A Simplot Scenario for Silver

419
Mon, Dec 3, 2012 - 10:54am

When both Andrew Maguire and Ted Butler write about the same thing over weekend, one should probably sit up and take notice.

In this case, what they were discussing was a possible, end-game scenario for the silver manipulation. The commercial short position has grown so extreme AND the physical supply has grown so tight that, suddenly, these two great minds were exploring the available options for JPM et al as they attempt to extricate themselves from what is growing into an unmanageable and untenable position.

Andy commented that in his "thirty years of experience, he'd never seen a more dangerous situation developing" and that, soon, the only possible way out would be a "back door solution". This "almost certain" resolution would hinge upon the cash settlement of futures contracts that would position paper traders on the sidelines before the "gap higher" next trading day in the new, physical market.

Andy's commentary had already roused my attention and then I read Uncle Ted's weekly review. In it, he discusses the "Maine Potato Default" of 1976. First of all, here are two links that can provide some background for you: https://www.time.com/time/magazine/article/0,9171,947729,00.html & https://news.google.com/newspapers?nid=1988&dat=19760526&id=a2YiAAAAIBAJ&sjid=06wFAAAAIBAJ&pg=1377,2637833

Here's the introductory paragraph of Ted's analysis:

"Since the problem is JPMorgan’s 38,000 contract net short position in COMEX silver, that problem will disappear if the regulators, as is within their powers, decree that a market emergency exists and orders all silver contracts to be unilaterally closed out and settled at an arbitrary price. In an instant, JPMorgan will be let off the hook and the problem, from a regulatory perspective, will exist no more. Yes, it would represent a contract and market default and reflect badly on the regulators, but it would resolve the extreme market structure issue immediately. Further, this is not a resolution that would be without precedent. Almost 40 years ago, the predecessor of the NYMEX defaulted on their important Maine Potato contract because the largest short seller, the late J.R. Simplot, couldn’t deliver as promised. All open contracts were artificially closed out at a set price and that was it. Yes, it was a scandal and a black eye on the world of commodity trading, but not one in ten million even remembers it today. The scandal led to a cessation in the trading of Maine Potato futures and a similar COMEX forced settlement today most likely would lead to the termination of silver futures trading in the US. One could argue that silver trading today is more important than potato trading was in the 1970’s, but my point is that to the average citizen, a COMEX silver shutdown would be forgotten in time and life would go on." Subscribe and read more at: https://www.butlerresearch.com

So why do I bring this up? A number of reasons.

  1. We KNOW that this silver manipulation cannot go on forever. In fact, the increasing physical supply tightness makes this eventuality a possible near-term event.
  2. A Comex/CME cash settlement screw job would not be surprising at all. If you don't believe me, ask anyone who had an account with MFGlobal for their opinion.
  3. Though painful to the short-term reputation of the Comex, the CME and the Silver Cartel (mainly JPM), the event would barely register in the financial press and would soon be forgotten. If you don't believe me, ask yourself the last time you saw a headline on the LIEBOR Scandal.
  4. Though there would likely be a significant runup in paper price and other warning signs of this impending "default", paper traders had better be fully aware of this possibility/probability.
  5. The Maine Potato Default of 1976 clearly shows that there is precedent for this kind of event.
  6. In this scenario, holders of all types of paper silver (futures contracts, paper certificates for physical, ETFs) will cash settled and be left on the sidelines, holding the bag, out of the market and unable to participate in the next-day reset in price.

Once again, your only solution is the purchase and delivery of physical metal. Period. End of story. Yes, it's fun to trade and the leverage applied may allow you to increase the stack of your fiat. However, there is no substitute for physical metal. Holding physical metal is not just the only way you are guaranteed to participate when the Silver Scheme finally unravels, it is also your only protection against the other financial calamities that are just around the corner.

It's nice to see a bounceback in price this morning, though we are clearly seeing some continued volatility. I expect our support levels to continue to hold and I expect a "Happy Tuesday" rally tomorrow as the banks will want to cover some of last week's shorts ahead of the CoT survey. Both charts got painted with ugly, engulfing candles back on Friday so we need to see a rally this week in order to invalidate them and discourage some momo-chasers from piling in. Rest assured, though, I still expect December to be a solidly bullish month that will set the stage for a powerful 2013.

Lastly, just another reminder of the free webinar on Wednesday. It's scheduled for noon EST and will last 15-25 minutes. It will begin with a brief commentary from Andrew Maguire. He'll discuss the metals markets and the increasing role that the HFTs are playing. Then, Paul Coghlan will give a presentation of his technical analysis methods. This will be extremely valuable information so I strongly encourage you to listen in. The entire presentation will also be recorded for playback by those who are unable to listen live. To access it, though, you must pre-register. You can do so by clicking here: https://www1.gotomeeting.com/register/240678176

OK, that's it for now. I hope everyone has a great Monday!

