A Deep Walkthru For Silver Manipulation - Redux

Tyler Durden's picture

Now that silver continues hitting nominal high after high (except of course for the record price hit during the Hunt Bros period), and there is a very distinct possibility we may see an unprecedented melt up in the price of silver to over triple digits for a variety of previously discussed factors, here is a post we produced a year earlier, courtesy of a "deep insider" which dissects with exquisite detail the nuances of silver market manipulation, which in retrospect may have been just a little early. Considering that every single trope mentioned is now in play (even the unmasking of Buffett's unbelievable PM bashing hypocrisy when he himself was one of the people who utilized blatant silver market manipulation for his own purposes when it suited him back in 1997 to send silver soaring), we believe readers should re-read this post in its entirety as it presents a walk-thru for the mechanics, and strategy, of the ongoing unprecedented move higher in the shiny metal.

From A Deep Insider's Walkthru To Silver Market Manipulation, posted originally in April 2010, when silver was lower.... way lower.

As the topic of physical delivery has gained prominent attention
recently, it is crucial to complete  the circle and show how this
weakest link in the PM market is (ab)used by the big boys: Phibro and
Warren Buffet. Pay particular attention to the analogues between the
methods employed in the 90's commodity market and how the PM (and
equity) market is being gamed currently. And to think that each new
generation of traders believes it has discovered something new... (All emphasis below is ours)

 


Background

 

  • As
    a market maker in silver options from 1989 to 2000 I was present during
    both the 1994 and 1997 silver events. They were seminal in my education
    of gamesmanship in trading and how probabilities can come up short.
  • Prior
    to going out on my own, I traded at a small market making firm. When a
    trader finished training there, he had top-tier options knowledge but
    was not educated in whom the players were, the fundamentals of the
    markets, and how probabilities were useless when information was
    asymmetric. That wasn’t their business, they taught option’s theory.
    Since I had drunk the kool-aid, I thought fundamentals and gamesmanship
    were useless in the face of the almighty Standard Deviation model. That
    was a mistake. 

Phibro Early Exercise

  • In
    April 1994, the Thursday before Easter, the trading day ended with a
    rather unusual run up of 15 cents near the close to finish at 435ish
    around noon. Options expired that day at 4pm but we weren’t anywhere
    near the closest strikes (425 and 450) so most of us left. It was a 4
    day weekend in the U.S. but silver traded globally, albeit il-liquidly
    in Asia. Comex wouldn’t open until next Tuesday. My education in
    gamesmanship started that afternoon at JFK airport as I was waiting for a
    flight, my first vacation in 5 years.
  • My backer paged me at the
    airport to inform me that someone was exercising the K 450 calls. I
    scoffed thinking it was a retail sap that was talked into exercising
    some 5 lot piece by an overzealous broker. “Great I said, let them, the
    options are out of the money.”  And I hung up
  • 10 minutes later
    he had me paged again. “You don’t understand, it’s Phibro exercising.”
    Again I naively said, “So what, they are energy guys.” But I was
    curious, “How many? “ I asked. “All of them, five thousand, he replied.
    Now I was really curious, but still woefully ignorant that it was I who
    was the sap at the table. “Why would they do that?” and he explained it
    to me. I nearly shit myself and bent over in the cab vomiting on the
    ride back.
  • Cancelling my trip, I headed back to the office to
    assess the reality of what would happen, probabilities were no longer
    important.  Survival was important.  I had no money and was trading on a
    $25k note lent to me by my backer.
  • We covered by buying futures
    on my entire short open Interest equivalent of EXPIRED OUT OF THE MONEY
    OPTIONS in Singapore with a dealing firm.  We did this prior to even
    actually knowing if I was exercised, probabilities be damned. How did I
    know they exercised? The price covered at was $462; that is how. The
    450s were already in the money by 12 cents.
  • Phibro exercised all
    5k lots. I had a fraction of that but big enough to be carried out on a
    stretcher had the rest of my position not bailed me out/ performed on
    Tuesday next week.
  • The weird part was, the market stabilized
    that Tuesday and did not run to “infinity” as it could easily have. We
    found out later it was because Phibro’s exercise was a no-no and Warren
    Buffet ordered them to shut the trade down as it was too big of a
    potential scandal. Especially in light of his coming to Solly’s rescue
    and lending his good name to fix their most recent Treasury scandal. A
    couple head’s rolled there if I remember correctly.
  • My guess was
    that the client was a Buffet or Soros type. Someone that would only go
    to Phibro, as these guys were the best at preventing information
    leakage, and always aligned themselves with client interests, where as
    if IB had an order  and acted in dual capacity as a dealer, he would
    potentially front-run the order or stop it out poorly on an exit. Phibro
    didn’t take other side of their client’s orders. They ran with them,
    and took care of the clients first.
  • Phibro got a big order for a
    client to buy silver, one that had to be handled expertly, and filled
    over time, no information leakage would be tolerated.  These guys were a
    prop desk that took orders as brokers once in a while.
  • They accumulated options for their own account (K 450C) to piggyback but not front-run the client.
  • They must have bought futures for themselves as well as the client with his permission.
  • They beat the VWAP by gunning the market on light volumes 1 hour before a 4 day US holiday. [TD: compare and contrast with the daily patterns seen every single day in the endless move up in the S&P]
  • They
    exercised the 450 Calls that day and then lifted the offers of the 1 or
    2 OTC metals dealers left open during Singapore hours, running them
    over during illiquid markets.

