JP Morgan Sold Investors MBS Covered By "SACK OF SHIT" Loans... Then Shorted All Those With Exposure: A Goldman-AIG Redux

Tyler Durden's picture

Today's mortgage fraud stunner comes from Bloomberg's Jody Shenn who reports on the ongoing lawsuit between Ambac and former Bear Stearns mortgage unit EMC, now part of JP Morgan. In what can only be classified as fraud-cum-double dipping-cum-AIG/Goldman, "JPMorgan Chase & Co. demanded that a lender repurchase bad
mortgages even as it resisted calls to buy back the loans from bonds
created by Bear Stearns. “That would be pretty bad” if true, said Joshua Rosner, an analyst at
New York-based research firm Graham Fisher & Co. He said such
allegations show why “investors and consumers have a right to be
distrustful of the banks’ statements." The bottom line is that JPM, which has so far been able to escape largely unscathed from the fraudclosure scandal, is about to take front and center. The reason: the very first line of the just released Exhibit 1 to the Ambac lawsuit: "In mid-2006, Bear Stearns induced investors to purchase, and Ambac as a financial guarantor to insure, securities that were backed by a pool of mortgage loans that - in the words of the Bear Stearns deal manager - was a "SACK OF SHIT." But the stunner, and nothing short of a full-blown scandal if proven true, is that Bear Stearns (aka JPM) after funneling misrepresented loans with Ambac's insurance, "implemented a trading strategy to profit from Ambac’s potential demise by “shorting” banks with large exposure to Ambac-insured securities." This needs its own congressional hearing right now, followed by a few wristslaps. After all such wholesale fraud can never possibly be prosecuted in the world's most advanced country.

(photo credit William Banzai)

More from the lawsuit:

Within the walls of its sparkling new office tower, Bear Stearns executives knew this derogatory and distasteful characterization aptly described the transaction. Indeed, Bear Stearns had deliberately and secretly altered its policies and neglected its controls to increase the volume of mortgage loans available for its "securitizations" made in patent disregard for the borrowers' ability to repay these loans. After the market collapse exposed its scheme to sell defective loans to investors through these transactions, Bear Stearns implemented an across-the-board strategy to disregard its contractual promises to disclose and repurchase defective loans. In what amounts to flagrant accounting fraud, Bear Stearns' improper strategy was designed to avoid and has avoided recognition of its vast off-balance sheet exposure relating to its contractualfollowing the taxpayer-financed acquisition by JP Morgan repurchase obligations - thereby enabling its senior executives to reap tens of millions of dollars in compensation." Surely in non-banana republics heads would roll. What happens, however, when the heads are the same ones that rule said banana republic?

Maybe it is time to increase JPM's very modest $1.5 billion in litigation reserves?

 EMC’s lawyers on Jan. 14 argued against letting Ambac file the proposed amended complaint. EMC has also asked Katz to reconsider his ruling.

JPMorgan last quarter set aside $1.5 billion in litigation reserves to cover costs related to buying back faulty mortgages. Chief Executive Officer Jamie Dimon said it will take years to resolve the disputes and to determine the ultimate cost to his bank.

It’s going to be a long ugly mess, but it won’t be life- threatening to JPMorgan,” he told analysts on a Jan. 14 conference call.

The bank also ignored the findings of mortgage-review firm Clayton Holdings LLC in abandoning mortgage repurchases that Bear Stearns had been considering in early 2008 stemming from a pool of 596 of loans in bonds guaranteed by Ambac, according to the insurer’s amended complaint.

Clayton found that 56 percent of the loans involved “material” breaches of Bear Stearns’s contractual promises, according to the filing, which cited a copy of a November 2007 document from the review firm to the company.

Some beg to differ with Dimon's assessment of the situation:

Proof that the bank ignored a third-party review is “major, that’s
hugely newsworthy,” said Isaac Gradman, a San Francisco-based consultant
and formerly a lawyer at Howard Rice Nemerovski Canady Falk &
Rabkin.

