When JPM/HSBC Don't Like The Results, The CME Just Changes The Rules: Full Revised Silver Margin Schedule

Tyler Durden's picture

Here is how the CME just changed the rules just as the Fed was losing the game. Full new margin schedule attached.

Chadv10-461

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trav7777's picture

drop gettin apocalyptic bitchez

Ag off a buck, Gold intraday -40...etc

Walter_Sobchak's picture

sounds like a good time to BUY trav.

Sudden Debt's picture

 

I hope silver stays flat for the next 3 weeks!

3 more weeks for my christmas bonus and I want to spend it all on silver :)

 

 

Today I was 5 seconds short of maxing out my cash accounts and go all in on silver rounds.

Bullions just where getting a bit to high and I expected a little drop. Glad I didn't do it.

 

erik's picture

Before the SLV announcement...

"In the options market, Pete Najarian said there's been tremendous activity in the SLV

exchange-traded fund. More than 300,000 contracts changed hands in just the first few hours of trading. But with more puts being bought than calls, Najarian said investors are either hedging or speculating silver's due for a pullback after its 56 percent move to the upside this quarter."

Is it possible that somebody's got the news before the rest of us?

TheMonetaryRed's picture

LOL!!!

Yeah it's just conceivable that such a thing might have happened.

I thought there might be "unintended consequences" from this "get tough" stance on JPM:

http://www.zerohedge.com/article/rico-suit-filed-against-hsbc-and-jpmorg...

P.S. - Go Dogs.

CrockettAlmanac.com's picture

Is it possible that somebody's got the news before the rest of us?

 

I imagine a scenario similar to the event in February which Andrew McGuire described to the CFTC before it had in fact occurred. And yet the beat goes on...

LittleAl_1's picture

This is peanuts relative to the fact ETF shares are deliverable against Comex Gold futures.

“Gold Backed” ETF’s are deliverable against Comex futures contracts. The Biggest Comex shorts are HSBC and JP Morgan, who also happen to be the custodians for the “Gold Backed” ETF’s!!!

 

The banks rumored to have the largest short positions in the gold market, JPM and HSBC, are the custodians for the two largest “gold backed” Exchange Traded Funds, SPDR Gold Shares (ticker: GLD) and IsharesCOmex Gold Trust (ticker: IAU).

 

Heres the scary part, these ETF shares are eligible for delivery for the benchmark Comex gold futures contract!!!!!!

 

Its only a matter of time this ponzi scheme blows up.  But by then it doesn’t matter if you hold GLD shares or Comex shares, they’ll both be backed by promises similar to our nations currency. 

 

Those specific people over at Comex/Nymex who pushed this through when this all falls apart, I hope aren’t forgotten when this shoe drops.

 

Posted on CME’s website,

 

The purpose of this Notice is to confirm that the Exchange would accept gold-backed exchange-traded Funds ("ETF") shares as the physical commodity component for an EFP transaction involving COMEX gold futures contracts, provided that all elements of a bona fide EFP pursuant to Exchange Rule 104.36 are satisfied.

 

http://www.cmegroup.com/tools-information/lookups/advisories/market-regulation/SER-4942.html

 

Also on CFTC website.

http://www.cftc.gov/files/submissions/rules/selfcertifications/2005/rul021805nymex001.pdf

 

I-shares Comex Gold Trust (ticker: IAU).

The assets of the Trust consist primarily of gold bullion held by JPMorgan Chase Bank N.A., London branch (the “Custodian”), as agent of the Trust responsible only to the Trustee.

http://www.sec.gov/Archives/edgar/data/1278680/000119312510251865/d10q.htm

 

From SPDR Gold Shares (ticker: GLD) 10Q

Gold is held by HSBC Bank USA, N.A. (the “Custodian”), on behalf of the Trust, and is valued, for financial statement purposes, at the lower of cost or market.

http://www.sec.gov/Archives/edgar/data/1222333/000095012310073211/y03680e10vq.htm

 

Little Al

FreedomGuy's picture

Yeah, S. Debt. I was thinking the same. I just got a bunch of rounds I ordered two months ago and was debating whether to buy now before it hits the stratosphere or wait for a pullback. You can usually count on the traders to do some profit taking. Plus, if all the conspiracy theorists are right there will be some sort of market interventions where the little guys like me/us can jump in for a few more rounds, lol.