Never Again!

  • I became infatuated with Phibro gamesmanship and made it a point to understand that particular type of player.
  • Libertarian
    Darwinist that I was I did not blame them. At the time It was a
    buyer-beware market for big businesses and they did nothing wrong. They
    took risk and they aren’t bigger than the market. I wanted to play with
    the big boys, and that was the price.
  • For me it was about
    learning how to read the signs and not be on the wrong side of one of
    those events again, even if I was not privy to their meetings.

Here is some of what I learned:

  • In
    metals (and energy and anything else with an OTC market) the IB firms
    have dealing desks along GS, MS, Republic, JPMorgan, Scotia Mocatta, all
    were essentially broker dealers in precious metals. All had clients:
    miners who hedged production and hedge funds who speculated OTC. They
    provided liquidity by taking the other side of their client’s trade and
    “back-to-backing” them in the futures markets or held onto them in their
    prop books as counterparty because of something else they saw.
  • Their
    client left resting orders with them in the IB’s Central Limit Order
    Book (CLOB) which served as good information to trade around for the IB.
    Sometimes they front-ran the client, other times they go for stops to force the client to puke. Sometimes they’d just make markets, depending on many things. It was poker to them.
  • Phibro
    was different. These were smart guys but they weren’t a dealing bank.
    They exploited imbalances in markets and took positions.  They had
    ideas. They also took orders for heavyweights who needed absolute
    discretion. They did not make it their business to fleece their own
    clients and instead aligned their interests. And they made the banks
    look like pikers when a client came to them with an order.
  • For
    the next 4 Years I paid attention to how those dealing banks and phibro
    played the markets. It was all about gamesmanship, Bayesian probability,
    and knowing your counterparty’s motivation with these guys. Information
    and misinformation.

Some methods:

  • How
    I.B firms would use a thinly traded floor to print the price that would
    trigger a massive stop loss in the OTC markets and bury their own
    clients.  Or how they would buy for their own accounts in front of
    resting limit orders for clients and simply use their clients to stop
    themselves out if the market printed thru their buy levels.  Or how they
    would use dual representation to show loudly they were buyers on one
    side of the ring, while they were selling quietly upstairs to other OTC
    dealers.  Trading with themselves in multiple entities, etc.
  • An
    IB with a Commodity Index was in heaven. Prop trading, captive client
    flow from IB deals and OTC dealing and Brokerage. The good ones knew how
    to integrate and hedge macro risks, whether to front run their own
    index clients or get out off their way.  “Chinese walls” did not exist
    in Commods.
  • Commods were mostly self regulated and that lead to predatory yet mostly legal behaviour. 
  • Some
    of these were necessary to protect their interests with such a small
    number of players. Some were possibly unethical, but most were legal.
    Their clients were all big boys who left resting orders with the IBs at
    their own risk. Clients themselves had to resort to some of the same
    tricks to keep the IB desks honest, like Coming in backwards,
    “spoofing”, leaving buy stops to get sell orders filled. The alternative
    for these clients was to put massive orders in the floor where
    liquidity was subjective, non continuous and information leakage was
    massive.

1997- Warren Buffet.

