Site Down Again and a Chart Update

Tue, Apr 10, 2012 - 7:26pm

I would have made this new post earlier but, as you know, the site was down again. It sure seems strange that this silly, little site would crash so often but...whaddayagonnado? Anyway, here's a quick update.

First of all, while the site was actually working this afternoon, our pal SRSRocco posted this handy little chart showing the decoupling today of gold and silver from the DowJonesIndex. Whether or not this is a one day phenomenon is something to be watched. For now, it's just an interesting anomoly.


The move in gold thankfully took us through the $1650 level which had been so pesky yesterday and this morning. Though I'm happy to see it break 1650, gold is still in a bit of a no-mans land, as you can see on the chart below. Until gold can break out of this down-sloping channel and cross back through the 200-day moving average, which would require a close above 1685-1690, there isn't any real reason to get excited. Yes, the CoT was terrific and gold appears ripe for a rally but, with The Cartel and the WOPRs in charge, no one should rush off and buy until that 1685-1690 level is bested.

Silver is in a similar funk. Though it still appears to be forming a very nice, rounded bottom with a solid floor near $31, I just simply can't get overly excited about buying until it gets solidly back above $31.


A quick update on OI. Yesterday, I predicted that total gold OI would recover back above 400,000 based upon yesterday's trading action. This is, in fact, what happened as total OI is now 402,386, a jump of about 2,800 contracts form Monday. Though I of course can't say for certain, the OI jump seems to explain yesterday's action. Gold rallied (some spec longs added) and then was capped at 1650 several times (Cartel shorts added). The net result is a jump of 2,800 OI. Simple as that. In silver, Thursday's rally was clearly short-covering and the decline yesterday was due to some shorts being added back on. The stage is still set for silver to stage a sharp, serious short squeeze in the near future. Again, though, I wouldn't expect anything dramatic until silver crosses back through $33. From there, the short squeeze could take silver quickly back toward $35.50.

Lastly, one final mention of the appearance by The Wicked Witch of New York on CNBS last week. Over the weekend, Ted Butler wrote the best summary that I have seen for the event. Today, the entire piece was released on SilverSeek and I encourage you to go there and read it.

Better yet, though I'm still unsure how all this internet copyright stuff works, since Ted has released it into the public domain, I guess there's no harm in me reprinting it here. So, here you go. (What's nice about doing it this way is that it allows me to add my personal emphasis through the "bolding" of certain parts.)

JPM’s TV Appearance

Theodore Butler
April 10, 2012 - 7:35am

There was a very interesting and potentially significant development dropped into the silver equation this week. I’m speaking of the appearance of the head of commodities for JPMorgan, Blythe Masters, in a short interview Thursday on CNBC. There has already been widespread reaction to the clip and I must admit that it touched off a whirlwind of different thoughts in my mind. Quite frankly, I’m glad I’ve had a bit of time to sort them out before commenting. If you haven’t had the opportunity to view the segment, here’s the link.

I first discovered and revealed that JPMorgan was the big concentrated short in COMEX silver in the fall of 2008 (having inherited the position from Bear Stearns). Since then, Ms. Masters (The Wicked Witch of New York) has become somewhat of a lightening rod in the silver manipulation discussion world. (Deservedly so.)Although I don’t believe I have ever mentioned her by name, she has been, more often than not, vilified in most Internet quarters. (Again, deservedly so.)While I can empathize with the extreme sentiments that can arise from the outrage over the lingering silver crime in progress and the damage that it has caused to many, I don’t see much benefit in personal attack. (Except in this case.) Now, more than ever, we need to focus on the facts. (and not the fact that she still pines for Turd Ferguson and the Anaconda.)

Since my thoughts are varied, let me see if I can put them into some semblance of order. First, let me give you my visceral feelings and then settle into a more measured and objective analysis. There were quite a few important statements that did come from the interview that go to the very heart of my allegations of manipulation in silver by JPMorgan. I won’t dwell on my knee-jerk reactions, but I do feel I should make them known.

