Commodity Futures Trading Commission

You can take anything you want, from Hank's Restaurant...

After it became fashionable to say one was short the dollar at cocktail parties, the net result was a surge in CFTC-reported spec USD gross short positions and a plunge in net USD exposure. And since options traders are nothing but momentum chasing lemmings the theater is now fully on fire. Granted, while some of the recent spike in short interest has been covered, there are still just over a whopping 7.5k contract shorts that need to be covered before a reversion to the recent trendline. This is why we are currently seeing a massive unwind in the dollar short carry trade, and why once again rumors that macro funds are slowly and quietly receiving billions in margin calls behind the scenes.

While Bernanke was putting the finishing touches on QE2 in DC, 50 global financial regulators met at the New York Fed to discuss regulation of world's largest market. Instead of financial reform measures, what is being created is simply a massive new power center headed by the CFTC from which those at the top will vainly attempt to manipulate market prices and entrench favored institutions within the new framework.

Chris Martenson who recently launched a fascinating series of interviews and podcasts with a variety of the most interesting pundits in the world, chats with Ted Butler, discussing such germane items as why silver has such a compelling value story, the coming silver supply crunch, the argument behind the allegations of silver price manipulation, drivers behind the recent price action in silver, why price volatility will increase and the expected outcome of the CFTC’s investigation and why Ted thinks it will be "a bombshell for the silver market."

Looking at the CFTC Commitment of Traders data for the past week confirms that the momentum unwind continues. In Treasury's net spec positions in both the 2 and 5 Year tumbled (from -11,125 to -35,142, and from 152,782 to 102,885 respectively) even as bets that prices on the 10 Year would jump almost doubled (from 58,661 to 97,346). After chasing curve steepening, specs are now going all in on a major 2-10 flattening. The same thing is evident in commodities, where spec bets on five key categories all declined week over week. Lastly, the unwind in dollar shorts, and everything else longs is accelerating: dollar net spec increase from 6,315 to 10,827 as all other FX (except the GBP) saw spec bullish interest decline.

Could it be as simple as buy the rumor and sell the news? This sell off will end up as a whimper, not a bang. But the “Big One” for the markets is coming, and could unfold as early as the next quarter. Please tighten up you stops and your risk control accordingly.

Once again option speculators confirm they are nothing but macro momentum chasing lemmings who never anticipate an inflection point until it is well in the rear-view mirror. Last week's CFTC data, which was released with a delay today, due to Veterans' Day, shows that after the reflation trade appeared to be peaking in the past two weeks, so has non-commercial spec demand for commodities, all of which were virtually unchanged from the prior week. In currencies, we saw a resumption of the same old, with the brief renaissance in the USD tapering, and net positions once again declining toward a short bias. CHF sentiment was flat, JPY was down, while the GBP was up: in essence mimicking the actions in the underlying. And the most important chart which we believe is the UST spec distribution by 2/5/10Y, showed that bets for a decline in the 2 year accelerated, the 5 Year was flat, and speculation that the 10 Y would strengthen increased: precisely the opposite of what has since happened, even as expectations that the UST curve would continue surging near 2010 highs.

There were some very odd occurrences in the world's largest silver ETF, the iShares SLV. After the exponential increase of the price of silver in the spot market, almost hitting $30/share on November 9, the SLV ETF, which like GLD purports to holding the underlying precious metal, saw a massive basket creation demand, amounting to a whopping 523 tonnes of actual silver added to the fund's holdings (equivalent to 16.8 million ounces, at a cost of about $456 million) for the week ending November 12, currently at a record 10,718 tonnes. While we don't purport to knowing how much free silver is available in the open market, the possibility that any one entity could have manged to purchase such a massive amount of actual silver, of which 352 tonnes was supposedly acquired on November 10, without completely destabilizing the actual supply and demand mechanics, and creating a vicious loop where basket creation leads to a further surge in prices, is just slightly mind boggling. As we have speculated earlier, we expect comparable activity in the GLD ETF to follow suit. Additionally, we will shortly look at this week's CFTC COT data to determine just how massively JPM's silver short has impacted the firm's P&L.

The mainstream media attacks on precious metals were so extreme last year that they began to border on the bizarre. The “cult of fiat” was relentless in their attempts to slander gold investors and it seemed as though no matter how well the yellow stuff did, or how dismal the dollar’s performance was, they would never get tired of the disinformation game. Fast forward a year later, however, and they have been utterly silenced. What a difference twelve short months can make…

The last time Eric King's London source spoke up, and determined the $25.50 threshold as that past which a massive squeeze was coming, he/she was spot on. This time we learn that Asian demand for physical silver continues to be relenteless, the squeeze on the shorts will not end, and that nobody but the Fed-backed banks continues to short the metal (and if exchanges are enforcing margin changes how about changing those position limits, eh CFTC?). In other words, rumors of silver's death appear to be largely exaggerated.

Just as in fraudclosure, the PM manipulation lawsuits are now coming daily... Soon - hourly. From the just filed lawsuit by Eric Nalven, which references Andrew Maguire's series of whistleblowing emails: "In connection with its acquisition of Bear Stearns in March 2008, defendant JPMorgan acquired massive short positions in the silver futures market. Thereafter, JPMorgan, with HSBC, artificially depressed the price of silver dramatically downward. The conspiracy and scheme was enormously successful, netting the defendants substantial illegal profits. The conspiracy and scheme has been corroborate by a 40-year industry veteran and former employee of Goldman Sachs (the "Informant") who was told by representatives of the defendants about the conspiracy and scheme. The Informant has stated that he had been told first hand by traders at JPMorgan that JPMorgan manipulates the silver market. The JPMorgan traders would brag to the Informant about how much money they were making as a result of such manipulation. The informant reported the defendants' activities to the CFTC which has opened an investigation into the manipulation of the silver market."

People like Jennifer Fan and pretty much everyone at JPM have no clue what the impact of $87.50 oil is on their limo drivers and thus they can make idiotic predictions like that AND get paid for it. There simply is not enough money in the World to support $100 oil.

Despite the recent price surge in crude oil this week--thanks mostly to a Fed's QE2-induced weak dollar, the fact is that crude inventory levels are actually sitting at the highest in 2010. This, plus other market factors coud pressuure crude prices to trade back down around the $75 to $85 range.

Once again we find some strange activity occurring in these markets from a trading perspective, and it is time that the increased staff and resources of the beefed-up CTFC enforcement division look into crude oil and silver markets, in particular.

Nothing makes sense anymore. At least that is the conclusion one would reach from looking at today's CFTC update (and keeping track of the market for the past two years). In today's CFTC Commitment of traders update, the most notable feature was that net non-commercial spec positions increased for the fourth week in a row as ever more dollar shorts are getting spooked that the dollar is due for a violent pullback (of course, only if the most honorable chairman allows it). Other currencies were relatively flat, with the CHF unchanged, EUR longs declining minimally, while net contracts betting on a rise in the GBP jumping to their highest level in 2010. Elsewhere, a sample of commodities (Wheat, Soybeans, Coffee and Corn) all saw a non-commercial increase W/W: expect these push-pull feedback loops to result in a surge in all food products by the time the holidays roll in. Lastly, the indicative Treasurys (2,5, 10Y) after seeing a substantial drop last week, once again resumed their move higher (the 5 and 10 Y), except for the 2 Year, which non-commercial speculators are now believing will drop. It would be funny to see a square root shaped curve: the 5 Year at 0%, while the near and long ends taper off ever higher.