  • I got my chance to not get run over in 1997, when Warren Buffet gave an order to Phibro to buy silver.
  • Short version. Here is what went down.
  • Buffet gives Phibro the order- fact
  • Phibro
    begins filling it as a broker using various OTC dealers as
    counterparties, and letting the I.B dealers sweat getting out of the
    risk. - fact
  • Phibro buys options for their own account (no exercise game this time tho)- fact
  • Phibro buys futures for their own account. – not confirmed.
  • One
    by one the IB dealers start to catch on that this is no ordinary order
    Phibro is handling. They back away and liquidity gets harder to find.-
    fact
  • Other bigger hedge funds in the small circle of professionals, and other smart firms start getting long.- fact
  • Silver
    starts getting delivered from the Comex vaults. Some of it actually
    removed. Some of it just “covered with a sheet” for removal. But ounces
    begin to be removed from the warehouse. Phibro was rumored to be taking
    delivery and beginning to telegraph fear in the markets to start
    spoofing the VWAP. Rumor was they had a warehouse in Red Hook where they
    stored it.  Never confirmed.
  • Point here is, the saps for the
    last part of this play were the producers and refiners who were
    complacently net short and dependent on above ground silver to satisfy
    delivery requests.
  • Producers had been over-hedging for years in
    this market, as silver was cheap and they had business cash flow issues.
    It was their habit to sell forward production not yet available to
    them. And if forced to, they would lease already above ground silver and
    make delivery, collateralizing it with silver yet to be mined. Their
    positions were habitually synthetically long the contango as they rolled
    their deliverable production further and further out the curve in an
    attempt to squeeze much needed cash (cost of carry)for their businesses.
    The net effect was that sometimes they had to borrow silver for prompt
    delivery while they rolled their production hedge back further. – my
    interpretation of what I learned. May not be accurate to the “T”, am not
    a physical guy.
  • Example: in 1995 a miner has silver due above
    ground in 1997. He hedges it in Z-1997 contract.  Z 1997 comes and if he
    doesn’t have that silver available for some other reason; he covers the
    short and rolls it back. How much he needs to do this is a function of
    his obligations, cash flows, and his greed for carry. If leases are
    cheap, he will seek to capture all the contango and lease it until he
    gets the silver available.
  • If lease rates go up, it is not
    unlike a miner strike. Silver is needed for delivery now, and term risk
    becomes the issue. Contango collapses and market goes backwardated. He
    will be forced to sell the contango to get that prompt silver short back
    if he cannot make delivery. He has to defer delivery.
  • These guys were dependent on the specs NOT taking delivery for years. Specs didn’t have balance sheets to take and store physical metal. Specs usually were the weak hands at futures expiry.
  • But then…..Entities
    that stored silver in bank vaults (like the Republic vault) begin to
    remove silver from the available pool for leasing. This made the “easy
    money” portion of production financing no longer easy.  Think: smart
    money getting the word that a squeeze was on and playing along with it.
  • Phibro
    (and others) start selling the contango in the futures market to
    prepare to take delivery of even more contracts. Or at least put
    pressure on the producers who had front month shorts they would have to
    make a decision on delivering. Phibro KNEW that the producers had to
    sell the spreads to get their shorts back. But they couldn’t lift their
    shorts altogether as part of their financing deals with their bankers.
    Their own positions were now breaking down in every way except flat
    price. The market really didn’t move much. This let them stay in denial.
  • Buffet announces he is long and intends to take delivery of silver. Contango collapses. Market spikes to 7.40.
  • Rumor
    is gov’t intercedes and asks Buffet to not do this, it would break the
    industry. (Kind of like how the exchange begged the gov’t to help it
    shut down the Hunt Bros.)  He says ok, and agrees to lend then their
    silver back to them. Essentially charging them 40% interest to delay
    delivery for a year

What to look for:

  • Find the overleveraged/ extended party- and you will find the weak hand at the table. (Producers in 1997)
  • Tail
    wags dog: if the pricing venue trades smaller volume than the OTC, then
    manipulate price with small volumes to execute trades with big volumes
    favorably.  (OTC vs Comex floor)
  • Divide and conquer- if
    counterparties are undercapitalized and/ or fragmented, then it will be
    easier to get them to move like a herd.  (happens in options ALL THE
    TIME at expiration)
  • Manipulate data- take delivery of metal, take risk off books, manipulate MTM data.
  • Create
    an exit strategy- a good catalyst like Easter weekend, an announcement
    by an investor etc.  or develop a market and grow your own bigger fool.
    ie – retail.

Comments - So many points to make here:

