Wednesday, March 9, 2011

Ted Butler's Attempt to Manipulate the Silver Market

A strong and vocal, largely internet, group is charging that the silver market is being manipulated. I have my doubts, but the point I want to make here is that this group is not anti-manipulation, they just want the manipulation to go in their direction.

Ted Butler, who seems to have given birth and continues to nurse the manipulation theory, is calling for the CFTC to change the regulation that currently allows a single holder of silver futures contracts to hold around 6,000 contracts. He wants the number reduced dramatically by the CFTC to 1,500. If that isn't an attempt to manipulate the silver market, I don't know what is.

The CFTC is a government agency. Like other government agencies, it is always the target for capture by various special interests. Those holding silver, and who believe there is a massive short position, are a special interest. If you listen to the positivelyy glowing manner in which Butler talks of CFTC Chairman Gary Gensler and CFTC Commissioner Bart Chilton, you begin to understand that this is, whether Butler realizes it or not, a move in the direction of capturing these officials.

Butler's call for a huge reduction in the size that one entity can hold in silver futures contracts is simply a call to squeeze, with the help of the CFTC, what he perceives as a huge naked short position in silver. This call by Butler is nothing but an attempt to manipulate silver for his benefit and that of his followers.

In a truly free market, it would be up to exchanges to determine if they wanted to set contract limits and what size those limits should be. The CFTC is a tool of government coercion, just like all other government agencies. Special interests always battle it out to control these agencies, whether Butler realizes it or not, his call for the CFTC to reductions in contract size is simply an attempt to get the manipulation by the CFTC to move in his direction.

It's in favor of his team, so I guess manipulation, in such a case, is okay. Get it? Butler's team can manipulate, others can't.

I hasten to add that I am not anti-silver. I think it will continue to trade based on market forces. At the present time, with much of QE2 heading into excess reserves, a pull back in silver is possible, (no manipulators, other than Fed manipulators needed). On the other hand, I am very bullish on silver long term, as I believe that ultimately the amount of money that the Federal Reserve will pump into the system will be of monstrous proportions, and silver will be a refuge (along with gold) where one can place money to protect it from the ravages of very strong inflation.


  1. Wenzel,

    "Manipulate" in this instance is a weasel-word that these turds never bother to define because if they did it'd be quickly apparent to other observers how logically untenable their position is on this matter.

    As you point out, anyone who participates in the silver market to any degree, and certainly anyone who calls for rules changes, is a "manipulator".

    Thanks for calling these turds to task. They're neither defenders of liberty nor reason. It's just more arbitrary politicking, just their arbitrary politicking instead of somebody else's.

  2. @Wenzel

    Right about position limits.
    But in this case the real argument is against naked short selling.

    Sell short all you want, if you're going to deliver. But don't sell physical you don't hold.

  3. @Lila

    The futures market is different from the (physical-spot) stock exchange. Almost all short selling on the futures market is "naked".

    The contracts are generally just covered before the contract calls for delivery.

    There is no problem with naked short-selling in the futures market---as opposed to stock exchange fails to deliver.

  4. Sorry.

    Yes. I wasn't thinking. I was thinking of the spot market.

  5. Lila,

    I don't even think that's the point.

    The point is-- none of these questions can be properly addressed within the context of a government-controlled or government-regulated exchange.

    Let's assume naked shortselling is legally/ethically problematic-- it's some form of fraud.

    If all exchanges were market exchanges, no one would have any incentive to do business on an exchange that allows fraud and those exchanges would go away.

    If the exchanges are government-regulated, and the rules the government creates allow fraudulent exchanges to be made (and are legally defensible according to the government's rules), and the government does not allow people to set up competing, non-fraudulent exchanges without their permission, nothing can be done about this problem.

    In other words, the problem to solve is not "How can we make sure the exchanges have the 'right' rules or are regulated in the 'right' way by the 'right' people?", the problem to solve is, "How can we get the government out of the business of regulating futures exchanges entirely?"

  6. If Butler praises Gensler and Chilton, he is trying to capture them? What a reach.

    Every time you sniff Ron Paul's jock, are you trying to capture the Congressman?

  7. @Taylor

    I don't think you should assume that my "solution" is to have the "right regulations."
    I have an entirely different approach to either the "market is always right" (which never defines the market accurately or completely) or the "government is always right."