There is no doubt that this wasn’t a spontaneous event. The presentation wasn’t accidental. I’ve watched CNBC fairly religiously for as long as it has been in existence (but with the sound muted for much of the day) and the last firm recollection I have of any mention of a silver manipulation was more than three years ago, when Joe Kernan (first-class douchebag) commented on the Wall Street Journal (worthless fishwrap) article on Sep 25 2008 about a CFTC investigation into silver. I remember Kernan joking about some new Hunt Bros plot to drive prices higher. (What a jackass.) Never again have I heard the silver manipulation mentioned on that network. CNBC has never seriously broached the subject to my knowledge. So I was taken back when the reporter specifically asked about the allegations of manipulation in silver, as if they were widely recognized as common knowledge. I got a special kick out of the reference to all these allegations coming from the “blogosphere.” (TFMetalsReport)(As opposed to the mainstream media, I suppose).

It would be safe to say that the interview tried to present JPMorgan as a contributor to worthy causes, who would never dream of manipulating silver and as a strong proponent of financial regulatory reform. All of JPMorgan’s positions in silver were claimed to be non-directional and only transacted to accommodate legitimate client hedging needs. To the typical CNBC viewer, who has little interest in silver to begin with, I would imagine that the segment appeared little more than a puff piece on an obscure topic. But I doubt that this was all that it was. There was an intent and purpose to this presentation, as many have already suggested.That’s what makes it so potentially significant.

To my knowledge, this is the very first time that JPMorgan has openly acknowledged the allegations against it for manipulating the price of silver. Please think about that. It’s been more than three years, dozens of class-action lawsuits and a ton of reputational abuse (remember “sink JPM, buy a Silver Eagle”?) and this is JPMorgan’s first rebuttal? Years ago, I used to wait for process servers and Fed Ex-delivered cease and desist demands; but I had just about given up on JPMorgan ever responding since so much time had passed. Don’t get me wrong, I’m very glad not be sued; but I am a little underwhelmed with how JPM finally did respond. I can’t help but ask myself – why now and in this tepid a manner? A public relations campaign on CNBC to an audience not remotely aware of the allegations to begin with hardly seems the lasting solution to making the problem go away. So what was the motivation?

Here’s where all the knee-jerk conclusions come in that just might be correct – they are feeling the heat, maybe they know something may be forthcoming from the CFTC (worthless bureaucrats) and are trying to stay ahead of the fall-out. My friend and mentor, Izzy Friedman, says they see the physical shortage about to hit, but none of us can be the fly on the wall and know the details. But we agree that the appearance likely means JPMorgan may be in trouble of some sort. JPM sees no other way out than to claim their COMEX silver short position was and is legitimate and they are prepared to stick to that story come hell or high-water. The beautiful thing is that, no matter what, this is great news. The fact that JPMorgan has spoken up first on the allegations of them manipulating the price of silver and not the CFTC, is particularly good news. (More on that later).

Best of all, this may and should open a dialogue on this issue. Ms. Masters (chain-smoking Chupacabra) gave very reasonably-sounding explanations to the allegations of silver manipulation. But they were very simple explanations offered in the blink of a TV sound bite. To those convinced that silver is not manipulated, her words explained all. To those convinced that silver is manipulated, her statements were false and misleading. That’s because the questions and answers in the TV segment were prepared and scripted. But because they only barely penetrated the surface, they fell far short of setting the matter to rest.

The great thing is that this can be resolved with just a little further explanation. You see this is not an instance of he said, she said. This is a case of fact and commodity law and the right questions and answers. So let’s drill down to the answers given to see if they really addressed the allegations.

The main theme advanced by Ms. Masters (B-cup Barracuda) is that JPMorgan holds no unhedged silver positions and all its short positions are a direct result of offsetting client positions in the OTC or swaps market. Therefore, it matters little to JPMorgan whether the price of silver rises or falls. For the sake of argument, let me stipulate for the moment that JPMorgan has offsetting client positions behind their big net short position on the COMEX. I don’t believe there are truly legitimate client positions backing JPMorgan’s COMEX short position, but let’s set that aside for a moment while I try to show that client offsetting positions or not, JPMorgan’s COMEX short position is still manipulative. JPMorgan claims they are not manipulating silver, but those are just words. Their actions are quite different. What’s more important, words or actions?

