The Impending Collapse of JP Morgan

A Conspiracy With a Silver Lining - WILLIAM D. COHAN - March 2, 2011, 7:40 pm

Nonetheless, how to explain the price of silver? In the past six months, the value of the precious metal has increased nearly 80 percent, to more than $34 an ounce from around $19 an ounce. In the last month alone, its price has increased nearly 23 percent. This kind of price action in the silver market is reminiscent of the fortune-busting, roller-coaster ride enjoyed by the Hunt Brothers, Nelson Bunker and William Herbert, back in 1970s and early 1980s when they tried unsuccessfully to corner the market. When the Hunts started buying silver in 1973, the price of the metal was $1.95 an ounce. By early 1980, the brothers had driven the price up to $54 an ounce before the Federal Reserve intervened, changed the rules on speculative silver investments and the price plunged. The brothers later declared bankruptcy...

The gist goes something like this: When JPMorgan Chase bought Bear Stearns in March 2008, it inherited Bear Stearns’ large bet that the price of silver would fall. Over time, it added to that bet, and then the international bank HSBC got into the market heavily on the bear side as well. These actions “artificially depressed the price of silver dramatically downward,” according to a class-action lawsuit initiated by a Florida futures trader and filed against both banks in November in federal court in the Southern District of New York...

In September 2008, after receiving hundreds of complaints that silver future prices were being manipulated downward by JPMorgan and HSBC, the commission’s enforcement division started an investigation. In November 2009, an informant, described in the law suit only as a former employee of Goldman Sachs and a 40-year industry veteran, approached the commission with tales of how the silver traders at JPMorgan were bragging about all the money they were making “as a result of the manipulation,” which entailed “flooding the market” with “short positions” every time the price of silver started to creep upward. The idea was that by unloading its short positions like a time-released capsule, JPMorgan’s traders were keeping the price of silver artificially low...

In any case, the class-action lawsuit contends that between March 2010 and November 2010, JPMorgan Chase and HSBC reduced their short positions in the silver market by 30 percent, causing the metal’s price to rise dramatically, but leaving them still with a large short position. Now, with the value of silver rising nearly every day, the two banks are caught in a “massive short squeeze,” according to one market participant, that appears to be costing them the billions they made originally plus billions more...

It’s getting harder and harder to continue to brush off Andrew Maguire’s claims as the rantings of a rogue trader with a nutty online following. The Commodities Futures Trading Commission should immediately release the files from its investigation into the supposed manipulation of the silver market so the public can determine whether JPMorganChase and HSBC did anything illegal, with or without the help of the Fed. In addition, the commission should start enforcing the 10 percent threshold on silver positions it has proposed to comply with Dodd-Frank law. Basically, the other commissioners must join with Bart Chilton to do the job they are required to do: Protecting the sanctity of the markets and preventing the sorts of manipulation we’ve seen all too often.

Silver Backwardation Continues - Silver Eagle Premiums Rise After US Mint Discontinues Production - Gold Seek - 3/4/2011

This may be an indication that there are strong hands in the silver pits who are buying all dips and taking on the still very large concentrated short positions of JP Morgan which continue to be investigated by the CFTC (see news below).

Physical demand for silver for both industrial and investment and store of value purposes remains very high and supply anemic at best.

The US Mint has been forced to discontinue the production of U.S. Silver Eagles as they simply cannot keep up with the demand. The US Mint says that production of the silver bullion coins are suspended “temporarily” as they cannot source enough silver bullion blanks to make the very popular coins. In just the two first months of 2011 alone, 9.633 million Silver Eagles were sold. This corresponds to about 300 tonnes of silver...

Eric Sprott of Sprott Asset Management recently said that his fund was having difficulty sourcing silver bullion bars (1000 oz) in large volumes and there were liquidity issues in the market.

He also warned that the world was running out of silver. "There's $22 billion of silver available in the world, of which the ETFs already own half, and between you guys and us we probably own the other half... Which means there's nothing left."

Record sales in the US Mint have also been seen in the Royal Canadian Mint and the Austrian Mint. The Austrian Mint sold 1.53m ounces of its silver Philharmonic coin in January, more than double the level a year earlier. The Austrian mint would boost production to 2.2m ounces in February and March.

Both the Austrian and Canadian Mints have begun rationing new silver coins to dealers, meantime, after record January sales across the retail industry.

The Royal Canadian Mint, which produces the silver and gold Maple Leaf coins, have spoken about how they are finding it difficult to source silver in volume.

David Madge, head of bullion sales at the Royal Canadian Mint, recently told King World News that “it still remains a big challenge sourcing material. We’re looking at ways of mitigating our risk regarding supply of silver.”

We are anticipating it to become even more difficult to secure supplies in the future. This is based on what we are seeing firsthand and what our suppliers are telling us. We work closely with these banks to secure silver and they tell us there is a lot of competition.”

