of large short traders in COMEX silver and the agency took great pains to dismiss any and all concerns of a short concentration causing any price manipulation or potential clearing failure. But check the timeline and the facts as we all have come to know them to be. The CFTC’s letter was dated May 13, 2008, nearly two months after Bear Stearns, who we now know was the largest concentrated short in COMEX silver and gold, went under, with its massive concentrated short position passed along to JPMorgan at the urging of banking authorities.

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