Glad I waited. Logic tells me there will be periodic pullbacks and profit taking. However, this is where I like being the long term holder hedging against economic armageddon. I don't need the very best price at any given moment. I can take delivery and put it in the safe behind my gun cabinet and barbed wire, lol. I will let the short and intermediate guys sweat out the day to day numbers.

However, if I do see the currency apolcalypse happening I will go all in with everything I can get my hands on.

While markets may have gone back and forth today, I do not see any change in Fed or government policy that makes me change my mind on metals. No one has announced a balanced budget, no more QE or the end of the currency wars.

ATG's picture

sounds like a good time to BUY trav

famous last words

Check Farrell Rules again before reloading

http://www.businessinsider.com/bob-farrells-10-investing-rules-2009-12

SpeakerFTD's picture

The margin change is a nice excuse, but hardly explains the whole move.

For that, look at the long bond.  Look at TLT.   If yields scream higher, PMs will get killed as they should.  

If this is the end of the bond bubble, it is probably also the end of the PM bubble.

bull-market_3.0's picture

Why would the end of the bond bubble imply the end of the PM bubble?

If the bond bubble ends (presumably because of higher inflation) isn't that good for PMs?

Please clarify?

SpeakerFTD's picture

If there is catastrophic hyperinflation, PMs are good, but if interest rates climb and inflation is not severe, PMs stink, simply because they do not earn any interest (and usually have a carry cost to boot).

If the 1-yr rate is 0%, you lose nothing owning PMs.  Take it up to 5%, and they don't look so hot.

EscapeKey's picture

Except, of course, that equities underperform during hyperinflation. And PMs "stink" - are you paid to post your lies here?

1-years - yes, unless the house collapses before you get your principal back. Hey COMPLETELY RISK FREE INVESTMENT, right?

 

SpeakerFTD's picture

Did you read my post at all?  I didn't even mention equities.  I think equities are the worst investment right now.  I am actually on the King Dollar bandwagon at the moment.  My point was that, all other things being equal, with any marginal higher interest rate available on cash, a PM becomes marginally less attractive.

BTW, I do own some physical PMs, purely as insurance against a worst case scenario.  Which also makes me wonder why everybody is so upset silver is not going straight vertical.   If we were to wake up next week with $50 silver, it would not be a good thing for anybody. 

And finally, if anybody here was long PMs on margin, you got what you deserved. 

EscapeKey's picture

Fair enough. Apologies, I was a bit quick off the mark.

Nah, I've only got physical, I don't touch anything but. For my part, I'm upset with regards to Silver, because it's so obvious what they're doing. There are plenty of other commodities rising at faster rates but Silver, but they don't strike down on those, despite them being essential for life. You do the math.

I wouldn't put a penny into the US Dollar or USD-denominated debt. I think the USD is living on borrowed time, and every day I get out of bed wondering who those idiots are who still buy treasuries, when the status quo of the US is so obviously completely unsustainable. The only - ONLY - reason for people still buying them is in the hope of finding a greater fool down the line - i.e. practically the definition of a ponzi scheme.

 

JonNadler's picture

How do you guys like my new handle. He will replace Jonny as Obama2012 replaced JW

 

bull-market_3.0's picture

Thanks for the explanation SpeakerFTD. 

On a similiar note, how do other commodities perform in this situation? I assume agricultural would rise with inflation whether it is hyper or regular, correct?

How about energies? Does it also rise with hyper/regular inflaton? And for what reasons?

Can you explain the effect on metals such as copper as well?

Really Appreciate it if you can.

SpeakerFTD's picture

If interest rates rise significantly, if the bond bubble has popped and we are looking at a multiyear trend higher in interest rates, commodities will get absolutely crushed across the board.   There will be supply/demand issues as always, and if Peak Oil is real that will have a supportive effect on some commodities, but in general, a move higher in interest rates now equals forced-upon austerity, and it will crush both genuine demand and any speculative juices currently supporting prices.