  • How
    derivative markets can create a problem thru too much liquidity that
    cannot easily be reconciled by bringing physical production on line fast
    enough.
  • How this works both ways, and that dealing banks have
    been playing the gold/silver carry game for easy funding of other trades
    for years.
  • How, even though I personally think that what the
    OTC does is their own business, but the increasing securitization of
    commodities leaves regulatory arbitrage and OTC games to affect a new
    generation of ETF buyers, either thru incremental banking or thru
    contango cancer. That Wall Street salesmen and players with
    access to both markets retail and professional can exploit the captive
    audience created with ETFs and other fund type instruments to shear and
    in some cases skin the sheep.
  • That much of this happens
    because the gov’t is too stupid to see the inherent conflict of
    interest in what a broker-dealer does. Regulation will not stop gaming
    the law.  Ethics do, and not everybody has ethics. So best you
    can do is prevent situations of conflict of interest, like the existence
    of Broker-dealer type entities. Either you trade for yourself, or you
    trade for others. Period.
  • Fact is, if there were retail
    public in this game back then, the IB firms would have somehow sold
    them on the idea to BUY contango, or short silver. But the
    financialization of commodities wasn’t there yet. And the “bigger fool”
    game stopped at the producers. If it happened again, with ETFs, cross
    regulatory semi fungible products, asymmetric access to venues and other
    factors in a global market, the public would be killed, short squeeze
    or long puke (like in UNG now) take your pick.
  • You can never
    know intentions, and no one is bigger than the market, but the
    consequences of a lack of transparency and the free reign in which banks
    can tell half-truths to investors is a big factor in enabling strong
    hands to fleece weak hands with little market risk. It’s all a con game.
    And when the IBs figured out how to change the rules, then they
    were free to use their killer techniques to exploit a million little
    fish instead of the 10 big fish they usually competed with.
  • Phibro
    was a ballsy cowboy trading firm. The banks at the employee level are
    as well, but corporately, they first seek to make money and secondly
    provide a service. When they should be providing a service that makes
    money.
  • Everything that was done I’ve seen done the other
    way, keeping prices low, shaking out weaker players. Rarely does it
    happen in such a dramatic way. It is usually a series of “short cons” as
    opposed to Phibro’s home run. It’s all Darwinism. But when civilians
    are involved as they are now, then it is no longer caveat emptor
    .
  • Instead of taking a million dollars from a hedge fund, these guys take a dollar from a million people now.

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tmosley's picture

Thanks you for putting this up Tyler.  I was just needing something like this.

Beam Me Up Scotty's picture

Did silver kiss $35 at high noon today?  Looks like a big wet smooch on the Kitco chart....

Ray1968's picture

Someone just completed a small double body-slam to silver... right at 2pm and 2:30

nope-1004's picture

I see that and am very thankful for it.  A warm heart-felt thanks out to Blythe!!!

Was going to buy later today, as $35 is next stop.  But now, she enabled me to buy EVEN MORE than I could previously afford.

I will be loading up in the next 10 mins.

Once again, thanks Blythe, you short-sighted imbecile.

 

nope-1004's picture

Ok, just bought.  $34.5 was entry, total was 5.5% above spot.  My supplier has good stock.  No, I won't tell you who it is.

 

suckapump's picture

Ok, just bought.  $34.5 was entry, total was 5.5% above spot.  My supplier has good stock.  No, I won't tell you who it is.

Color me stupid, but then why bother posting about it? Is this some kind of machismo display ceremony to which I'm not privy?

Ray1968's picture

I have to go to the bathroom and take a Blythe. I'll be back in a few minutes.

NotApplicable's picture

Why Globex hate PMs?

Seriously though, with this kind of run-up you have to expect some short-term momentum plays going for the easy "money," else this is the SHTF moment.

Windemup's picture

Looks like someone is testing how deep the water is. Support buying followed promptly. Perhaps sell off isn't ready yet.

william the bastard's picture

Aren;t there some babies need aborting in Dallas? :[

Spalding_Smailes's picture

He can't debate Spalding ( the delivery boy ) on Dollar Denominated Debt, he's got nothing ... What do you expect.

Dollar denominated debt bitch ~ slap's all doomers.

The great chemist ' at DiFusion Technologies Inc can't match  Spalding knowledge on finance. He's a gold troll !!!

 

 

 

tmosley's picture

A delivery boy can't tell the difference between the people he talks to.

I don't give a shit about dollar denominated debt one way or another, nor do I care to read about your position on it.  I just don't care what you think, because you are just another loser who does nothing but lose money and deliver the occasional sofa set.

Spalding_Smailes's picture

You don't care about it ( dollar denominated debt ) because it crushes everything you thought you knew or posted on finance.

All your doomer post " up in smoke " ......... LOL'

tmosley's picture

I am under no obligation to indulge the likes of you.  All you do is lose.  Lose that money.  Good thing you have a "friend" who throws you money, otherwise the only "loads" you would be delivering would be around the back of the local 7-11.  In fact, I'm not convinced that isn't the case.

Spalding_Smailes's picture

Nice non • answer, again. It's soooooooooo easy making you look like a fool®.

 

Notice the junks up top. " 32 " for red neck --------- Spaldings not getting junked. Everyone is watching, waiting for someone to set the delivery boy straight on dollar denominated debt. 

Your doomer cred' is on the line.

 

All your years posting on Gold on seeking alpha, ron paul's web site, ZH, and Spaldings whipping your ass in the basement of Fight Club. A delivery boy, to boot ........

william the bastard's picture

Mose the lose has over 4,800 posts on ron paul forum.com !@!! I mean what a fucking life this loser douche has. Nobody reads his shit!!!

Spalding_Smailes's picture

William, you can read me, no ... ?

 

I'm giving every hyperinflationist a chance to blast Spalding. They can't. 

 

How stupid do they look. Thousands of post on ZH on the great dollar crash. All the fed bashing.

 

But not 1 doomer can debate Spalding on this issue !!!!

traderjoe's picture

First, are you referring to yourself in the third person? 

