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Let the games begin... JP MORGAN VS. SILVER
2010-11-14
JP Morgan’s short position on silver futures should go down as either one of the most shortsighted or nefarious business moves in its history. As reported on PRN News Wire, “NIA exposed in 'Meltup' that JP Morgan was short 30,000 silver contracts representing 150 million ounces of silver. This is one of the largest concentrated short positions in the history of all commodities, representing 31% of all open COMEX silver contracts.”1 In March, JPM was accused of profiting off silver by illegal manipulating the futures. Since late August; however, silver prices have spiked. JPM now faces two lawsuits one of which involves accusations of racketeering in order to suppress silver futures. Last week the CME group raised the minimum margin requirements on silver purchases from $5,000 to 6,500. The CME has at least temporarily stopped the bank's bleeding. With all that has been going on behind the scenes, one wonders if JPM had any influence in this virtual bail out?
Hagens Berman Sobol Shapiro LLP announced today that JP Morgan and HSBC face charges of manipulating the market for silver futures and options in violation of federal commodities and racketeering laws in a new lawsuit filed Tuesday in the U.S. District Court for the Southern District of New York.2
What does this mean for traders? The general consensus is that metals will not relent until there is a plausible horizon for the end of the currency crisis and the global depression. In our view, gold and silver still have very high ceilings, perhaps continuing their bull run for the next year or two. As we approach the 1500 mark, I am certain gold will break the 2000/ounce mark by this time next year or even sooner... CONT. Inflationary effects from the second round of bailouts pumped up equities and commodities as well, but the effects have already begun to wane. The reality is that QE2 has failed to address any of the underlying faults associated with the decline, including forecloses, unemployment, and the currency volatility now effecting commodity prices.
The bank bail outs are veritably propping up the problem and rational solutions haven’t been put on the table by heads of states. Ahead of the G20 meetings, World Bank head Robert Zoellick wrote, “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”3 Metals have a long way to go if governments are just now starting to publicly address the dysfunctional state of the US dollar as the reserve currency. Meanwhile, the measures currently being applied by central banks will effectively enable the continuation of the underlying problem—the era of moral hazard.
Our recommendation is to buy silver and gold during any dips similar to the 5.5% loss on Friday. Outside of clueless bankers, the investment climate is leery at best. And the safe haven or rational alternative continues to be in emerging markets and commodities. Moreover, any central bank easing will also continue to find its way into these sectors.
Any bad press or damages from the suits on JP Morgan could facilitate more windows for shorting its stock. Keep an eye out for any media coverage of the trial or hearings, as these should provide the green light to short JPM. We’ll keep you posted on the upcoming SHORT LIST.
Sources & Links:
3. http://www.ft.com/cms/s/0/5bb39488-ea99-11df-b28d-00144feab49a.html#axzz157oH62X2
4. http://www.foxbusiness.com/markets/2010/10/27/jp-morgan-hsbc-accused-silver-manipulation/
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its a long and winding road for jp
Thanks
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Commodity Market
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