And the stunner: this is nothing short of the AIG-Goldman parasitic relationship (from the amended Ambac vs EMC filing presented below):

Knowing that its fraudulent and breaching conduct was resulting and would result in grave harm to Ambac, Bear Stearns then implemented a trading strategy to profit from Ambac’s potential demise by “shorting” banks with large exposure to Ambac-insured securities.  (The “shorts” were bets the banks’ shares or holdings would decrease in value as Ambac incurred additional harm.)  In late 2007, Bear Stearns Senior Managing Director Jeffrey Verschleiser boasted that “[a]t the end of October, while presenting to the risk committee on our business I told them that a few financial guarantors were vulnerable to potential write downs in the CDO and MBS market and we should be short a multiple of 10 of the shorts I had put on ... In less than three weeks we made approximately $55 million on just these two trades.”

And more unbelievable disclosures from the Ambac filing. We apologize for the length, but this will be the story of the next few weeks:

As discovery of Bear Stearns’ files and depositions of its employees have revealed, Bear Stearns secretly adopted certain practices and policies, and abandoned others, to (i.) increase its transaction volume by quickly securitizing defective loans before they defaulted, (ii). Conceal from Ambac and others the defective loans so it could keep churning out securitizations, (iii.) obtain a double-recovery on the defective loans it securitized, (iv.) disregard its obligations to repurchase defective loans, and (v). profit on Ambac’s harm.”

“...Bear Stearns utilized due diligence firms to re-undewrite loans for its securitizations that it knew were not screening out loans that were defective and likely to default.  As Bear, Stearns & Co. Managing Director Jeffrey Verschleiser stated in no uncertain terms to fellow Senior Managing Director Michael Nirenberg in March 2006, “[we] are wasting way too much money on Bad Due Diligence.”  Almost exactly one year later nothing had changed, and in March 2007, Verschleiser reiterated with respect to the same due diligence firm that “[we] are just burning money on hiring them.” Despite this recognition, Bear Stearns did not change firms or enhance the diligence protocols.  Thus, as one of its due diligence consultants frankly admitted, “[a]bout 75 percent of the time, loans that should have been rejected were still put into the pool and sold.” 

“Moreover, even while criticizing its due diligence firms for failing to adequately detect defective loans, Bear Stearns routinely overrode their conclusions that loans should not be purchased for securitizations, and went ahead and purchased and securitized those loans (up to 65% of the time in the third quarter of 2006 according to one firm’s report).  Bear Stearns ignored the proposals made by the head of its due diligence department in May 2005 to track the override decisions, and instead took the opposite tack, adopting an internal policy that directed its due diligence managers to delete the communications with its due diligence firms leading to its final loan purchase decisions, thereby eliminating the audit trail.”  Source: Deposition

“Bear Stearns disregarded loan quality to appease its trading desk’s ever-increasing demand for loans to securitize.  In fact, Bear, Stearns & Co. Senior Managing Director Mary Haggerty issued a directive in early 2005 to reduce the due diligence “in order to make us more competitive on bids with larger sub-prime sellers.” Source: Emails

“In full recognition that its due diligence protocols did not screen out defective loans and were merely a façade maintained for marketing purposes, Bear Stearns’ trading desk needed to quickly transfer the toxic loans from its inventory and into securitizations befor the loans defaulted.  So as early as 2005, Bear Stearns quietly revised its protocols to allow it to securitize loans before the expiration fo the thirty- to ninety-day period following the acquisitions of the loans by EMC, referred to as the “early payment default” or “EPD” period.  Bear Stearns previously held loans in inventory during the EPD period because, as Bear Stearns’ Managing Director Baron Silverstein recently acknowledged, loans that miss a payment shortly after the loan origination (i.e., within the EPD period) raise “red flags” that the loans never should have been issued in the first instance.  The revised policy enhanced Bear Stearns’ earnings by increasing the volume of loans it sold into the securitizatoins – but materially increased the riskiness of loans sold to the securitizations.  Nonetheless, as its executives uniformly conceded, Bear Stearns never once disclosed the changes in its due diligence and securization policies to investors...”