The allegations against JPMorgan for silver manipulation are centered on their concentrated short position on the COMEX. Nothing more, nothing less (aside from HFT). Claiming there were some unspecified client positions offsetting the concentrated short position doesn’t alter, in any way, the fact that the concentration still exists. The point is not the nature of what may be responsible for the concentrated short position, but the concentrated position itself. Even if JPMorgan owned every ounce of silver they held short on the COMEX in physical form, holding 25% or so of any licensed futures market would be manipulative to the price, in and of itself. It doesn’t matter what excuse is given for holding an excessively concentrated market share; such a market share would be manipulative.

If a single trader held a 25% share of any other major futures market, say in crude oil or corn, there would be emergency meetings and decrees to break that concentration before the sun went down. Farmers would be descending on Washington, DC in tractors if a New York big bank held a short position equal to 25% of the Chicago Board of Trade’s corn futures market. It wouldn’t matter one wit to the regulators what was behind the position. Such a market share in a major commodity futures market would be unthinkable. But 25% has been JPMorgan’s usual share of the net COMEX silver (minus spreads) since it took over Bear Stearns and often it has been much larger than 25%. JPMorgan can’t deny that market share in silver as that is borne out in government statistics, so it is doing the next best thing - trying to change the issue into what may be behind the position. What’s behind the position doesn’t matter; the position itself matters.

I’ve often said that I think JPMorgan is stuck with their excessively concentrated silver short position on the COMEX. This TV attempt to explain it all away strengthens my conviction. The thing about the concentrated short position is that there has always been one big silver short holder on the COMEX. It started with Drexel Burnham, got moved to AIG Trading, on to Bear Stearns and, finally, to JPMorgan. My sense is that it won’t be passed on again. JPMorgan is the final holder and I sense them knowing that may be behind the attempt to explain it away. Never, in the 25 years I have been engaged in attempting to end the silver manipulation, has there ever been a public acknowledgement from the big silver short. There is one now.

If holding a giant COMEX short position is such a sweet deal, why wasn’t JPMorgan holding such a position prior to Bear Stearns’ demise? If legitimate client positions stand behind JPM’s short position that implies most of the world’s silver hedgers only do business with JPM, no one else. Why aren’t other banks and financial institutions looking to compete with JPMorgan on the short side of silver and edge them out? That’s because no other firm wants to get stuck like JPM is stuck and reduced to offering flimsy excuses to pre-arranged softball questions on TV.

The CFTC tracks and reports positions and concentration data by individual trading entities based upon who controls the account. If a legitimate hedger wants to sell short on the COMEX to hedge production or inventory it can do so in its own name and for its own account. It doesn’t need to join with others and do it in someone else’s name and in concentrated form. There is no legitimate reason why JPMorgan’s clients can’t hedge in their own names to the extent JPMorgan is claiming, especially since allegations of concentration and manipulation are being lodged against JPMorgan. You would think that JPMorgan would be doing more than pleading their case on TV. One would think JPMorgan would advise clients to hold the COMEX short positions in the customers own names to reduce JPM’s concentration.

Unless, of course, that there is only one major client behind JPMorgan’s concentrated COMEX silver short position. In other words, if JPMorgan is representing only one or a very few related clients and that is what backs the concentrated short position on the COMEX, then that raises the issue to a whole new level of possible criminality. If JPMorgan is facilitating and enabling an unnamed client or clients in holding a concentrated short position by agreeing to put it in JPM’s name on the COMEX, then JPM may be the transfer mechanism in what can only be described as hiding the identity of a market manipulator. The terms aiding and abetting and fraudulent conveyance come to mind. In many ways, particularly if the real hidden short is foreign and outside US jurisdiction, that’s even worse than JPMorgan holding the position itself. Enabling a foreign entity to evade US commodity law and manipulate a US futures market? This gets worse the deeper you dig.