Absent Fed interference, we are in a naturally deflationary environment as we need to delever decades of malinvestment.  Fed interference has so thoroughly screwed up normal market signals, that I think we may be witnessing a theoretically "impossible" scenario, such as stagflation was once imagined to be.  In this scenario, long-term rates rise over a long period of time even as deflation bites deeper.   The driver for higher rates would be solvency concerns and a general lack of trust in any other market player, including the U.S. government   If that happens, you have a massive Depression over several years, and assuming war does not emerge as a result, the man with actual cash in hand at the end of it is able to buy assets at fire sale prices from people who need to trade those assets for the necessities of life.

 I realized I will be wildly junked for such an unorthodox theory, but my point is that extent of Fed interference with the market is such that the unwinding process is bound to create previously unthinkable market behaviors.

Kidrobot's picture

Just currious, but is it even possible for interest rates to rise?   I mean, its not like we are going to magically stop operating off new debt, and with higher rates..wont they just have to print more anyways to service it?  And if so, ... whats the difference between that outcome and what we have now...where PM's are soaring.

I still believe it comes to faith in the system, and I have none.  So, I'll keep stacking.

FreedomGuy's picture

There is not only a deleveraging of malinvestment plus the fraud but a general freeze or destruction through government policy wrecking the economy and incomes, as well.

The other deleveraging that needs to be done is the price of money itself. The entire Western and even much of the Middle Eastern world has serious debt problems. Ergo, it seems that the price of money should have been going up dramatically the last few years, not down. As wealth has been destroyed, debt has not completely followed, particularly at the government level. However, with the Fed and central banks intervening there is an artificially low price to money itself. If money could be priced right it seems to me a lot would come off the sidelines and even out of bonds where its been parked more to avoid loss than achieve gain. This of course would be bad for the USA, the world's largest debtor.

EscapeKey's picture

Raising rates? There's zero chance of that happening, as it would mean instant bankruptcy of millions of homeowners, who in turn would take all the banks with them.

As for the "natural deflationary environment" - well, we WOULD be, if only it wasn't for the Fed effectively promising to print enough to backstop all the toxic waste (pay attention to the extremely open-ended promises of the QE2 statement). How any semi-rational person can't see how this will feed into inflation is beyond me.

As I said it in my previous response - the only reason for anyone to buy US Treasury debt is in the expectation of locating a greater fool down the line (which in today's environment usually IS the Fed). I.e. it's a ponzi scheme. The US is effectively insolvent; it's a termite ridden house about to collapse. There is no way her debts will be honoured in a fair manner.

And once the US Dollar Index drops, ignoring liquidity concerns, whether you're in cash of bonds make very little difference - they will both drop in terms of purchasing power.

Anyway, Gold up $10 to $1,407 and Silver back up to $27.85.

LowProfile's picture

Equities get hammmered, commodities do OK, PMs do well (they do well in inflation or deflation, poorly under stable low inflation).

functionform's picture

Excellent explanation Speaker, it's been a while since I've actually learned something from the ZH comments.

Calculated_Risk's picture

If interest rates climb...

 the debt becomes unserviceable.

 people save more.

 Uncle ben wants neither of these.

 

ATM's picture

Exactly. Rates cannot go up and will not be allowed to go up until Uncle Ben cannot keep theGenie in the bottle any longer. That's the whole point of the QEs - drive rates down by buying all the debt you can at any price because if rates go up all hell is going to break loose.

Bermonkey will print print print until everything that is real is unobtainable because no one will trade them for paper money. Why would they when paper money has no value because it can and is created by the hundreds of billions (and soon to be trillions) at the flip of a switch.

Ben has to have rates low, and just as the Fed did for over a decade in the 40s and into the 50s they will keep rates low. 10yr at 2% was the norm and I expect we will see that for the next 5-7 years or longer.

When the lights go on though, the rates will explode and inflation/hyper inflation is right behind. All that money will come pouring out of every nook and cranny and try to buy anything at any price.