“And it gets worse.  Not satisfied with the increased fees from the securitizations, Bear Stearns executed a scheme to double its recovery on the defective loans.  Thus, when the defective loans it purchased and then sold into securitizations stopped performing during the EPD period, Bear Stearns confidentiality (i) made claims against the suppliers from which it purchased the loans (i.e., the “originators” of these loans) for the amount due on the loans, (ii) settled the claims at deep discounts, (iii) pocketed the recoveries and (iv) left the defective loans in the securitizations.  Bear Stearns did not tell the securitization participates that it made and settled claims against the suppliers.  Nor did it review the loans for breaches of EMC’s representations and warranties in response to the “red flags” raised by the EPDs.  Bear Stearns thus profited doubly on defective loans it sold into securitizations.  Indeed, the increase in loan volume from the securitization of defective loans proved to substantial, and the recovered secured on those defective loans proved so lucrative that, by the end of 2005, the Bear Stearns’ trading desk mandated ahat all loans were to be securitized before the EPD period expired.”

“The secret settlement of the claims on the securitized loans was a win-win for Bear Stearn and its suppliers, but a loss for the securitizations.  It was a win for the suppliers in that they settled in confidence all claims with respect to the defective loans at a fraction fo the full amount that would have been due had the loans been repurchased from the securitization.  Conversely, if they did not comply with Bear Stearn’s repurchase demands, Bear Stearns cut off the financing it extended for the origination of additional defective loans.  The secret settlement was a win for Bear Stearns, which (i) reinforced its relations with the suppliers that it depended on to provide the precious fodder for future securitizations by settling at the discounted amount, and (ii) pocketed the recovery from the suppliers. It was a loss to the securitization participants, which were not notified of the defective loans in the securitizations and did not receive the benefit from the repurchase of defective loans from the securitizations.” Source: Email traffic, which includes the co-head of fixed income

“By mid-2006, Bear Stearns’ repurchase claims agains the suppliers of the loans had risen to alarming levels, prompting warnings from its external auditors and counsel.  In a report dated August 31, 2006, the audit firm PriceWaterhouseCoopers advised Bear Stearns that its failure to promptly evaluate whether the defaulting loans breached EMC’s representations and warranties to the securization particpants was contrary to “common industry practices, the expectation of investors and ... the provisions in the [deal documents].”  Shortly thereafter, Bear Stearns’ internal counsel advised Bear Stearns’ management that it was breaching its contractual oblications by failing to contribute to the securitizations the proceeds it recovered pertaining to the loans in the securitizations.  Bear Stearns did not disclose to Ambac either of the findings.”

“By January 2007, the Bear Stearns internal audit department reported in 2006 it had resoled “$1.7 billion of claims, an increase of over 227% from the previous year,” and that “$2.5 billion in claims were filed, reflecting an increase of 78% from the prior year.”  The “majority” of the claims pertained to loans with EPDs...”

“...the Bear Stearns analyst working on the deal more accurately described the deal in internal correspondence as a “going out of business sale.”  Another called it a “DOG”.”

“By late 2007, Ambac began observing initial sings of performance deterioration in the Transactions, and requested from Bear Stearns the loan files for 695 non-performing loans, which were drawn from each of the SACO Transactions.  Ambac reviewed the loan files for compliance with EMC’s representaitons and warranties and discovered widespread breaches of representation and warranties in almost 80% of the loans examined, with an aggregate principal balance of approximately $40.8 million across all the Transactions.  Ambac provided EMC with its findings and asked EMC to comply with its contractual obligations to cure or repurchase the non-compliant loans.  In disregard of its contractual obligations, EMC refused and continues to refuse to do so, even though Bear Stearns itself had identified widespread breaches in the very same loans sample.” 

Indeed, unbeknownst to Ambac until the discovery in this case, Bear Stearns engaged a consultant to preemptively review the same loan files Ambac requested in late 2007.  After an iterative review process between Bear Stearns and its consluting firm to whittle down the breach rate, they still concluded that 56% of the loans were defective.  In breach of its clear contractual obligations, Bear Stearns did not advise Ambac of its conclusions or provide Ambac or any other securitization participant with “prompt notice” of the breaches identified as was required to do so.  Bear Stearns instead adopted a strategy to reject as a matter of course Ambac and other insurers’ repurchase demands, regardless of Bear Stearns’ own findings.”

