“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Wednesday, May 4, 2011

GroundHog Day for Silver - AGAIN

This seems to be a pattern much like the movie starring Bill Murray where he gets trapped in a day which keeps repeating itself until he gets it right. With the Comex however it seems to be a matter of seeing how many small specs (and even some larger ones) they can take out of the silver market so as to make certain that the perma shorts (which by the way are voting members at the exchange) can recoup the entirety of their paper losses they suffered as silver roared higher from down near $26 back in January of this year.

For the second time in a week, and for the FOURTH time in two weeks, the exchange is once again hiking margin requirements for trading silver. Actually, it will be FIVE Times in less than 3 weeks with Monday's hike.

This time it advances to $18,900 from the current $16,200 effective as of the close of business tomorrow or Thursday. Maintenance margin jumps to $14,000 from $12,000. Hedgers are facing an increase as well but it is to maintenance margin levels.


If that were not enough, then come Monday the margin rate gets hiked AGAIN, jumping to $21,600 with a new maintenance margin of $16,000. At current silver values, that amounts to more than 10% of the total value of a single silver futures contract if you want to play.

Obviously this is going to produce even more volatility as the small specs exit the market, most of them being unable to afford to trade it except for all but the specs with the deepest of pockets. A lot of the small guys are probably already wrung out but those who might have been long from lower levels and were unaffected by the margin hike due to the paper profits they might have from being long at a lower level could be at risk if this market continues dropping.

This is ostensibly designed to protect the integrity of the clearing houses as well as giving some brokers the cover they need to hike margins on their clients to protect their own firms in the event of trades gone sour. Keep in mind that these are MINIMUM MARGIN REQUIREMENTS. Brokers are free to set customer margins wherever they wish as long as they meet minimum. That means they could go to $25,000 or even $30,000 per contract if that is what their firm feels more comfortable with.

I suspect however that there is more here than keeping the integrity of the clearing houses. It is too much too fast given the already steep decline in the market. It smells like a deliberate effort is being orchestrated to take the metal lower and rescue the shorts who as I said previously, are voting members of the exchange and who could no longer handle the bleeding of their accounts.

Nothing like transparency and free markets....

19 comments:

  1. Looks like it's gonna smell a little bit like napalm in the mornin....

    ReplyDelete
  2. They are going to keep murdering the oil and metals speculators until the entire futures market goes "COD". Any wonder why the natural resource stocks have been getting chain-sold the last few days? Funny how none of this monkey business affects consumer stocks like AAPL, or major retail chains like M or JCP. Fed sponsored sectors get extra protection. Might as well get it over with and go all cash on the futures exchange, then China can just clear out the entire COMEX inventory and take delivery of all of it. Then the COMEX price will be zero.

    ReplyDelete
  3. In addition to Joe Blow getting shot out of the sky, the larger damage will be the millions of little people who won't trust this back-stabbing and double-crossing again and will inherently force silver to realize it's true appreciation in price far much later in time.

    The investors took a long time coming back to the party (many never returned) after that infamous 1000 Dow point drop in 10 minutes.

    It appears the only ones with brute force that can play this game and kick Morgan's ass would be Countries - namely China, India and Russia - for starters.

    Let the games begin.

    ReplyDelete
  4. Hello Dan,
    If at first you don't succeed, try and try again--lol.
    Something is wrong here. Also, backwardation keeps increasing at an alarming rate in the silver futures markets. My contacts report across the board silver is the tightest it has ever been including the 2008 buying spree. I strongly suggest getting only physical. Hang on, this bull is getting MAD:)

    ReplyDelete
  5. @jimcramer is on his tweeter saying that a crushed slv will remove speculators from the entire commodities complex...that it's the 'masterkey' to a healthy market.

    Goldman has their talons, achem....I mean 'talents' in very deep inside the propaganda machine.

    ReplyDelete
  6. rahbii....with all do respect, you need to communicate with a literacy all of us can understand.
    What does this really mean...Goldman has their talons, achem....I mean 'talents' in very deep inside the propaganda machine.

    ReplyDelete
  7. Where

    Is

    The

    C

    T

    F

    C

    ...?

    Why aren't they doing their Effing job in "regulating" the exchange?

    This will end very badly for the shorts.

    ReplyDelete
  8. This time both the specs and the hedgers get the same dollar amount hike though, not sure how this will affect the price? I guess it depends on how many small specs are still in the market...

    ReplyDelete
  9. we will soon see the effect of Gresham's Law when the bad paper drives the good metal from circulation

    I live for the day

    ReplyDelete
  10. Sorry Graham. I just got word of ANOTHER...yes another (+5) hike and am getting a little tipsy. I'll try to sound coherent next time.

    ReplyDelete
  11. pushed to its maximum extent, the effect of this is that Comex gravitates to a cash market, silver volatility reduces, paper silver is marginalised relative to physical and miners have their day.

    I'd actually prefer that they increase quickly like they have. The law of diminishing returns will set in, they are not going to get nearly as much bang for their buck with margin increases going forward.

    ReplyDelete
  12. With the price beaten down and the "price to play" even greater, does this not attract even more heavy hitters into the game to start ordering up something epic?

    I guess I don't understand the end game. Is it kill the little guy, maintain order and price stability....or....cause more chaos in the short term so that no one wants to play anymore?

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  13. Dr D:

    all they want is for us to stay down on the farm

    ReplyDelete
  14. Dr D:

    They don't want the small players in the game anymore. It gives them too much theoretical protection from what is coming.... Hyperinflation. The writing is on the wall - in big letters.

    It will likely backfire as the little guys go clean up the physical supply, cash market, in thousands of buys of small quantities at better and better prices. Eventually, there will be no physical left as it has left the country or is dispersed throughout the nation and there is no official market left. The paper price goes to zero while the actual price is...... envelope please? Those playing the paper game are done.

    The miners become a crap shoot because they have no theoretical outlet and can't be valued.

    Word ver: halte

    ReplyDelete
  15. Dan...shouldn't the open interest be declining with this sort of price moves lower? According to the CME GROUP, here is the open interest in silver;

    MAY 3 = 130,567
    MAY 4 = 131,907

    That's an increase of 1,300 contracts. I would think after a big price drop yesterday, we would have seen a larger decline in open interest.

    Could this be the reason the CME is doing a barage of Margin hikes? I speculate, but it looks like big players are coming in and continuing to buy as the price falls.

    ReplyDelete
  16. Which one would you want to leave as an inheritance to your children?

    a. U.S dollars
    b. Silver

    I assume you do love your children.

    ReplyDelete
  17. I appreciate all of the knowledgable comments as well as trader Dan's most timely and pertinent service. I have been watching this occur since around 2003 and pretty alarmed about how blatant and severe the manipulation is now becoming.

    I am wondering how much longer the paper price will remain tied to the physical? Are we now witnessing a parting of the ways of the two?

    What will the implications be when the premium over spot = $100 or more per oz.? Do you guys believe this is a possibility? Peace, Rod

    ReplyDelete
  18. lj, the miners don't need to sell on the Comex. They can and do sell directly to buyers.

    ReplyDelete

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