What is your argument about dollar-denominated debt?

The fact that WTI Crude is up 2.5%+ today alone, even though nearly every data point suggests Cushing is overflowing with the stuff, how does that work into your theory of dollar-denominted debt?

Spalding_Smailes's picture

What's my point... ? Oh ya, oil is priced in / traded in dollars also, thanks for the reminder .... Countries must acquire more dollars for those oil purchases, Japan ect ....... Thanks for making my point.

 

The dollar is not crashing. No hyperinflation. Central banks, the global banking system, businesses, people all owe debt's in dollars. They can't pay back dollar debt's with yuan , euro's , they must borrow more dollars so they can service said debt's. They all continue issuing " new " dollar denominated debt's yesterday, today and will do the same thing tomorrow....

Countries ( China, Brazil, ect .. Businesses CAT, GE, Mitsubishi, Komatzu all the global big boys .... The entire global banking system / letters of credit / forex / commodities continue using dollar denominated debt )

This insures a thirst / need for dollars for many, many, many years ............ No crash looming with this need.

 

 

So as the things start getting better ( housing will rebound at some point, ect ....... ) And with no crash coming for the dollar this means gold / silver are in a bubble, sure silver / gold  has been up before and guess what like everything else they will drop again. This time is not different , the dollar is not losing the reserve status. One quadrillion of obligations , not enough gold in the solar system that can support 1 quadrillion this is why the dumped said dollar in the first place. They built a global web of forex trade / finance / global banking / fiat /letters of credit ect ... ....

traderjoe's picture

Speaking of avoiding arguments, you did not acknowledge my question of the 2.5% rise in crude, today alone. This would eliminate almost a year's worth of interest on a 5-year UST. 

You completely fail to acknowledge that there are other factors that are impacting the supply of dollars. Over-supply of dollars is causing them to depreciate. Thirst for dollars? Nah. 

Things start getting better? Where? And then you argue that there's so many obligations it cannot crash? Huh? I could quote substantial history that EVERY fiat system has collapsed. We've defaulted on the dollar twice this century alone. 

Is all of that really an argument?!

Spalding_Smailes's picture

Always been an over supply of dollars 1 quadrillion, no, its the global reserve currency, many dollars needed / wanted.. So Ben's QE3 will do the trick now, everyones about to run from the dollar , now .............. ???

 

What about oil, its a ( trade / bet hedge funds ect ......) like everything else, the big boys trade it. Not Ben's problem. Also all the suppression via dollar peg's force those countries to purchase more and more dollars.

China stops buying, o.k. the manufacturing complex / banks get blowtorched because they borrowed at suppressed rates. Riots / chaos overnight in China. They can't dump.

 

.................. " Take the most obvious example, the PBoC itself.  The central bank officially has about $2.5 trillion in reserves.  This by the way almost certainly understates its true position but let’s ignore that for a moment.  The PBoC has funded this position with an equivalent amount of RMB liabilities, which makes it very vulnerable to changes in the value of the currency.

 

Rate addiction

In fact there were strong rumors last year that the PBoC was technically insolvent as a consequence of the 20% increase in the value of the RMB against the dollar during the 2005-08 period of currency appreciation.  Weirdly enough, although the numbers are huge, it has proven difficult to convince anyone that the PBoC is not the richest institution in the world, and that it is actually very vulnerable to big losses (although I notice that Sovereign Trends’ Terrence Keeley, in an OpEd in the Financial Times Tuesday, seems also to have done the numbers).

The problem for the PBoC occurs not just because of the currency mismatch but also because it needs repressed funding costs to keep it profitable.  How much do the PBoC foreign currency assets earn?  I would guess probably between 3% and 4%, maybe less.  The RMB funding cost, on the other hand, is roughly between 1.5% and 2.5%.  This leaves the PBoC with a net positive carry of between 1% and 2%.

If the RMB appreciates by as little as 2% a year, in other words, the PBoC runs a negative carry on its assets.  Every further 1% increase in interest rates, or additional 1% rise in the value of the RMB, then, erodes its capital by at least $25 billion (annually, if it happens through an increase in interest rates).

Let’s assume, for example, that over the next two years we see a combined appreciation and interest rate increase of 10% (let’s say a 2% increase in interest rates and a 4% annual appreciation), which is, in my opinion, the absolute minimum that China must do to slow down the worsening domestic imbalances.  Assuming no change in the rate earned on reserve assets, which in fact may decline, this means that the PBoC’s net indebtedness would rise by over $250 billion, or roughly 5% of the country’s GDP.

These kinds of number quickly add up.  And of course it is not just the PBoC that has this addiction to repressed interest rates.  Many years of very low cost borrowing has created a huge dependency on low interest rates among SOEs, local governments, and other creditors of the bond markets and the banks (not to mention the banks themselves), all of whom are directly or indirectly funded by long-suffering households. " ....................