“Knowing that its fraudulent and breaching conduct was resulting and would result in grave harm to Ambac, Bear Stearns then implemented a trading strategy to profit from Ambac’s potential demise by “shorting” banks with large exposure to Ambac-insured securities.  (The “shorts” were bets the banks’ shares or holdings would decrease in value as Ambac incurred additional harm.)  In late 2007, Bear Stearns Senior Managing Director Jeffrey Verschleiser boasted that “[a]t the end of October, while presenting to the risk committee on our business I told them that a few financial guarantors were vulnerable to potential write downs in the CDO and MBS market and we should be short a multiple of 10 of the shorts I had put on ... In less than three weeks we made approximately $55 million on just these two trades.”  Bolstered by this success, Bear Stearns carried this trading strategy into 2008.  On February 17, 2008, a Bear Stearns trader told colleagues and Defendant Verschleiser, “I am positive fgic is done and ambac is not far behind.” The next day, in the same emal chain, the trader again wrote to Defendant Verschleiser to clarify which banks had large exposures to Ambac, asking “who else has big fgic or abk [Ambac] exposures besides sog gen?”  As it was “shorting” the banks holding Ambac insured securities, Bear Stearns continued to conceal the defects it discovered and deny Ambac’s requests repurchase demands relating to collateral that back the securities in the Transaction.”

“Bear Stearns’ derogatory characterization of the loan pools it securitized is consistent with Ambac’s on-going analyses of the loans in the Transactions.  After conducting the initial review noted above, Ambac reviewed a random sample of 1482 loans, with an aggregate principal balance of approximately $88.2 million, selected across all four Transactions.  The results of that review are remarkable.  Of these 1,482 loans, 1,351, or over 91%, breached one or more of the representations and warranties that EMC had made to Ambac.  As of June 2010, Ambac’s loan-level review consisted of 6,309 loans, of which it identified 5,724 loans across the Transactions that breached one or more of EMC’s representations and warranties.  Bear Stearns (now JP Morgan) – acting with authority to perform EMC’s obligations under Transactions – has to date “agreed” to repurchase only 52 loans, or less than 1%, of those breaching loans, but has in fact not repurchased a single one.”

In a nutshell: JPM committed fraud through misrepresentation, then wilfully and maliciously traded against the entities it had sold misrepresented securities to, and lastly, when even all this failed to rescue the failed bank, it was rescued, courtesy of the US taxpayers. Only in America will this lead to absolutely no jail time whatsoever.

 

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Turd Ferguson's picture

If anyone is looking for my latest attempt at knife-catching, you'll find it here. You'll also find a link to a terrific new piece from John Embry that is to be released on Friday.

http://tfmetalsreport.blogspot.com/2011/01/drawing-line.html

Sorry for the spam. Now back to your regularly scheduled blog.

Mr Lennon Hendrix's picture

Turd it is not spam.  We know you.  We like you.  You are our friend.  You give us insight and talk with us.

Turd Ferguson's picture

Thanks, Jimi. I junked you for good measure.

Turd Ferguson's picture

Jimi: I'm at double digits in junks! A new personal best!!

Fearless Rick's picture

Turd, I junked you in a pique of misplaced affection for your blog, as in "You Always Junk the One You Love," or, via CSNY, "Junk the One You're With."

Maybe "Junk is a Many-Splendored Thing."

egdeh orez's picture

Karma's a bitch, Bear Stearns and JPM RIP

Triggernometry's picture

"What's Junk got to do with it?"

tickhound's picture

Along those lines... Zeitgeist Moving Forward on youtube for those interested. Fine flick. Now back to the rat race.

atomicwasted's picture

What is it about this "Zeitgeist" thing that makes me think of Raelians and El Ron Hubbard?

OnTheFelt's picture

Because you're a fucking moron who is afraid to think for himself.  Did you really just compare Zeitgeist to Ron Hubbard?

No, you're right the complete assualt and destablization of the citizens on Earth by powerful cabals who institute endless ponzi schemes for their financial gain is a good thing and should not be discussed much less examined and understood.

 

GO FUCK YOURSELF!

Quixotic_Not's picture

Probably one of Karl Dickenger's ditto-heads...for them anything that isn't KD approved is tin.

What a transparent charade ol' Karl is; Just another wannabe dictator waiting for his brown shirt uprising!