Much is made of the great size of the OTC market when compared to the COMEX. While I think that claim is bogus, many insist that the OTC market (including the LBMA) is much bigger than COMEX. In fact, the client positions that JPMorgan claim backs the concentrated short position on the COMEX, are implied to be OTC positions. But if the OTC market is so much bigger than the COMEX and JPM is the acknowledged leader in OTC trading, then why doesn’t JPMorgan just hedge its client’s OTC positions with other OTC positions? Why resort to selling short so excessively on the COMEX where it gets picked up in CFTC data? If JPMorgan offset their clients’ OTC positions with other OTC positions, we wouldn’t be having this discussion. All these positions wouldn’t be included in the COT and Bank Participation Report data and I wouldn’t be able to analyze and write about it.

This is also what makes all the threats about traders abandoning our listed and regulated exchange traded markets to the regulatory-free big international OTC markets a pile of junk. Because the COMEX is the most important derivatives market in the world for precious metals, any large silver derivatives position must be reflected in COMEX positioning. If JPMorgan could just make this COMEX concentrated short position disappear by dealing instead on the OTC market, they would have done so long ago. The simple answer is that they can’t because the OTC market is smaller than the COMEX. JPM is reduced to trying to convince anyone who will listen that the COMEX concentration doesn’t matter because the real big short is someone else hiding behind a tree that you can’t see because of client confidentiality. It’s no wonder many folks are coming to hate the banks, because the banks always have a slick answer to what we all know is simply bad behavior. How about the reporter asking JPMorgan what the heck are they doing trading in silver in the first place? Shouldn’t they be out taking deposits and making loans like banks are supposed to?

The real problem is that the COMEX sets the price of silver for the world. Therefore, JPMorgan’s concentrated short position, by its size, unduly influences the price of silver. Manipulation aside, this gives JPMorgan control of what price its clients transact in the supposed private silver hedges with JPM. This is a serious conflict and certainly not in the clients’ best interest. What fair and open good business practice would permit JPMorgan to first set the price on the COMEX and then use that price to transact hedges with clients at the “set” price?

It is because I go so far back with this silver manipulation that I see it in a different perspective than most folks. Eight years ago, on May 14, 2004, the CFTC made public a long letter which denied that any silver manipulation existed. The letter took aim at me (not mentioning me by name) and concluded that investors had best be very careful before investing in silver. On the day of the letter, the price of silver was around $5.60.

Almost to the day four years later, the CFTC released another long public letter, dated May 13, 2008, which basically re-iterated that there was no silver manipulation or undue concentration on the short side on the COMEX. On the date of this letter, the price of silver was $16.66.

I’m not much for cycles, but it would appear that we may be at the anniversary of a four-year cycle that began in 2004. The question is if we will get yet another long-winded and soon disregarded public letter from the CFTC assuring us there is nothing wrong in silver or will it play out differently this time? The remarkable thing is that the first two CFTC letters had absolutely no effect on persuading growing numbers of observers that silver wasn’t manipulated. Even more remarkable is that the basic issues haven’t changed over the past 8 years. The only thing that changed was the big silver short. In 2004, it was AIG Trading; in 2008, it was Bear Stearns. Today, it is JPMorgan.

One thing I am encouraged by in JPMorgan’s breaking of the silence is that it may indicate real change. Prior to now, the CFTC always did the dirty work for the silver manipulators. By publicly denying that a silver manipulation existed in 2004 and 2008, the CFTC automatically protected and coddled the silver manipulators, who didn’t have to answer to anyone. This CFTC cover also protected, effectively, the silver crooks from civil litigation. The COMEX commercial crooks, including the CME Group, could always hide behind the CFTC’s skirts and proclaim that they were highly regulated and if they were doing anything wrong, the CFTC would say so. If the CFTC protecting the silver crooks didn’t cause your blood to boil, you need new blood.