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  419 Comments

Beastly Stack
Dec 4, 2012 - 9:21am

Oil

I bought OIL,not dealing with the cartel!

Groaner Beastly Stack
Dec 4, 2012 - 9:23am

beastly

you think oil is free from the cartel, think twice on that one.. in every market,,

Mickey
Dec 4, 2012 - 9:23am

last week options expiry and first notice

this week is jobs report

next week is fed meeting

the following week is chanukah

then christmas

then new years

then the cycle starts over again

Hi-Ho Silver
Dec 4, 2012 - 9:25am

@groaner

Don't shoot the messenger groaner.

Maybe you could give us some more of your "insight" doh

Mickey
Dec 4, 2012 - 9:27am

and the Japanese economy is in trouble-yen weak

wait-USD is down slightly--17 cents.

Fed buying 90% of treasuries issued, bonds are "scarce"

Soc sec and Medicare trusts solely invested in Treasuries. Running deficits so they need to redeem Treasuries--who is buying--the fed of course--

all logical.

When this breaks up its going to be a spectacular event.

Hi-Ho Silver
Dec 4, 2012 - 9:27am

mmm

double post

Bill of Rights
Dec 4, 2012 - 9:30am

liquidity Trap...This is why

liquidity Trap...This is why I have always said hole a little of everything....There simply aren't a lot of illiquid investments you could trick unsophisticated independent investors into risking their life savings on, especially highly-levered ones.

Bill of Rights
Dec 4, 2012 - 9:31am

When this breaks up its going

When this breaks up its going to be a spectacular event.

I am Yearning for it....

Urban Roman
Dec 4, 2012 - 9:32am

Hmm ...

Time to visit the LCS? Or should I wait until after Xmas like last year?

rl999
Dec 4, 2012 - 9:33am

Nov 5, 32.85 support

A 4 hour chart shows 32.85 as the trendline that is now acting as support today.

Switching to a 1 min chart shows the price touching this level about 7 times without breaking down.

I am waiting for continued strength or a breakdown of this level to make my dec purchase.

ancientmoney Beastly Stack
Dec 4, 2012 - 9:34am

@beastly stack

"I am baffled and really want to buy silver here but am suspect of this action!"

Buy it (physical).

When SHTF, or before, by definition, paper silver goes to zero. But, do you really think anyone will be selling their physical for anything close to zero?

You'll be able to buy every single ETF share and futures contract, option, etc. at very low prices, though.

Roark
Dec 4, 2012 - 9:35am

@Ancient Money

Just a quick note. The statute of frauds trumps anything in that contractual languange, and the statutes provide for treble damages. You can't limit your exposure to a statutory construct simply by saying "we're going to do it this way". That is black-letter law. Of course having said that, good luck getting a federal judge to play ball on the behalf of the investors. If history is any indication, you'd have better luck riding my longhorn. :(

Eric Original
Dec 4, 2012 - 9:38am

Ignoring

I've been pretty much ignoring metals and miners for about a month now. Been day trading boring big cap consumer stocks instead. Today I'll play for a bounce in Darden Restaurants. Good luck everyone.

Meanwhile, the stack sleeps peacefully. yes

Beastly Stack
Dec 4, 2012 - 9:39am

@Groaner

Yes I know how the power's that be rule all these markets.I actually feel safer buying OIL here than getting my clock cleaned with another manipulative plunge out of nowhere in the metals like we are accustomed to seeing!

I am already in Gold Futures from Friday and did sell my silver position yesterday @3370 at days end.

Wish me luck!Oil from 8795


Dec 4, 2012 - 9:41am

This is F'd up

I can't quite get my arms around the implications but it seems that something dark is happening behind the scenes.

Look at this chart from ZH. Not sure what it means yet.

https://www.zerohedge.com/news/2012-12-04/10s-turn-special-repo

So It Goes
Dec 4, 2012 - 9:43am

Money where the mouth is

I bought some UGL at 87.56 for a trade. Au = 1693.

Maybe I can make a little fiat today.

Keep stacking - this is my fun money.

If this is not a bottom, I will quote Jim Rogers - "If the price goes down further, I hope I am smart enough to buy some more".

rl999
Dec 4, 2012 - 9:46am

Also

If one looks at the monthly silver chart and draws lines from late '08 bottom and early '11 top the two trendlines converge and force resolution by mid '13.