When asked what this means for the price of silver and how long this condition is expected to persist Madge stated, “I think you are going to see the premiums go up in order to secure silver. At some point some players will be priced out of the market. I don’t think this is a short-term situation, I think there are a lot of issues going forward and this may be the new norm.”...

The Hound: The Following is a rumor, but if true it spells doom for JP Morgan, who owns all of these short silver contracts, which means that they were investing in the price to go down. Many of these contracts were bought for under $20/ounce.

Part A: Comex trading/Silver scandal goes mainstream - Harvey Organ's Gold and Silver Report - 3/3/2011

As many know there are a group of ex Morgan traders who decided to take on Blythe Masters and JPMorgan by standing for delivery but then asking for a huge fiat premium. We have now heard from one trader who also is a reader of my blog. The name given to the ex traders is "Wynter_Benton:

Here is what is posted by Louis Cypher:

"Wynter_Benton update on their recent raid
With permission, I can update the results of our raid. It was successful beyond imagination but that "success" has spawned even more questions about the price of paper silver going forward. It was reported by SGS that he heard that on Friday Blythe was offering 30-50 percent premium and that at least 4500 hundred contracts will stand for delivery. I am here to give you a more accurate update (and a first hand account of what happened on Friday Feb 25). Our group was detemined to stand for delivery going into Monday because we were not going to take a 30 percent premium on a price of $33.50. It was reported that Blythe offered 50 percent premium. That was not even close in our case. We got over 80 percent premium. That's right. Over $50 per contract on the condition that our group sell all our contracts. Our counterparty even threatened us with the ghost of Herstatt. They openly admitted that they could not deliver even 20 million ounces to us but that if we stood for delivery they would be sure that they make delivery to everyone else before they defaulted on us which would make us 'unsecured creditors'. They told us directly that they could not allow even 5000 contracts to stand for delivery because they could not deliver a mere 20 million ounces. Like Vito Corleone said, "I'm gonna make him an offer he can't refuse." And indeed we did not refuse as this was our intention all along.

These sets of facts from our traders lead us to believe that the paper price of silver may have a difficult time surpassing $36 because if the counterparty at the Comex is so willing to pay north of $50 to dissuade people from standing for delivery yet the paper price of silver is still under $35, then we suspect that losses triggered by derivatives is the main reason for the price suppression of silver. We can see no reason why they would not allow the paper price to go up yet are so glad to pay off the comex contracts to show the world that so few are standing for delivery. In our mind, Comex could default with if as little as 4,000 contracts stood for delivery. We are very curious to see how high the paper price of silver actually trades during this run. - Posted by Louis Cypher"

The Hound: What this means is that currently the COMEX (Commodity Exhange), which is part of the New York Mercantile Exchange, which trades Option contracts (Derivatives) and hard physical assets to the open market does not have access to enough Physical Silver to make the market function (make deliveries to close out contracts). The Silver market is dysfunctional and it is going to take money markets with it. What is being espoused here is that JP Morgan and HSBC (The Hongkong and Shanghai Banking Corporation Limited) have bought all of these Silver Short contracts, betting that the price of Silver will go lower. In order to do this they are supposed to have the assets on hand. What they have done is called naked shorting. It has become obvious that they do not own the physical Silver and since the price of Silver has risen so dramatically there are people who want to take delivery of the Futures Contracts that they have purchased and there are others who have had their Silver warehoused and they want to take physical delivery of their property.

As I stated earlier, many of these contracts were purchased at around $20. They were bought when Silver went to $21 in March 2008. JP Morgan inherited a lot of Silver contracts from Bear Stearns when Bear Stearns went bust in March 2008, as you can read in the William Cohan, New York Times piece above. Silver closed at $35.67 today. An 80% premium would mean that the COMEX would pay $64.20/ounce per contract at the current physical market price. That means that whoever owns those short contracts are going to lose $44.20/ounce if they bought those short positions at $20.

Estimates I have seen show JP Morgan's exposure related to Silver to be anywhere from 1 billion to 3.3 billion ounces. That means under the current situation, if Silver contracts are being bought for $64.20/ounce, then JP Morgan is at least $40 billion in the hole and could be over $130 billion in the hole. As Silver continues to climb this is only going to get worse. Last year, the Gold to Silver ratio was over 60x. Now it is barely over 40x. Historically the ratio was always around 16x, so one can see the room for growth. The sky is the limit. As far as JP Morgan, If it (Morgan) goes, then so will all of the banks that do business with them and the Federal Reserve will go with it. More fraud has been piled higher and deeper. Numerous laws have been broken in association with this scheme to manipulate and suppress the true price of Silver.

These issues should have been dealt with long ago. It is time to end the Banks Reign of Terror. It is time to bring some sensibility back to our financial system. It is time to let the "Too Big To Fails" fail, so that the rest of us can have a chance to have a stable economic system in the future.