Please don’t get me wrong; it is shameful and deplorable that the CFTC has taken no action against the silver manipulators for so long. But one possible advantage to that delay now is that it may be forcing JPMorgan to speak out instead. That’s much better. Particularly given how hollow JPM’s words were in their first public defense. Of course, the CFTC can still manage to cover themselves with additional shame if they do decide to side with JPM and the CME once again. For the sake of everything that is still good with the US, let’s hope they don’t. Let’s hope that the CFTC continues to allow JPMorgan to explain its concentrated short position.

Ted Butler

April 7, 2012

For subscription info, please go to

OK, that's all for tonight. More on Wednesday. As I take my leave, here is the original in the series. An oldie but a goodie. TF

The Wicked Witch of New York

About the Author

turd [at] tfmetalsreport [dot] com ()
Does Feb19 Comex gold close above $1250 on Friday?
Total votes: 181


The8thHabit · Apr 10, 2012 - 7:32pm


First!!! Yes, I'm like ALCOA -first and beating expectations! OK, this maybe too far, but I'm the first nevertheless! Nice to see Turd's posting, I struggled to login to the site earlier! 

¤ · Apr 10, 2012 - 7:40pm

New Thread ~ Uncle Ted

Thanks for the update TF.

Ted Nugent - Stranglehold

Big L · Apr 10, 2012 - 7:51pm

Turd third

Thurd turd! Nice post, you & uncle ted, both of ya, seriously rockin!

Spaced_out · Apr 10, 2012 - 8:00pm

Santorum drops out of race-

 Santorum drops out of presidential race,

watch the MSM spin this into Romney securing the GOP Nomination in 5,4,3,2.....

GOLD n SILVER bitchesss!!!!

ohh yeah,,,,,,,first time poster long time lurker,,,

Turd Furg....u the man

Spaced_out Spaced_out · Apr 10, 2012 - 8:02pm


Ron Paul 2012 =)

Dolomite · Apr 10, 2012 - 8:03pm

Turd you're a really funny

Turd you're a really funny guy. Love the personal commentary.

Thanks for the laughs amigo.

exiledbear · Apr 10, 2012 - 8:06pm

Yay, almost a month has gone by and gold is at - 1660

Sitting and spinning. Round and round. Gotta love those psycho spikes coming out of nowhere, like today.

ReachWest · Apr 10, 2012 - 8:10pm


Welcome to Turdville "Spaced_out" .. from the media I have seen this afternoon - the spin that Romney is the GOP nominee is already firmly in place, as you rightly point out.

ReachWest · Apr 10, 2012 - 8:12pm


Darn - just missed acquiring one of the top 3 spots by a smidgen.

Turd: I noticed the Turdville outage and I can feel your frustration - damned technology. Love that old original movie of the "Witch" - the lighting is so spooky - I envision them in their offices late at night strategizing about the Metals markets manipulation. Thanks for the TB piece (with the amusing annotations) re Blythe .. interesting .. I hope it does presage some form of change.

Here is a Featurette (My new word of the week) Movie RNN put together to highlight some of the economic events since 2008. "Snakes Fly a Plane" is a chronology and timeline of the key economic events since the 08 market crash. Chairman Ben Bernanke of the Federal Reserve takes to the sky in "Fed Force One" to save the World Economy. Pilot Ben enlists the help of the US Treasury Secretary, Timmy as his co-pilot. Will they land the plane safely? Will flight attendant, Blythe, breakdown and cry? Will the world economy crash and burn? Watch and find out.

Well, at least, I can say .. these silly videos are cathartic to compile. Thanks for watching, if you do.
DavidSilverSwe · Apr 10, 2012 - 8:20pm

That chart

the de-coupling chart is really interesting to look at.

will be interesting to track if it does this more in the future.

beardeus · Apr 10, 2012 - 8:23pm


This is a weird site. I know but take some time to watch this short clip and tell me what you think.