 

http://mpettis.com/2010/07/the-pboc-can’t-easily-raise-interest-rates/

 

So who's in the drivers seat ... China ? The E.U. is a mess also ...........

 

EscapeKey's picture

Chinese debt issues are internal. The American are not. The EU deficit+debt total is below the equivalent of the US.

Fucking over your own population is an order of magnitude easier than another major power. Read Reinhart/Rogoff's "This time is different" if you question why.

The US in the drivers seat? Yeah fucking right. Keep drinking that k00l-aid.

Spalding_Smailes's picture

China's M2 going up 20% a year.

The USA M2 ... 2%. They are doing some serious printing in China, you don't think they are in trouble ?

 

They are just building shit so they can keep everyone working, as Huge Hendry , Chanos said , construction now 80 % of GDP. The suppressed rates keep the manufacturing complex busy.

Everyone thought " oh my " China stole our manufacturing. Kissinger ... Pssssss China suppresses your currency and take it, its yours.

 

Now who's laughing , the suppressed rates force them to take our global currencies inflation. Inflation is a much bigger issue for all the countries around the globe. Just like we sold off bad debt ( cdp's-siv's ) on a global scale now because of the peg's we export our inflation.

EscapeKey's picture

So you rest your case on the Chinese situation being completely unsustainable, and hence the status quo is sustainable???

Once the Chinese breaks the peg, yeah they'll have hard times coming up. Exports will drop. Imports will in relative terms become cheaper, however. Regardless, they run a substantial surplus, and can most likely cushion the fall.

The US, however, will see the price of imports skyrocket, especially necessities like oil. And since she runs large deficits, with huge debts, will find it extremely hard to raise the capital in the open markets. You're not actually that naive you think the Dollar will still be the reserve currency when this happens, right? It most certainly won't, and hence, the US can't simply print the shortfall.

EscapeKey's picture

You forgot to mention how, despite having to acquire Dollars for the trade, which will boost the worth of the Dollar, the transaction is in fact entirely sterile, as the acquired Dollars will all be sold off at the other end of the transaction. So, in fact, the Dollar is both strengthened, and neutral, depending on which bollocks statement you post.

That, and all the other great Bernanke lullabys.

/I don't know wtf's going on, I was wasting my time replying to Spalding, your post wasn't even up when I replied. And it's not the first time I see these oddities.

tmosley's picture

So THAT'S your argument?  Christ, talk about a letdown.

People have debt in dollars, therefore, no hyperinflation?  Guess who else has debt in dollars?  The government.  Guess who has political control over the printing press?  The government.  Guess who has been printing like mad to fund Keynesian projects?  The government+ the Fed.

You make no argument to deal with all the money coming from the Fed.  You WOULD be correct if the Fed wasn't printing money.  All the new money that comes from debt issuance would be destroyed upon repayment of the debt (except for defaulters, which is how inflation from this money source stays in the system).

What you don't understand is that the Fed has been printing money.  That money has been given to various people who through various means of varyingly questionable legality, and has found its way into the stock and bond markets, and into commodities.  This is causing SOME inflation.  Not the hyper variety just yet.  Where that comes from is when the market sees all this money printing going on.  The market (including sovereign wealth funds) realizes that they are being diluted out of all their dollar denominated assets.  So they buy real stuff, like gold, silver, and FOOD on the commodities exchanges.  This drives the prices of these things sky high.

Now you ask yourself "So what?"  A few people starve, and everything goes back to normal, right?  WRONG.  You really think the Feds are going to allow people to starve in the streets?  You think they are going to stand for $10/gallon gasoline?  You think they are going to stand for the elderly freezing to death in the winter because they can't afford heating oil?  NO!  So instead, they print more money to distribute to the general public, to "save" them.  This is where the wheelbarrows full of money come in.  This reinforces the vicious cycle where more money printing begets more money printing, until everything falls apart.

Bam, hyperinflation.

Now go deliver your fucking shinebox.

EscapeKey's picture

The first questions are already being asked of the Dollar.

The Dollar is dropping with rising geopolitical instability. That's a first. It's usually a flight to safety, but what we see now should frankly make even the most ardent, biased, Bernanke cock-gobbling ZH poster take notice.

Spalding_Smailes's picture

Every fucking moron speaks of hyperinflation. When, when does it start ? When .......... We have been printing for years ? When's it starting, if you were right it already would have started. Everyone knows the dollar count over 1 quadrillion, whats the tipping point / sudden stop / timeline ... ? Or are you just guessing ?

 

So everyones buy " things " because they don't want the dollar .... ? Like I said type in " dollar denominated debt into google search news. Everyone tripping over them selves issuing new debt.

