I find it amazing how effectively these people can coordinate their policies with the heads of the commodity exchanges and their pals at the big banks who are perennial shorts in the markets and have now managed to pluck the money out of hundreds of thousands of commodity trading accounts enriching the big banks (government sponsored hedge funds) in the process. Nothing like a freely operating financial system where the playing field is completely level and no one has an advantage over the next guy!
By their continued hiking of silver margins, the exchange effectively removed the liquidity in the silver market that the smaller specs have been providing. That left the market vulnerable to severe drops in price as these specs exited due to financial constraints which then removed a source of potential bids under the market as the CFTC commitments report has shown the small specs to be good buyers in the silver market. Even the bigger hedge funds are impacted by such a sharp hike in margins as their losses in silver then precipitate even more losses across other assorted commodity markets due to the cascading effect of mounting paper losses and margin calls and the need to raise cash.
As the silver market tanked the exchange officials could then warn about Clearinghouse integrity and have more reasons to drive margins even higher as they point to the increased volatility, volatility which I might add, they created themselves by hiking margins to such an extreme degree.
I find it hypocritical, if not downright wicked, that this is occuring against a backdrop of a senior executive at the CME Group, one Mr. Bryan Durkin to be exact, warning regulators against reining in High Frequency Traders. He parroted the usual BS about their presence providing much needed liquidity warning that any attempts to bring them under more intense scrutiny or curtail their activity would result in markets becoming less efficient. Does anyone besides me marvel at the temerity of these people who spout such idiocy and then go about deliberately instituting a series of devastating margin hikes which are deliberately designed to KILL LIQUIDITY guaranteeing less efficient markets and roiling the entire commodity complex in the process. Is this what an efficient market is supposed to look like when crude oil prices collapse nearly 9% in a single day because there are no bids or silver which is again down nearly 9% also in a single day?
The truth is that the exchanges are money hungry bastards that want the fees generated by the HFT crowd and do not want anyone to mess with their golden egg laying goose.
Regardless, this collusion on the part of the players involved has accomplished, for the time being only, what the Fed has been trying to do ever since it instituted its second round of QE, which by any standard of objective measurement, has failed. To wit - keep long term interest rates low to generate borrowing.
Unfortunately for the Fed, the bonds were not cooperating and were actually moving lower for a while as commodity prices were responding to the breakdown in the Dollar and holders of long term bonds were balking at hanging on to an "asset" that was priced in a collapsing currency while being threatened with a serious outbreak of inflation as a result of all the reckless money creation.
What could be done especially with the US Dollar within a mere point of crashing through a critical support level which would have seen the onset of a currency collapse and a resultant crisis?
Oh by the way, I might note here that the Japanese Yen has moved to within 58 pips of the level that brought about a massive coordinated intervention back in March that was tied to the tragic earthquake and tsunami. All of those billions spent on knocking the currency down have been wasted as the newest plan to derail the commodity markets brought about another unwinding of the Yen carry trade causing the exact same problem for Japan once again. In other words, less than two months later and after spending billions to derail the Yen and prop up the Dollar against it, we are right back to where we started on Dollar/Yen.
Next move guys???
Thursday, May 5, 2011
Silver continues to plummet mauling the entire commodity complex in the process
The complete and utter rout of the spec side silver longs - thanks to the antics of the exchange who decided to bail out their member firms who had played cute and shorted silver all the way up and bled out a large portion of their trading accounts, is now contributing to further pressure across the entirety of the commodity complex, regardless of fundamentals in several of the markets.
Even the grains, are getting smashed as hedge funds and other large specs incur huge losses in silver and are now dumping everything as a result. Panic selling tied to paper losses takes on a life of its own so until the Comex exchange is finished wiping out the trading accounts of the longs for the benefit of their pals, the market will keep falling. When the selling does run its course, and it will at some point, several of these commodity markets are going to stage very sharp reversals to the upside since the algorithm-related selling is overdoing it to the downside in those particular markets with very strong fundamentals.
Remember, hedge funds are technical animals whose algorithms do not care one whit about fundamental factors. It is all about money flows and those are tied to the last price tick.
I have noticed this morning that silver's demise was finally too much for crude oil to bear and spec longs in there had no choice but to now cough up their longs in that market as well. At least that is welcome news to drivers who can get their gasoline a bit cheaper than last week.
The CCI continuest to plummet and as long as silver keeps moving down, so too will it. I do think however that some of the bigger commercials, particularly in the grain complex, are going to use the hedge fund selling to secure any long side coverage that they might need for their risk management programs.
Silver now looks like it is headed down to $35 at a minimum.