It's the first viewable video.

shaz · Apr 10, 2012 - 8:23pm

not sure

not sure if its related

but this is the first site i checked out today since i got home

and microsoft essentials says that a Trojan tryed to load while i was reading the latest thread

suspended and deleted no prob

just a heads up

well here and kitco that is

shaz · Apr 10, 2012 - 8:24pm

silver puttering

and down

while gold is up

and crazy jigs and jags on the chart too

damn worps

cliff 567 · Apr 10, 2012 - 8:30pm

Turd's the man

You nailed it Turd.

Great commentary in bold on a great synopsis.

Stay well, stand tall Bro.

exiledbear · Apr 10, 2012 - 8:38pm

As long as they're printing money

Stocks will remain in a nominal bull. I forgot just how high Daimler-Benz went in the '20s, but a share was worth quite a bit of marks. However, you could buy the company for about 100 of the cars at the prices they were charging for. Nominal bull, constant value bear. See stock prices are high, everyone's working, what could possibly be wrong...

Eventually when the Rentenmark was established, if you held onto your shares, you preserved your wealth, but that's assuming you had enough cash for other things, like I don't know, food.

ActionFive · Apr 10, 2012 - 8:39pm

How often

do they let gold just run up, let alone decouple from stocks- unless the decoupling is gold going lower? They could have run over the short positions, or suckering some long side like they do. Are there T-auctions? I would watch the night.

Bobbejaan · Apr 10, 2012 - 8:42pm

GREECE GREASED --> Gold trade in financial squad cross hairs

Gold trade in financial squad cross hairs 
By Evgenia Tzortzi

The hundreds of gold traders and pawn shops that have sprung up across Greece over the past three or four years are rapidly making it into the police’s crime bulletins on an almost daily basis.

Behind many of the garish store signs advertising “I buy gold,” found on almost every main street in every neighborhood in the country, what is abundantly clear is that laws and regulations stay at the door, as authorities in Greece find themselves stymied by the massive trade in gold and unable to get a grip on the number of such stores that are cropping up or the manner in which they go into business.

... <SNIP> ...

Meanwhile, police reports are increasingly featuring cases of large shipments of gold and silver being intercepted as they leave Greece for other countries without being accompanied by the proper documentation.

The long list of sins that prevail in the gold market is compounded by complaints showing a trend of rising crime related to the businesses, whether these crimes are thefts or even more serious ones such as kidnappings that have been linked to people active in the sector.


¤ · Apr 10, 2012 - 8:46pm


Welcome to the hive! Bee 2

El Gordo · Apr 10, 2012 - 8:46pm

Underlying rumblings before the blow?

Maybe these Kitco charts which are looking like seismographs are in fact reflecting the seismic activity that is going on under the radar screen. What if the whole currency system is getting ready to blow up, and all this activity is reflective of things going on in the background to try to stabilize the situation before it finally goes up in smoke and ash. I always heard that there would really be no warning, we would just wake up one morning and the dollar would be worthless and the politicians would be printing a new paper and telling us it was money, but maybe there is a warning after all.

Timber Tim · Apr 10, 2012 - 8:51pm

Turd It is great to know I am

Turd It is great to know I am not the only man with an Anaconda. I use to feel so insecure about mentioning it. But seeing you just throwing it about like that freely.With confidence and bravery.You are bringing me out of my shell

Well worth it's weight in Gold smileysmiley
Punk-Assets · Apr 10, 2012 - 8:53pm


"The price of this precious metal is kept artificially low by the business bank JP Morgan Chase."

​You just know that JPMorgan et al's price fixing operation in silver has become blindingly obvious when the following question showed up in a crossword puzzle in a major daily newspaper in the Netherlands this past weekend....18 Across: "The price of this precious metal is kept artificially low by the business bank JP Morgan Chase." In Dutch that reads as follows..."De prijs van dit edelmetaal wordt kunstamtig laag gehouden do"or de zakenbank JP Morgan Chase."