Where did "his" Tea Party go wrong?  ROFL

bankonzhongguo's picture

Is this a surprise to anyone anymore?  This is EXACTLY why the wheels are coming off America.  Its not the money, its the complete failure of the government to enforce the law.  Its confidence.  Where are the prosecutions?  Its beyond negligence now.  Its worse, the government has become a co-conspirator in criminal activity a la POMO.

Good Christ.  We all could go on and on.

DOJ is spending their time rounding up tired half dead Italian mafia and paroling the sky for AQ.  Meanwhile, Beasts are running wild across the land drinking the blood of your children in some Hieronymus Bosch painting.

B9K9's picture

I think you might be missing the point. It's not that the power-elite didn't realize the wheels would come off. In fact, the entire point of the exercise is abandoning the rule of law was to avoid precisely this outcome.

In other words, according to Ben's thesis, the Fed should have been able to avert deflation and get the inflationary game going again. If he had been successful, ZH or other finblogs wouldn't even exist. Imagine a scenario where homes valued at $500k in 2008 had appreciated another 15% or so over the ensuing 3 years. Everyone of these mortgages would have been flipped & re-rolled/packaged, there wouldn't be any mammoth unrecorded loss reserves, etc.

The real question becomes: what's the difference between armageddon occurring 3 years ago vs today? I would suggest that time frame gave the dual citizens who engineered this fiasco enough time to ship real assets safely offshore.

MachoMan's picture

Bingo.  It also gave the rest of us time to prepare...  although, their plans and means are likely far better than ours...

I think you can even make a decent argument for postponing armageddon for as long as possible...  In the end, I think a few more years of debt fueled lunacy will likely have an immaterial effect on the outcome.  Of course, it would obviously be best for the people to have this information so that they could make an informed decision to choose this path, collectively...  I suspect their answer would be the same...  but, of course, if everyone knew (believed?), then we would have collapsed already.  I would be inclined to take whatever path did not allow the principal actors in all this mess to leave with their spoils, but I didn't get to vote...

B9K9's picture

Yep, consider hearing a doctor tell you that you have 3-5 years left to live. Are you going to become Mother Teresa or Amy Winehouse?

For the last three years, many of us who have repeatedly pointed out what is going on and what will eventually occur have actually had a pretty fun time, notwithstanding the mental anguish of seeing one of humanity's greatest experiments in self-government ride off into the sunset.

So, break open the liquor cabinet and party on. There will be time enough for discipline & hardship.

Fearless Rick's picture

Right on, dude! Amazingly, I just got an $874 judgement and warrant against my tenants and kept them in the house. Kicker is they pay or go on March 4. They lived it up until I and the rule of law caught up with them. Being that the house they rent from me is my only property, I have the edge, being on top of things.

Meanwhile, the home I inherited from my deceased father back in July 2009, is still in foreclosure (closing in on one year from initial filing with no additional motions by BAC) and I'm living in it. The race is on between BAC and the county and me for who gets the goods. County can foreclose Jan. 1, 2012, unless I pay back taxes. If I am still here a year from now, guess I'll pony up the dough to the taxing authorities and wonder whether I should file failure to proceed against BAC, who actually has no standing in FC.

Wow! You're right. This is fun. My bet it BAC goes tits up and I eventually file for quiet title while they're in the middle of too many lawsuits and bankruptcy proceedings.

I'm having lobster and wine tonight... if I'm still sober enough to cook in three hours.

MachoMan's picture

Our watchmen literally do nothing but watch men while on the clock (tranny porn for those of you wanting more specifics).  The institutions are staffed with incompetent feet on the ground and immoral regulatory turnstiles at the administrative level.  The expectation for them to do anything is futile.

 

Quixotic_Not's picture

Here's more of the "Best government you can buy":

SEC CHARGES MERRILL LYNCH FOR MISUSING CUSTOMER ORDER INFORMATION AND CHARGING UNDISCLOSED TRADING FEES

 

Washington, D.C., Jan. 25, 2011 – The Securities and Exchange Commission today charged Merrill Lynch, Pierce, Fenner & Smith Incorporated with securities fraud for misusing customer order information to place proprietary trades for the firm and for charging customers undisclosed trading fees.