Also note that the current wretched price action allows the most recent candlestick to just barely fit into the wedge. Imagine if the price action were reversed and we had broken out of that pattern.

When looking at that pattern note that silver will have to drop precipitously to continue to fit into the wedge ~ 10% in the next 5 months.

In the time I took to type this and watch a video silver is up 1%

Groaner
Dec 4, 2012 - 9:48am

above 1700 whoopee

now thats more like it,, will it hold? turn around tuesday?

the scum bags just read my comment and are taunting me.

obiwan Mr. Fix
Dec 4, 2012 - 9:53am

Question for Mr Fix

MR FIX,

Under this Simplot Scenario, what d you think would happen to PM miners paper stocks (SLW,SSRI,PAAS,CDE,etc)?

Obiwan

Groaner
Dec 4, 2012 - 9:53am

Market watch,, genius there.

attributing the fall last night in Asia to short selling.. 

OK if you guys say so.. 

Bill of Rights
Dec 4, 2012 - 9:57am

Yep good find Turd, seems

Yep good find Turd, seems Cash is getting tight...best to go to the bank and hoard some. Obviously the metals selling someone needed to raise cash.

Urban Roman TF
Dec 4, 2012 - 9:57am

@Turd, Could it be

the deflation beast raising its ugly head?

Deflation doesn't mean an orderly exit, and a smooth decline in prices. It means the opposite of that. MF'n Global was a deflationary thing. It means a game of musical chairs with 100 butts trying to sit in 1 chair. It doesn't mean your favorite wine, or gasoline, or gold, will become cheap, but it does mean you are likely to have less money to buy them with.

The Automatic Earth

Reply to: This is F'd up

Nana
Dec 4, 2012 - 10:00am
tobydaniel
Dec 4, 2012 - 10:00am

Silver!

We got smashed to bits and pieces only to be held at a lower level today. More destruction should come this whole week with lower lows and lower highs. Yes, we may bounce to the "high" 33's only to lure more longs and then we are off to slowly bleeding away. There is no reason for the cartel to lighten their strangle hold on silver this December.i bet we close December in the low 32's. remember, we have end of the year selling which you better believe the cartel will take advantage of. No disrespect turd but I think we will have an incredibly boring December. I hope I'm wrong.

القراع عصفور
Dec 4, 2012 - 10:00am

Eric

i exercised my MUX rights this morning. i am only going on gut now. the moves the past few days make no sense. a computer somewhere is smoking, a banker somewhere is out on the ledge. this isn't going to take months to resolve folks. open your eyes, and turn up the rest of your senses too.

Groaner
Dec 4, 2012 - 10:05am

capping at 1700

rule number 1; these markets do not make sense..

rule number 2: read above.

BagOfGold Eric Original
Dec 4, 2012 - 10:13am

Eric O...

Darden Restaurants may be a good play for a bounce today...but the shares in this restaurant have more growth...& I'm anticipating a 4 bagger by April next year!...

WEIRD SIDE - The Insect Restaurant - whereitsat.tv feature by Matt Weiner

Yum!...Yum!...Yummy!!!...

Bag Of Gold

¤
Dec 4, 2012 - 10:16am

The beat goes on

U.S. denies Iran's reports of captured drone10:01am EST

DUBAI - Iran said on Tuesday it had captured a U.S. intelligence drone in its airspace over the Gulf in the last few days, but the U.S. military quickly denied having lost any unmanned aircraft in the Middle East.

https://www.reuters.com/article/2012/12/04/us-iran-usa-drone-idUSBRE8B30...

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I'm personally going to try and help Darden and EO out by going to Red Lobster tonight cool

Groaner
Dec 4, 2012 - 10:19am

Benny must feel bad for us gold bugs today

since he slammed the metals so hes allowing the miners to go up a few pennies, which they dont make any more.

If Benny will be buying 1 trillion in debt next year will he have anything left to keep propping up stocks?? 

Atta boy Benny, keep those helicopters flying.

ancientmoney Roark
Dec 4, 2012 - 10:19am

@Roark

I am no attorney, but the contractual language rules the day. 

Unless, of course, the rules are changed ala MFG. Tell me again how many bankers have gone to jail?

Believe me, if CME declares force majeur in silver (standing longs get paid in cash), then COMEX silver trading will be halted. This will be the end of paper silver trading, including SLV.

At that point, SLV must be wound down. Shareholders will be paid in cash, and the lo-and-behold, the custodian (JPM) is left with whatever physical is there. Of course they'd have paid out the sgareholders in fiat, so the silver is theirs! 

It is all legal. It is written so in the prospectus. Don't need to complicate the matter. JPM will end up with whatever silver is left in SLV when the tent is folded.

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