Save_America1st · Apr 10, 2012 - 9:02pm

Artemis On Volatility At World's End:

Deflation, Hyperinflation And The Alchemy Of Risk Tyler Durden's picture Submitted by Tyler Durden on 04/10/2012 12:37 -0400

The punchline:

Our fear of deflation may damn us to hyperinflation. Even if we fall over the waterfall of deflation first at the very bottom of that abyss may be the fire. It is not currently fashionable to talk about the risks of hyperinflation in modern developed economies. If you merely mention the concept you are quickly relegated to being an apocalyspe junkie, gold bug, or someone who spends too much time looking at the Mayan calender. The Fed and financial establishment seem to be on a public relations campaign to debunk the risks of inflation (I presume as a precursor to QEIII). Remember that psychological bias whereby our minds either completely ignore or exaggerate the probability of rare events based on an emotional connection? It works both ways. We have 100+ years of deflationary fear imprinting. The last Americans to experience hyperinflation on our soil were in the Confederate South during the Civil War. Very few investors or policy makers today have any direct professional and more importantly emotional experience in a hyperinflationary reality.

The financial and monetary establishment currently ridicules those concerned withhyperinflation as being naive ... ironically that is exactly why we should be afraid. During this period of unprecedented fiat money creation a devastating period of long-term inflation is worth serious reflection. The role of a successful trader is not so much to predict the future but to find mispricings in risk. To be clear I am not predicting hyperinflation will occur today, tomorrow, or even in the next ten years... but what I am saying is that the risk in the right tail is not priced into the options market and this is remarkable given a careful study of economic world history.

For a generation of traders (including the author of this paper) the intellectual implausibility of rampant inflation is compounded by spending our entire lives in a cycle of declining interest rates. I remember that while in training at an investment bank they ran us through an incredibly stupid trading simulation using actual market data between 1980 and 2000 condensed into one hour. The team with the most profits by the end earned a $300 bounty. The winning team (wink wink) leveraged their portfolio to the max with long-duration zero coupon bonds and then took an hour long happy hour before coming back to claim their well-deserved prize. If only real trading were that easy! So goes the power of decades of declining rates condensed into one hour. To understand what rampant inflation would mean to our world look at the last few decades in the mirror. and this is remarkable given a careful study of economic world history.

The conventional thinking is that hyperinflation in the developed world is impossible because the velocity of money is close to zero. I find this argument flawed because #1) it ignores economic history and #2) it forgets velocity of money is a psychological concept first and an economic concept second. In other words money velocity is volatile and can reappear just as quickly as it vanishes in a crash. The Fed's thesis that "too much stimulus can be taken back later through a corrective tightening of policies" (Ahearne et al, 2002) is a classic cognitive bias that is at best arrogant and at worst dangerous. Many hyperinflationary episodes in history began with a period of very low velocity of money. In Weimar Germany there was no surface inflation and prices were remarkably stable between 1920 and 1921 as the government doubled the money supply. In that same period Germany had one of the healthiest economies in post-WWI Europe (on the surface) with a booming stock market and for a brief time the mark was even the strongest currency in the world.

There is no historical precedent to understand how modern derivatives market would perform in the hell of destructive inflation. Weimar Republic Germany did not have a market for options, CDS, or variance swaps for us to study. For me it is valuable to theorize how that reality may unfold in volatility markets and to do so we need to think creatively.

In hyperinflation everything we think we know about volatility will be backwards... literally it will be like watching options markets through the mirror. The traditional rule is that volatility will spike when the market crashes and vice versa. This is a rule of markets but not a law. In reality volatility is only a statistic indifferent to the direction of price movement. Volatility increases when an asset declines only because prices fall faster than they rise (the old adage that markets take the stairs up and the elevator down). To illustrate this concept the graphic below shows the 1-month realized volatility of the S&P 500 index deconstructed according to the percentage of variance derived from increases or decreases in the index price. On average 54% of SPX 1-month volatility comes from increases in stock prices but during crashes downside movements may comprise up to 99% of variance (thus far in 2012 increases in the SPX contributed between 80-90% of variance). The market for implied volatility anticipates the fat downside tails associated with market crashes. Since 1987 out-of-the-money put options have traded at a higher volatility level than out-of-the-money call options, a phenomenon otherwise known as negative volatility skew. The VIX index moves up and down the SPX volatility skew on the assumption that higher local volatility will result from a decline in the underlying index (see charts). The negative skew for SPX options became even more pronounced after the 2008 crash as tail risk hedging became fashionable. The problem is that this volatility paradigm, entirely valid in today's deflation fearing market, is completely wrong in a world where prices rise faster than they fall... like in hyperinflation...