 

I care about the poor, but its not Ben's fucking problem. They can break the peg, its the host countries problem if they are importing inflation. Break the peg, no inflation. But the real question is " what are they waiting for ? ". The answer, they can't break the peg, the host banks / businesses depend on suppressed borrowing rates. 

They all have fiat ( below ) the dollar , dollar falls , guess what they all implode first Brazil , Russia , China , Japan ... So now we are talking ( global reset ) I never said that could not happen. But you will never see the world extract from the dollar obligations without causing armageddon. They can't just stop buying and move onto another currency / basket without a total blowout. China would implode , ect they do not want this they want the status quo -

akak's picture

You can splash your fingerpaints and green linen confetti all over the subject here, but in the end it is a logical as well as indisputable historical fact that overspending governments with exponentially expanding debt end up devaluing or destroying their (fiat) currencies --- EVERY one, without exception.  The USA will be no different.

Go learn a little history, then come back here before you spout off relentlessly expounding on topics of which you clearly understand exceedingly little.

GoinFawr's picture

Here, allow me to sum up Spaulding and co.s entire argument:

"IT's A DOG BITE; ON MY LEG! IT's NOT RIGHT: S'POSED TO BEG!"

-DK's

http://www.zerohedge.com/comment/edit/1013079

(repeat, and again, and again, and again until you start foaming at the mouth and fall over backwards)

Well, have I got some news for little snot faced boys like you SS:

"You people, you sit there... you're in for one helluva surprise."

-Christopher Walken

 

Spalding_Smailes's picture

Another Dufus ...

 

Tell me how I'm wrong. But its o.k. if all the doomers call for a dollar crash day after day but yet it never happens . Once again, pull out a 10 years dollar chart. What massive dollar crash, after the largest credit implosion in currency history. Trillions. What crash .... But its coming, right, it's coming SOME DAY SOON.... Lol

GoinFawr's picture

Yah, the dollar is doing great. Down 70% against silver. Down the hardest it's ever been against gold. Shit, even against its equally worthless peers its lost 15% since last june. Yep, things are going great for the good ol' USD.

Where you been, fool?

Spalding_Smailes's picture

Try buying some equipment from Cat with gold or some oil. Try buying gas at the local gas station. 

 

Open your eyes, can gold support global trade or the forex market ? Can it support all the global transactions that happen day in day out. Nope.

 

What , about 5% of the global population even have gold and is joe six going out buying gold ( at 1,400 ) with all his dollar denominated debt obligations ??? Most ZHers can not buy gold at this price. They need their host counties currency so they can live life. And that means more dollars needed.

GoinFawr's picture

Hey idiot, I was giving you valid, tangible examples of how the USD is losing purchasing power, 'crashing', which you claimed wasn't happening. Nice try, dipshit. 

Spalding_Smailes's picture

I just bought a loaf of bread for 75 cents ..... What crash , hyperinflation ???

 

What was the price in 2000 maybe 60 cents ? Wow ....... wow .

 

Does joe sixer care about the gold / silver / dollar ratio ... ? Nope , does Cat , GM , Ford ... Nope.

tmosley's picture

The loaf of bread you bought in 2000 for 60 cents is $2.50 today.  Stop using substitution, you disingenuous asshole.

traderjoe's picture

Really, that's your argument about gold? Dumb fuck. 

Sugar was up 4% today alone. Look at YTD charts of cotton, etc. That's a dollar collapse. 

Your arguments are silly, and extremely boring. "Ignore" button for you...

Spalding_Smailes's picture

O.K. Joe - Tell me how gold can back global trade , finance, forex .... Tell me how ?

 

Can you refute my post , nope. Sigh , go back glee just came back on, hurry.

akak's picture

.

 

 

 

O.K. Joe - Tell me how gold can back global trade , finance, forex .... Tell me how ?

You are such a flat-out fucking IDIOT!

You want to know how and why there is PLENTY of gold to back ANY economic or financial system?  It is simple, you disingenuous dipshit: it's called "revaluation".

Is there "enough" oil in the world at 20 cents per barrel?  No.  Is there enough at $100 a barrel?  Yes (at least for now).

Really, this "not enough gold" argument is so easily discredited, and has been discredited so many times, that anyone bringing it up is just demonstrating either their profound economic ignorance, or more likely, is simply shilling and trolling for TPTB.

But I know you don't care, you are here just to spew lies and troll against those seeking honesty and the truth.

tmosley's picture

You're not paying attention.  Haven't you read about all the unrest we have been seeing in the Middle East?  It is going to spread, as food prices continue to rise.  The corrupt governments that print will last longer than the corrupt governments that don't.  Everyone will see this.

Why haven't they broken their pegs yet?  Because the demonstrations haven't spread to their capitals yet.  Once they do, they will be forced to break the peg, or get torn apart by the mob.  The second the first one breaks that peg, everyone else will as well, not only to avoid the riots, but to try to keep from losing all of their purchasing power.