Max Hunter's picture

yeah.. I agree.. but 10yr at 2.63 today... Will the markets eventually have a say in rates?.  Can the fed buy 100% of all sovereign debt? What about other bonds?..

There is no way out of this.. They can take silver back down to 20 and I wouldn't even flinch... Point is, we are phucked..  The only thing that will fix this is a collapse and reset..

QQQBall's picture

"When debt becomes unservicable", In the short run higher rates increases the holding cost of metals, but ultimately when DS rises, its gonna crush the currency -

 

See Grease ;)

Sabremesh's picture

Your argument is logical, but your premise that interests rates are going up and inflation isn't is completely delusional on both counts. 

DarkMath's picture

If rates go to %5 The United State Treasury will spontaneously combust:

http://www.youtube.com/watch?v=tZrqC5LL_oo

Rick64's picture

Interest rates climb? Can't see that happening anytime soon.

Pondmaster's picture

5% !!!! Yeah , in a decade maybe. Are you smoking some of Ben's stash?   

Al Gorerhythm's picture

This move is the trademark strategy used by these big banks and their cronies at CME. They all piss in the same pot.

Their MO is dictated by Heavy losses on naked shorts. Actions that they can take can be one of three that I have experienced.

1.a) Banks remove their buy bids off the board, leaving a skeleton crew of legitimate long bidders (making offers to buy).

b) Banks issue enough naked short offers to fill every bid on the board. Filling ever lower bid makes the price move lower, triggering stops. The momentum is then self-fulfilling.

c) When momentum slows, jump in on the buy side before everyone else and buy back your shorts at profit, ripping off the longs who are bailing at a loss.

2) a. Get your buddies at the CME to raise margin requirements, enticing long players to offload contracts due to higher carrying costs.

b. Get your buddies at the CME to implement the rule change at end of trading day when most day traders and desk jockeys have turned their console off and have gone to the local bar to brag about their long winnings. This momentum will carry over into the after hours market when there is recognized light trading. Helps the momentum with fewer naked shorts needed to keep the price falling.

c. Weak hands dump contracts into hands of short dealers, who are buying back their losing positions. Guaranteed light volume price move. 

3.) a. Force Majeure. Get your buddies to tell the longs that there is no way that you can deliver on your naked promise. The CME lets the shorts off with a slap on the wrist and severe frowning.

b. To the longs the CME will say; "Go fuck yourself".

c. That is their next play.

Buy physical with both hands. Play their paper games on the long side, as of NOW, with mackerel-assed, tight stops.

technovelist's picture

Yes, just like what happened in the 1970's, where interest rates and gold both went WAY up.

Retard.

realitybiter's picture

Interest rates climbed throughtout the 70's, ineffectively chasing inflation.  And gold rose right along with it.  Bonds will fall, gold will rise, stocks will go sideways to down.  We can never afford to take rates where they should go, hence always behind inflation.  Interest payments on debt is already 12 % of gdp or some silly high figure.  Imagine what it will be when we have to pay fair rates.

SpeakerFTD's picture

To be clear, I am a long-term PM bull and will always have some in my portfolio.  But in the short-term, we could correct very hard from here, especially if the Fed cannot keep a lid on the long end of yield curve.  Personally, I don't think they will.   They will fail like they have always failed over the last decade.  

If they fight hard enough, the Fed could potentially succeed in absolutely destroying the dollar as a functioning global currency, but I think/wish/hope they are not that suicidally stupid, as anyone who is very long PMs will look quite wealthy compared to their neighbors, but will have to protect that wealth in a completely dysfunctional, potentially violent, banana-republicesque society.  Not a good result in my book.

More likely, I think/hope, the Fed will blink, the long end of the yield curve will rise, potentially very quickly, and the dollar will soar, even as the interest rate environment will force us into a prolonged period of deflationary austerity.  This scenario is not bullish PMs, although if the behavior of the Yen over the last decade is any indication, it might be very bullish the dollar.