S Roche · Apr 10, 2012 - 9:04pm

Ted Butler Comex & LBMA

I hadn't realized that Ted Butler was such a funny guy, but Turd, he is stealing your material.

OK, seriously, Ted rejects the argument of Victor, Screwtape & KD et al that the LBMA OTC is 10 x Comex. Ted re-asserts that Comex is the price maker, not the OTC (a slightly different argument)....can Turd please interview Victor & Ted and shed some more light on this?

We all have an interest in this, stackers, traders & anacondas.

bernard · Apr 10, 2012 - 9:05pm

was your site hacked Turd?

Let me know, I am tracking all sorts of nefarious activity in the digital bullion market (both business sites and community sites) get at me,

bernank @

Groaner · Apr 10, 2012 - 9:15pm

Garbage action since the metals opened at 6PM

How can you explain them going straight down for 3 hours? So what changed since 5:15?

silverstax · Apr 10, 2012 - 9:37pm

Site Outages

Turd, the site outages only appear to happen when there is a major movement in price (usually a raid, but rallies as well such as today). I think this can only be caused by one of two things:

1) Traffic is increasing so much during these periods that it's bringing the site down

2) Or, like bestever points out, it could be that something more nefarious is going on (such as a denial of service attack)

I think if you ask your web guys to check the logs, they would show the traffic patterns leading up to the outage which could help solve The Case of the Missing Turd.

Rowley · Apr 10, 2012 - 9:38pm

Site Crash Help

Turd, the site is most likely crashing because there's too many connections to your mysql database at one time. It happens with large Wordpress sites a lot. It's not a conspiracy, I promise you. To stop this, use a cache plugin, like WP Super Cache. It'll produce static pages, rather than having visitors connect to mysql on every request. Will help the speed and server load tremendously.

S Roche Groaner · Apr 10, 2012 - 9:39pm


Groaner, did you give yourself that name? 

After a spike up (or down) some traders take profits on their previous positions (long or short). All prices fluctuate, all the time. As different traders have different entry points there are conflicting views on where to take a profit or where the pain of loss becomes too great, resulting in capitulation. Often, capitulation spikes (up or down) are retraced, as the motive for selling/buying was panic.

Simple Technical Analysis will assist you to view price action within trending channels, retracements to fill gaps (as occurred today in the US session) and then a sudden rise to the top of the recent channels on, say, the 10 minute chart, which, if the top of the channel is not broken would suggest a drift lower, which is what happened in gold after 6pm. If you are a stacker I would suggest the shortest time frame chart you should ever look at is the weekly chart. I hope this helps.

If you are trading in the gold market you must understand that at one end you have Central Banks with thousands of tons of gold and an opinion. At the other end you have robot pico-second trading programs acting on a wide variety of arbitrage information and no opinion beyond the next micro-trade. Then you have large, medium and small players all with some degree of connection to the inner workings of the market. Then there is us. Good luck.

silverstax · Apr 10, 2012 - 9:40pm

Also, can someone help me

Also, can someone help me solve the case of the missing avatar? I've changed my avatar, twice, and the new one does appear on my profile page, but not when I post. I know I've seen others on here change their avatars - were there any extra steps that had to be taken?


Sneed Hearn · Apr 10, 2012 - 9:51pm

Useless words

Ted has no idea what is behind what is going on at the Comex. Is the Fed or the Treasury the "client" JPM is "representing?" Ted rejects that the government is behind it in any way. Could be he's right - or the opposite. He also seems to persist in the belief that Gary Gensler has a shred of integrity. Good one. All in all he hasn't the faintest idea why BM appeared so he wastes an hour or so speculating on a keyboard. Rubbish.

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