    There are things which act "governmentally" - which aren't government, and there are things which "marketly" which aren't really market either.

    I take a functional approach, in other words.

    However, it is the case that naked short selling has been illegal for a long while.

  8. Lila,

    Can you define "functional" or even explain your approach? I've seen you insist numerous times in the past that you maintain some kind of unorthodox viewpoint but I've never really understood what it is or what its principles are supposed to be.

  9. Not at all.

    Functional - asking how something functions yields better questions than asking what it is.

    If force and fraud are defining characteristics of government, then your best approach might be to look at how the coercing or defrauding is taking place, rather than look solely at government actions.

    One could use this to at least ask and answer tactical or short-term questions, even if your long term goal was "get government out".

    It would help illuminate confrontations like the one in Wisconsin which are between greater and lesser state evils, rather than some pure market action versus pure state action.

    Also - I made this point before - I am not invested in being unorthodox or orthodox.

    I am just me.

    And for me, approaching every problem in life with a set formula - whether it's one I sympathize with (libertarianism) or dislike (socialism) - seems very strange.

    I blame it on different life experiences.
    And a very strong Uranus position in my chart.....

  10. Bob
    So you think that when a bank shorts commodity futures to the value of about one quarter of global annual production, that is not a cause for concern?

    The reason that the silver market in in such a mess is that the manipulation by the TBTF banks has ended up driving the physical out of circulation. The resulting bear squeeze is potentially destabilising. That is what should have been addressed long ago.

    Vested interest or not, Ted Butler has a valid point.

  11. Lila,

    I want to make sure I understand you hear:

    1.) Do you believe there is such a thing as "absolute truth", or do you believe truth is relative and based upon our individual experiences?
    2.) Was the "Uranus" part a joke or do you seriously petition the stars for guidance?

    I did not understand your definition of functional, at all.

  12. @Bob
    I can't fathom trusting that the system isn't being manipulated by the feds given the level and pervasiveness of financial fraud and the subsequent lack of prosecution. There's no accountability. There certainly is evidence of the Feds tinkering in the markets all the time.

    What do you think about GATA's documentation?

    As for your statement that Butler is looking for the market to be manipulated in his direction...well, it's a point worth considering. I'd love to see Ted Butler address this post.


  13. @Taylor

    Short version:

    Thinking is not a team sport.

  14. Lila,

    Was that supposed to be a response to my request for clarification? It doesn't seem to follow if it was.

  15. @Taylor

    1. No. I made my last post before your response.
    2. No Uranus is in fact strong in my astrological chart and I certainly take astrology with much more than a grain of salt. I am in the company of musician Dane Rudhyar, psychoanalyst Carl Jung, the historical Jesus Christ, the early Church, a large part of the educated population of India, the ancient Mayans, and many others.
    3. I think I explained my approach as well as I could. I am saying, look at the way force and fraud is really operating. Will they increase by this or that action? If the police refuse to prosecute a burglar who breaks into my house, should I rejoice (less government) or should I weep (force wins out)? That is an inept example but best I can do right now.

    4. Absolute truth are two words with many meanings to many people. What do you mean by them exactly and I will answer.
    Truth about what? What kind of truth? Truth in what mode (perceptible to my intellect, my conscience etc)?

    I go with the nine men and the elephant.
    There is no doubt Truth (big t, which is what I think you are referring to), but none of the blind men really get to feel it with their hands. There is truth (small t), which each of them get to feel with their hands.
    If their clever and work together and have a bit of imagination, they might come up with a crude picture of the shape of the elephant. But they won't replicate the elephant.

  16. Sorry for typos:
    "each of them getS"
    "if they'RE clever"

    and any others...

    Also, I am using "functional" idiosyncratically, and not in the way it is used in sociology/anthropology...

  17. Totally agree with you Robert... provided that no taxpayer/FED funded bailout is forthcoming if a large bank does in fact fail to deliver, and no "force majeure" is permitted in court.

    As you well know, the default response when "the people" start making a run on specie redemption is for banks to close the window and call their politician buddies to legitimate their abrogation of contract. They've done it repeatedly for centuries. What's going on in the silver market could be seen as a similar dynamic - a money "lock-up" if you'll allow a 19th century (pre Federal Reserve) term.