Even the grains, are getting smashed as hedge funds and other large specs incur huge losses in silver and are now dumping everything as a result. Panic selling tied to paper losses takes on a life of its own so until the Comex exchange is finished wiping out the trading accounts of the longs for the benefit of their pals, the market will keep falling. When the selling does run its course, and it will at some point, several of these commodity markets are going to stage very sharp reversals to the upside since the algorithm-related selling is overdoing it to the downside in those particular markets with very strong fundamentals.
Remember, hedge funds are technical animals whose algorithms do not care one whit about fundamental factors. It is all about money flows and those are tied to the last price tick.
I have noticed this morning that silver's demise was finally too much for crude oil to bear and spec longs in there had no choice but to now cough up their longs in that market as well. At least that is welcome news to drivers who can get their gasoline a bit cheaper than last week.
The CCI continuest to plummet and as long as silver keeps moving down, so too will it. I do think however that some of the bigger commercials, particularly in the grain complex, are going to use the hedge fund selling to secure any long side coverage that they might need for their risk management programs.
Silver now looks like it is headed down to $35 at a minimum.
Wednesday, May 4, 2011
Trader Dan interviewed at King World News
Eric King over at King World News was kind enough to interview me this afternoon for some of my thoughts on the metals markets and the shares.
You can find the written interview here.
We will be doing the usual Friday afternoon Metals Wrap later this week as usual.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/5/4_Dan_Norcini_-_Silver_Plummets%2C_What_to_Look_For_Now.html
You can find the written interview here.
We will be doing the usual Friday afternoon Metals Wrap later this week as usual.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/5/4_Dan_Norcini_-_Silver_Plummets%2C_What_to_Look_For_Now.html
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....
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....
HUI showing some promise of being sold out
Depending on how this thing closes this afternoon, it might be sold out. Need to watch and see. A positive close would be friendly and would probably cement a bottom in the shares at least.
Crude oil will not fall apart (yet)
I find it ironic that on a day in which the overall commodity sector is getting slammed lower, crude oil simply refuses to fall apart. It is indeed lower but gives no chart signal as of yet that it has topped out. This is the ONE MARKET that the monetary officials are the most concerned about since it is the most visible one for impacting consumer disposable income.
WE had a report out today from the EIA (Energy Information Agency) that stated total US daily oil demand dropped 6.4% last week to a 17 month low of 18.3 million barrels. Included in their classification are even the minor products as well as gasoline, jet fuel and heating oil and diesel.
That is the biggest fall in a year. The soaring prices are indeed choking off demand but unlike the metals, crude has not fallen apart and broken down through its chart support levels.
We will need to watch this to see if it too eventually succumbs to hedge fund selling. Consumers of course would dearly love to see it fall as would the monetary authorities.
WE had a report out today from the EIA (Energy Information Agency) that stated total US daily oil demand dropped 6.4% last week to a 17 month low of 18.3 million barrels. Included in their classification are even the minor products as well as gasoline, jet fuel and heating oil and diesel.
That is the biggest fall in a year. The soaring prices are indeed choking off demand but unlike the metals, crude has not fallen apart and broken down through its chart support levels.
We will need to watch this to see if it too eventually succumbs to hedge fund selling. Consumers of course would dearly love to see it fall as would the monetary authorities.
A Measure of the RISK TRADE
Chatter is surfacing that some guys are looking for a sharp reversal in the Dollar and some, in anticipation of that, are lifting risk trades. This might help explain the loss of money flows into the overall commodity sector.
Note the sharp fall in the ratio as evidence that money is rushing out of silver and into the bond market.
I suspect that the monetary authorities are strongly welcoming this especially in light of their announcement of an end to QE2 in June. I am of the opinion that once the bond buying program does end (assuming it does and that is an open question if the stock market drops sharply), I find it difficult to believe that there is going to be substantial buying below the bonds, especially at their current elevated levels.
The elevated margin requirements for silver have basically destroyed the entire commodity complex rally as funds and other long side specs are being destroyed by the deep losses in their silver positions and are now rushing to blindly sell positions in the rest of the complex to stem the bleeding.
Note the sharp fall in the ratio as evidence that money is rushing out of silver and into the bond market.
I suspect that the monetary authorities are strongly welcoming this especially in light of their announcement of an end to QE2 in June. I am of the opinion that once the bond buying program does end (assuming it does and that is an open question if the stock market drops sharply), I find it difficult to believe that there is going to be substantial buying below the bonds, especially at their current elevated levels.
The elevated margin requirements for silver have basically destroyed the entire commodity complex rally as funds and other long side specs are being destroyed by the deep losses in their silver positions and are now rushing to blindly sell positions in the rest of the complex to stem the bleeding.
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