 

To settle the SEC’s charges, Merrill has agreed to pay a $10 million penalty and consent to a cease-and-desist order.

Without admitting or denying the SEC’s findings {i.e. guilt}, Merrill consented to the entry of a Commission order that censures Merrill, requires it to cease-and-desist from committing or causing any violations and any future violations of Sections 15(c)(1)(A), 15(g), and 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3(a)(6) thereunder {Merrill's gonna have to invent a new scam!}, and orders it to pay a penalty of $10 million.

http://www.sec.gov/litigation/admin/2011/34-63760.pdf

 

Just gotta love a country where the kleptomaniacs can rob the citizenry and count on the .GOV to masterfully sweep their shit under the carpet, all without admitting a god damn fucking thing and only paying a trifle in tribute!

 

What a joke!

 

Carry on with your indignant anger and disgust ZHers...I'm sure the pigmen are shaking in their boots!  ROFL

Mark McGoldrick's picture

There are two John Emby links that are attached.  The one from last summer was embarrassingly wrong.

That article was a prediction that gold was about to go parabolic due to supply shortages (Isn't funny how every commodity these days are about to go parabolic due to supply concerns?)  In fact, gold only moved 15% - and that was in the face of a massive blogosphere fear-mongering campaign centered around hyperinflation, the evisceration of currencies, Hindenburg Omens, sovereign defaults and multi-trillions in quantitative easing.     

All that: 15% gold move. Sort of lame.  Krispy Creme Donuts moved 200%. There is a lesser known cartoon on YouTube that explains - quite convincingly - that JPM is short 75% of all outstanding yeast contracts on the COMEX.  

The parabolic move was in silver, which moved >50% in mere months and was never mentioned in his article.  Once he realized that the "scare the shit out of everyone about silver" campaign was gaining traction, he started barking about silver instead.     

My favorite quote of his from that link:  the public is being bombarded with misinformation and propaganda.   

Turd Ferguson's picture

"embarrassingly wrong."?

Whew. I guess it all depends on your perspective. I DO like your avatar, however.

tmosley's picture

I would like to remind you and everyone else that this is options expiration week.  Your entry point will be Thursday or Friday, not today nor tomorrow.

Don't get too caught up in TA.  Yes, the EE spends a lot of time painting charts, but they will abandon all of that in order to try to force options holders out of the money.  This desperate push down in the face of a record number of longs standing for delivery in JANUARY of all months shows how spooked the EE is.  They won't be able to keep it up through next month.  It looks to me like the bears are going to be proven right here.  Your big prediction is likely to come true, probably before mid-March.

I would suggest you and all other paper traders take this opportunity to follow Harvey's advice and GTFO of paper trading and take delivery THIS WEEK.  Premiums are already rising, meaning your paper gold and silver buys less real gold and silver.  You can still get generic silver fairly cheaply, but that is liable to change quickly.  When premiums go up, they tend to go up a dollar at a time, which is a big jump in price.  

Don't wait too long.  I already have a big stash, so I can afford to wait, or even miss out on the price move if supply suddenly disappears or if premiums jump significantly.

Mark McGoldrick's picture

Are you trying to do a technical analysis of manipulation?  

The only thing less predictable than charting a manipulated market is charting the manipulation, itself. 

 

tmosley's picture

No.  Past experience has taught us that when open interest remains at abnormally high levels, the price will fall during options expiration.  This is due to the big shorts trying to scare away the tiny longs.  These fall used to take a long time to recover from, but now you see prices return to their pre-opex week levels within a few days.

I rarely look at charts, but rather try to understand the reasoning and actions of those few who move the market up (the BoS) and down (the EE).  I do this in order to find the optimum entry points for buying more physical.  The easy way to buy is to understand the pattern and simply buy around noon time on the last Thursday of the month, which is likely to be near the low for said month (but check the options and futures expiration schedules to make sure you have the right Thursday).  This is good for regular investors like myself.  Those looking for a good entry point to bring in a large amount of cash should look to the jobs report, as per Andrew Maguire.

Mark McGoldrick's picture

Past experience has taught us that when open interest remains at abnormally high levels...

But the opposite is true.  Open short interest is declining. 