You've got a big problem.  It's called normalcy bias.  You think that because it hasn't happened yet that it can't.  That is where you are very wrong.

But hey, feel free to die.  I don't give even a fraction of a shit about you.

Spalding_Smailes's picture

Commodities are a trade like everything else, the traders are in every commodity pit bidding up everything.

 

They can't break the peg or the banks get blowtorched, they borrowed at suppressed rates. 

 

Stick with your " what ifs - some day soon - just around the corner " ...... They continue issuing new debt in dollars , everyone, no plans for said dollar dump, it would have happened already. They have no plans to dump the dollar cb, banks global businesses issuing dollar debt 5-10-20 years into the future,  ( fact. ) Not a what if ....

akak's picture

.

Even if "they" do not plan to dump the dollar, fiscal and monetary reality will have its way regardless --- and all logic and historical precedence leads to the future decline and/or fall of the US dollar, as indeed we are witnessing in process today.  Just because it does not happen overnight or in some blinding supernova burst of fiat implosion that somebody even as dull as you would have to acknowledge does not mean that the process is not already well under way.

Spalding_Smailes's picture

Its under way now. Was it under way in 2007 when oil hit $150 or did we see that high price because of the traders / hedge funds ?

Frommer on Hedge fund live trades Diamonds , gold , futures in the millions ( small fund ). 30 million.

 

Its the big boy global traders moving , oil , credit default swaps .... 

tmosley's picture

They are a trade for some people.  For others, they are life and death.  When people are threatened with starvation, they WILL tear down ANYTHING that they perceive as contributing to it.  The government WILL be the first stop, and the dollar peg, for those nations that have one WILL be the first thing to go.  They won't have a choice.  That is all there is to it.

There are no "what ifs" involved here.  It's happening right in front of your face.  But hey, who cares about that?  Lets get out there and deliver some asshole politician's furniture, right?

By the way, how is it that you are posting now, in the middle of the day?  Shouldn't you be making deliveries?  You sure are doing a lot of typing for someone that is supposed to be in a truck.  Don't tell me you were LYING about the number of loads you are getting each week!

Spalding_Smailes's picture

 

Listen,

 

I do not like debt & I feel real bad for the poor ( I volunteer myself  ) Capitalism does not really care about the poor, they are exploited in this country, Mexico, China all around the globe. 

 

But I have learned from reading ( Confessions of an Economic Hit Man • Trillion Dollar Meltdown Ect ......) that we are stuck.

 

Things are not changing unless we have a global reset , this will mean Armageddon.

tmosley's picture

This isn't a matter of caring or not caring.  This is a matter of facts.  The fact is that hungry people riot until they are fed.  Governments fall quickly to riots fueled by hunger, as we have seen.  All that remains is for rioting to spread to Asia.  Then it will all be over.  Faced with the certainty of collapsing today to the riots, or the possibility of collapsing tomorrow due to export sector destruction, they will chose tomorrow every time.

And it will be too late for you to do anything.  You will just wake up with nothing one day.  Nothing you own will be worth enough to buy ANYTHING that is traded internationally.  That is, unless you are smart, and own gold/silver.

You have no idea how lucky we are that the military stepped in in Egypt.  Egypt has a dollar peg, and could well have started the rout, even with its small size.  It may yet.  It or any of the other nations that are descending into violence while you deliver nicknacks to your local Chicago politician.

It may mean Armageddon, but I don't think so, at least, not outside of the US, or the West in general.

Spalding_Smailes's picture

When did the riots start 2 - 3 weeks ago. They are under a dictatorship. It's not just because of the food this shits been building for years. This is not the start of hyperinflation.

If they drop the peg, that county goes by, by, end of story. Then you have total chaos in China or Brazil, banks / central banks get blowtorched overnight. You think they do this , when ?

 

 

tmosley's picture

You think China isn't a dictatorship?  Interesting.

Hmm...no rioting for decade after decade, then, a month after food inflation takes hold, you start getting riots and collapsing governments.  

You should throw your hat in to be the next queen of De Nile.

You keep claiming that that the drop of the dollar peg is definitely the end, but there is ZERO proof of that.  All it will do is hurt their banks and their exports.  We have examples where that has certainly not been the end of the world when those sectors collapsed (Iceland most recently).

You just don't get it.  This isn't a choice between peace under a dollar peg and anarchy without.  It is a choice between violent overthrow of the government and POTENTIAL anarchy without the dollar peg.  You are counting on politicians to refrain from delaying the day of reckoning.  That is never a good bet to make.

It will happen as soon as there is a serious set of violent protests in Beijing, or a large enough number of small countries with large USD reserves and/or dollar pegs.