I don't know what the Fed is going to do, and neither does anyone else, so making big bets on the politics of the Fed strikes me as foolhardy.

In any case, I guess my point is that I view PMs as a purely defensive play.  Anyone who is trying to get rich off PMs through speculation deserves whatever losses they take.  PMs are true money, true long-term stores of value, and trying to game them like other trading vehicles is contrary to the whole reason one should value PMs in the first place.   Having PMs go parabolic might feel good at the moment, but it spells an enormous amount of systematic, society-wide trouble in the future, certainly more trouble than any paper gains are worth.  You should own some physical PMs, have them locked away someplace safe, and hope to God that they appreciate in a slow and boring manner and you get to pass them on to your kids in a world as relatively normal as our current one.

Incidentally, on a technical note, am I the only who noticed silver ran smack into a trendline going back over a decade?   If you believe in trendlines, it suggests that there might be lot more downside ahead than anyone on here seems to appreciate.

FreedomGuy's picture

I am actually with you that a parabolic move upwards in silver is NOT a good thing, even with a PM bug like me. It would signal either a panic or an abdication of some sort.

Where I would be cautious is how much interest rates would have to rise to hurt PM's. In the early 80's Volcker had to get it up to about 21% before PM's calmed down and established a new lower normal. It was in the midst of a renewed and growing economy, too, not the crap we have, now. Interest rates like the early 80's bankrupts the USA debt service in a short period of time. Interest rates themselves can signal a loss of confidence in the currency a.k.a. banana republic. Try to buy any PM with Zimbabwe paper. Their interest rates should be super attractive!

Al Gorerhythm's picture

The Fed is turning Japanese. They are stuck in a liquidity trap and cannot raise interest rates for fear of collapsing the whole shebang. Not gonna happen. PMs to rise for a long time.

SWRichmond's picture

margin requirement = big guns for manipulators.  Silver now down a paltry eighty cents. 

HAHAHAHAHAHA fucking morons.  It looked like a buying op to everyone.

BRAVO 7's picture

these house dice keep coming up snake eyes.

Yits and the Yimrum's picture

the LBMA and the COMEX are probably just a fraction OTC metals derivatives, and that is why you can't bust them

I would not be betting the farm on metals on futures markets under any circumstances

if you can trade on a small scale, and plow the profits in bullion, that would be fine; but I would buy bullion first and then speculate a little

the shorts are getting toasted, but they are the big banks, and they have large gains in trading to offset these losses

if silver blows thru 30 on the way to 40, them maybe the shorts are in trouble

 

Eric Cartman's picture

GET A FUCKING JOB YOU DUMB ASS MOTHER FUCKER!

When Tyler posts a new story you're less than a minute behind him to say something stupid and then go away so you can sit and wait to give a quick one liner again once a new post makes ZeroHedge. You're pathetic. You're a fool, and worst of all, you are a disgrace to ZH. Please fuck off and go dig a road or something - whatever it takes to get your 40+ year old ass off his mom's computer and doing something productive. You're such a worthless fool I don't have the time to list how stupid you are BECAUSE I HAVE TO GO TO WORK! 

Just go away!

Bill Lumbergh's picture

One way around this is not to use margin...not certain what percent of players use but given the 2008 collapse I assume that amount may be quite substantial.

ZeroPower's picture

Show me a desk that doesn't use margin and ill show you...

Ummm.

Jean Valjean's picture

My desk.

It's rather small.

tmosley's picture

My desk too.  Along with everyone else who holds physical.

I expected something like this would happen at some point, where paper markets would fail, and eventually approach $0, while physical was either unavailable, or took on sky-high premiums.

AUD's picture

Except paper markets haven't failed, I only follow COMEX gold but spreads are in a 'healthy' contango. In inverted commas since my data only goes back 18 months, I don't know what spreads have been historically.

There's no shortage of bids for paper gold right out to Dec 2014. Some odd movements in open interest in the last couple of months though.

Eric Cartman's picture

So is mine. 2 Monitor but it's glass, so I think I kinda kick ass!

ZeroPower's picture

A 'desk' managing < $10MM is no kind of desk.