Here is the report from December, showing 23% short:

http://www.cftc.gov/dea/bank/deaDec10f.htm

Here is the current report from January, showing 20% short:

http://www.cftc.gov/dea/bank/deaJan11f.htm

Going back a year, here is the one from January 2010, show a whopping 32%

http://www.cftc.gov/dea/bank/deajan10f.htm

As you can see, the open short interest has actually declined quite significantly in silver, whether you're considering YoY comparisons or monthly comparisons.  And that begs the question, why all the sudden hype about silver?  Why not palladium - it has a much more alarming short ratios.  Or gold?  Why has gold faded in the past few months, yet its short contracts are 33% higher than silver?  If you look at the silver data, the hype doesn't fit reality. The only way you can make the silver propaganda work is if you pull out charts/ratios from thousands of years before the legend of Jesus Christ - and that is just dumb.  

That is the power of propaganda.  

And all of this doesn't even include the fact that options expiration was last week (see stormsailor's comment below).  

tmosley's picture

Perhaps I wasn't clear.  What I mean is that normally longs would be covering en masse right now so they don't have to take delivery.  This is not happening.  This indicates that, just like in December, many of them are piling on and standing for physical delivery or a nice fat cash bribe (as happened in December).

You idiots who claim to know when opex is would do well to actually look it up yourself before making yourselves look like bloody fools. http://www.heritagewestfutures.com/downloads/futures-options-calendar.pd...

Funny you should talk about propaganda, when you IMMEDIATELY fall for propaganda that caters to your bias, without doing one iota of fact checking yourself.  The above link is the first link on google for "gold options expiration calender".  You should be ashamed of yourself.

Mark McGoldrick's picture

Actually, I think it's an easy mistake to make:

http://www.optionsclearing.com/about/publications/expiration-calendar.jsp

But you're right, I didn't fact check the dates, and I shouldn't have included that last sentence until I verified it.  I assumed it was correct.

As far as "not doing one iota of fact checking", that is incorrect.  My entire post is linked to the CFTC. 

 

tmosley's picture

I was referring to your edit (referencing the false opex date), not the body of your post.

surferthx1138's picture

Thanks tmosley! Always with the interesting 'heads-up'. I for one love the chance to squeeze some love from the 'manipulation machine', feels good even if I only cover.

stormsailor's picture

op-ex was last thursday and friday

Fearless Rick's picture

I was wondering if anyone was paying attention. Stormsailor wins the de Bunk Award for honesty in markets for today. Yeah, if you follow mosely's advice (wrong) you deserve to be burned, fried, and broiled to a crisp.

Kinda like telling people in Ohio in 2004 that election day is Wednesday so they won't show up. Gotta love those Republicans.

Carry on. And ignore the four posts before stormsailor's.

Spalding_Smailes's picture


The silver market’s conflicting signals


Talk to the precious metal bugs, and you’ll soon come across the story that there is a growing disconnect between what’s happening in the futures market and the physical market.

This, they say, is particularly the case for silver, where rumours of retail shortages have been doing the rounds since about the start of the year.

On top of that, the silver forward market, as assessed by the London Bullion Market Association, did something relatively unusual last week. It flipped into backwardation — a situation which sees the price for physical silver today (spot) become more expensive than that for delivery in the future.

This is reflected in a negative silver forward rate. On Tuesday, for example, the three-month rate was still sitting stubbornly negative at minus 0.09750 per cent, having gone as negative as minus 0.17000 per cent on January 20.

Now, due to the financial characteristics of gold and silver — albeit less so in silver’s case due to greater industrial use — this backwardation structure is not the norm. Prices usually ascend into the future to compensate cash buyers for the missed opportunity of collecting an overnight interest rate, less the cost of storage which is borne by the holders of the physical metal.

While backwardation in the LBMA rate is not unprecedented, the scale and severity of the recent flip has been, say market participants .

The last time the three-month rate fell as dramatically was in October 2008, and even then it only turned negative (went into backwardation) in January, remaining so until March 2009:

A tale of two silver markets.

But here’s the thing. While, backwardation normally suggests market tightness, in reality there have been some conflicting messages coming from the market in terms of supply and demand.

