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The early day rally proved to be a good fade, and a nice hedge for new precious metals positions.
Nothing was broken to the downside, and the Street crawlers are pumping stocks in a big way. A little unusual for the market to end in the red on a 'merger Monday' but this is a strange market overall.
Notice that the US dollar rally failed again.
I would be embarrassed to tell you the prices that were paid for some new positions this morning as the wiseguys 'ran the stops' for another dose of shock and awe. To run the stops means to take the price down quickly with wanton selling to trigger stop loss orders which have been preplaced, creating further selling 'at market.' The exchanges and market makers can see where they are concentrated beforehand.
Over the weekend a reader showed me anecdotal evidence of naked short selling and tape painting by the major financials on some of the Canadian exchanges that was fairly shocking, but required further investigation. He has been sending this to their regulatory authority and been ignored.
For a country with such a sound banking system, the equity markets in Canada are quite exceptional. The Canadian exchanges sometimes appear to be like a carney sideshow, at times making even the Comex look good by comparison. Why they tolerate that sort of thing in such a normally sensible country makes one wonder, as it seems all out of character.
By the way, today is federal election day in Canada. Does anyone south of the border have the vaguest idea of what the issues are for one of their largest trading partners and neighbors? Judging by the mainstream media I think not.
I rarely discuss specific mining stocks and will not do so here. But there are some interesting divergences in the precious metal funds this morning as can be seen in the chart below.
Later...
And near the end of day...
The Comex is facing a default, and the powers that be are very nervous since it involves at least one of the TBTF monstrosities.
That does not mean it is going to happen, but with less than 12,000 contracts of silver left in the dealer category, it remains a distinct possibility unless prices go much higher to free up the inventory held by stronger hands.
Nine out of ten Americans might realize that dwindling supply coupled with growing demand tends to result in higher prices, or rationing and other methods of dampening demand, or all of the above. Well, maybe not that high a percentage of the people would notice, given these days of truthiness in thinking and the power of spin.
Perhaps there is some 'Plan B' to handle this growing scarcity of inventory. The only plans I am aware of from the exchange are forced settlements in cash or SLV.
Shock and awe in the thin Sunday night trade, running the stops of the new futures holders whose options were filled. Even more heavy handed and blatant than usual.
Run it up, and then smack it back down.
Take a letter, Ted...
Oh, and by the way Blythe, skip the histrionics. Stand and Deliver.
From Harvey Organ's Saturday commentary:
"The total open interest on the silver comex fell steeply by 6,132 contracts from 135,763 to 129,712. There is no doubt that the leverage for the longs suffered a bit but so did those shorts that have to pay margin requirements. This created much volatility on the silver price yesterday.
All eyes are on the front delivery month of May were the open interest stands at 2166 contracts or 10.83 million oz. The options that were exercised were given future contracts on Friday night and will be reflected in the numbers on Monday.
I believe that Blythe will be some busy lady this weekend.
The next battleground front month for silver is July and the OI rose from 76,365 to 78,060. We still have a long way off until we hit this trading month. The estimated volume at the silver comex was good at 77,167. The confirmed volume on Thursday, the day before first day notice was 226,267 where we witnessed most of the silver longs rolling to July and September."
Here is some background on Comex Inventory and the Eligible vs. Registered categories.
The much higher margin requirements serve to dampen demand due to speculation. But it also has the effect of making sure that the demand that continues to exist is held by some relatively stronger hands, not as susceptible to margin calls and other price antics.
Paper good, metal bad. Paper good, metal bad.
Ted Butler raises an interesting point about the large short interest in SLV.
I think his faith in the custodians, the ETF, and in the past, the CFTC and SEC, to do the right thing is probably misplaced. So far they have done nothing but extend and pretend.
The shorts are impaled, and their schemes are unraveling across a broad set of dollar denominated assets. This is not the time when I would expect honest disclosures, but even more coverups, deceptions, market manipulation, propaganda, distractions, intervention, and misdirection.
The highly leveraged scheme that is the US financial system is going down in a spiral like manner, slowly but surely. It will find its level, but where that is, no one can say. It's downfall will come not with disclosure and reform, but with hysteria and disbelief, and denial to the very end.
And then the difficult task of rebuilding can begin.
April 28, 2011
Mr. Laurence D. Fink
Chairman and CEO
BlackRock
55 East 52nd Street
New York, NY 10055
Dear Mr. Fink,
I am writing to alert you to a possible circumstance of fraud and manipulation in your popular ETF, SLV, due to the excessive short-selling of its shares. Current reports indicate the most recent level of total short sales now exceed 36 million shares. This is an increase of more than 14 million shares from the previous reported amount. ShortSqueeze.com
Each share of SLV requires that one ounce of silver be held at the Trust's custodian (minus accumulated ed management fees), according to the prospectus. Since short sellers of SLV shares do not deposit metal with the Trust's custodian, this means that the buyers of the more than 36 million shorted shares of SLV do not have metal backing, as required by the prospectus. It is my belief that many of the shares shorted have been shorted precisely because no physical silver was available to deposit. If I am correct, this may constitute fraud and manipulation, possibly on the part of Authorized Participants (APAs) who make deposits and redemptions of metal in the Trust.
I am a silver analyst and a fan of SLV. I had raised this issue with the previous owner and sponsor of the trust, Barclays Global Investors (BGI). I never did receive a satisfactory answer from BGI about the shorted shares issue, although they did agree to list and publish the bar serial number and weights held in the Trust after I publicly urged them to do so. I am hopeful that BlackRock might be more responsive to this issue.
Publicly-traded ETFs that have specific metal backing are highly unique securities. Perhaps a small short position may be overlooked on a temporary basis until the metal is deposited in the Trust due to logistical considerations. But a short position that represents more than 10% of the outstanding shares issued means that many buyers of the shares have no metal backing. This is clearly not in keeping with the spirit of the prospectus that each share issued be backed by one ounce of silver on deposit with the custodian.
I trust you will look into and rectify this circumstance.
Sincerely,
Ted Butler
Butler Research, LLC
www.butlerresearch.com