  18. Lila,

    I made an effort to better understand you but at this point it seems clear to me that whatever level you're on, I have no hope of reaching it so I won't bother trying any further.

  19. @Taylor

    Do I detect sarcasm?

    My explanation was sincere and to my mind quite clear.

    The blind man and the elephants is a parable kids read in elementary school.

    Astrology is a premodern form of psychological analysis that has been revived in the present.
    Most western mathematicians say it is bunkum but there are several Indian mathematicians and scientists, some at the highest level, who follow it. Yeats, the greatest modern poet, developed a whole system based on it.

    Your big question is "how do we get govt out"?
    My big question is "how do we reduce force and fraud"?

    They are both libertarian questions, but they give different answers and approaches.

    The only difficulty I can see in anyone understanding that would be an emotional one.

    For some reason you find me or the way I think suspect.

    That I can't help, unfortunately.

    Maybe what I am saying is too simple and intellectuals tend to love complexity.

  20. I agree that the answer to poor regulation is not more regulation. I also believe that the calls for letter writing campaigns are a waste of time because if it would truly lead to less market manipulaton it would either never happen or the big banks would just find a way around it. However, if you look at the SLV ETF. The fund was started in April 2006. If I invested in the fund at its inception I would be up 150%. If I bought the fund at at the market open and sold at the close every day I would be down 42%. If I bought at the close every day and sold at the market open the next day I would have a 373% gain. It would seem that there is something rotten in the state of New York. Isn't good when someone brings attention to this?

  21. Lila,

    In implying I am an intellectual you either give me too much credit or you insult me, I can't decide for myself which it is. Don't you realize all the intellectuals work for central banks or central governments? No, I am but a humble thinker, if that.

    You make assumptions about me and what I am after that I don't appreciate any more than the assumptions others make about you and yours. I at least understand where you got that idea whereas you say one thing and often insist you mean something completely different by it, leaving someone like me fairly confused altogether.

    As I said, at this point I think I (mis)understand enough to know I don't wish to try to understand anymore. That's all. I hope you can respect that without assuming any animosity. Different experiences, different viewpoints, different levels-- you can grasp that, I hope.

  22. I had a feeling when Robert posted this blog that it would get ugly in here. It looks as though silver is heavily manipulated, but as many have stated what isn't these days? When Goldman Sachs runs around with near perfect trading quarters and The Federal Reserve is made up of former GS employees (as are other CB's i'm sure) it should be of no surprise. I know GS isn't at the heart of this discussion, but it just goes to show that the average joe better be careful when playing with Timmy's "college fund".

    Not to say that you of course couldn't make money, but some of these Silver band wagoners are going all-in. Just because you think (or know) that Silver is being manipulated doesn't mean you know what the end result will be. As Robert ha said, they will probably find a way to get out unscathed. JPM has their hands in everything going on in DC. I could not fathom a scenario in which JPM was squeezed and went down because of it. Especially if Charlie Sheen is leading the charge.

    Regardless of what's going on in the markets, everyone should always own SOME bullion but even RP owns mining stocks and ETF's I believe.

  23. I agree with Alasdair. Butler also speaks a lot about concentration, that most of the silver shorts are concentrated into 3 or 4 large banks. But, for every short there is a long, so even if the shorts are concentrated, I still don't see how the market is manipulated...maybe someone can explain that. Then again, even Ron Paul has spoken about gold and silver being manipulated. Maybe he's just another special interest, eh Bob?

  24. @Conant

    My inferences (not assumptions) about your reaction were made politely.

    Read and see

    I don't know from which Mount Olympus you think you write, but it's not visible to me..

    From a titan of business, a much published/cited authority, an erudite cosmopolitan and polyglot, a renowned humanitarian, or a brilliant robotics engineer I might take such condescension without amusement.

    (Actually, one always gets a very respectful hearing from people like that)..

    Not seeing anything more than a humorless blogger, I merely yawn.

    As this is Wenzel's space, and he is a good fellow, as much as I know, I will leave it at that.

    (Now I must be off to read tea-leaves, consort with the inferior races, and have brunch with a...gasp...socialist. Think I might catch something?)