On one hand, supporting the case for tightness, data from the US mint last week showed that sales of American Eagle silver coins hit a monthly record of 4.6m coins in January, surpassing the record struck in November last year — even before the month was over.

Traders also point to the unusual situation of a premium having developed in the price of North American silver versus that traded in London.

On the other hand, according to Suki Cooper, precious metals analyst at Barclays Capital, the broader supply and demand picture currently looks healthy.

What’s more, the fall in silver price since the beginning of the year has been convincingly matched by robust outflows from silver exchange traded products (ETPs) — denoting lower demand from the investment universe.

As Cooper told FT Alphaville:

Backwardated markets tend to reflect current supply tightness or a sharp increase in the near term demand with low inventories. But, at the moment silver is finding conflicting interest in terms of investment demand.

The outflows out of iShares’ Silver Trust, for example, have only very recently abated, noted in the Trust’s shares outstanding:

But then again, could it be that it is ETP redemptions — encouraged by falling prices — that are contributing to high demand for physical spot silver delivery to ETP authorised participants?

Either way, the plot thickens.

http://ftalphaville.ft.com/blog/2011/01/25/469001/the-silver-markets-con...

Spalding_Smailes's picture


 

Lease rates in the London bullion market have risen precipitously. Well, it's not so much that lease rates are rising - they're pretty cheap compared with their year-ago levels - it's more that forward rates are at historic lows.

 Forward rates determine the pricing of bullion transactions in the over-the-counter market. A decline in forward rates implies one of two things: There's either a scarcity of metal available for swap or lease transactions, or there's heavy forward selling.

So, which is it? Well, we can gather some clues from the COMEX market. The latest Commodity Futures Trading Commission data show commercial accounts engaging in heavy selling and long liquidation. To boot, money managers have built their largest short position since August 2009 (and, if you're a contrarian, small speculators have taken up their strongest long position in a year and a half).

Given all that, the aroma wafting from the gold market seems to be a harbinger of a sell-off. Technically, gold's stalled now. Key support for the February COMEX contract sits at $1,120 after bulls backed off from a test of the halfway point for the contract's December swoon. A close below that level makes the sell-off case.

If February's price closes below the $1,111 level, the December low at $1,075 then becomes the bears' target.

No guarantees, of course, but at that point, bulls will have to consider how much they're in love with a four-figure gold price. How's that smell?

 

http://www.hardassetsinvestor.com/component/content/article/3/1957-gold-...

Confuchius's picture

And, SS, how many thousands of tonnes are you trading in for infinite supplies of unbacked and worthless toilet paper? Or: Are you merely a central bankster talking his book?

TruthInSunshine's picture

"JPMorgan Chase & Co. demanded that a lender repurchase bad mortgages even as it resisted calls to buy back the loans from bonds created by Bear Stearns. “That would be pretty bad” if true, said Joshua Rosner, an analyst at New York-based research firm Graham Fisher & Co.

 

That would be pretty bad, and how.

 

tonyw's picture

Why doeasn't everyone with a pension investment that has been affected by this send a recorded (signed for) letter to their pension fund demanding it takes action before time runs out for them to initiate proceedings otherwise they will be held liable?

 

MsCreant's picture

My bet is all of it went into offshore accounts where they bought PMs with it. It's gone. Not even a sack of shit. A sack of empty. 

WE ARE THE BAG HOLDERS.

eatthebanksters's picture

Think back on the ratio of insider selling to buying over the last year...that tells the story.

bigdumbnugly's picture

yep.  JPM.  Just a Pile of Manure.

velobabe's picture

manure has value.

JPM has no value whatsoever, in any form†

Pee Wee's picture

But think of the bouses paid out of the US treasury to these crooks in broad daylight.

Complete ass-raping of fellow countrymen (women and children) for a buck.  

No shame among thieves.

No shame in law enforcement either...

Xibalba's picture

What documents?

jus_lite_reading's picture

AND AND "Consumer CONfidence Index Hits 8 Month Highs"

 

MORE BULLSHIT than you can shake a stick at!

Sudden Debt's picture

These guys should be shot or put on the electric chair.

 

CONFISCATE IT ALL!!!

 

That US president of yours is surely a piece of crap. like ours.

THEY SHOULD ALL BE SHOT!!!