Commodity Futures Trading Commission

Some might be surprised by the title's positivity, but while the barbarous relic has meandered in an ever-compressing (triangle pattern) series of waves in the last few months, it has rather notably outperformed relative to global risk aversion, CFTC positioning, and central bank balance sheet dynamics - especially in the last few weeks. Whether the yellow metal's zero-yield is now 'technically' attractive to safe-haven flows relative to the NIRPs of Germany and Switzerland - or in fundamental anticipation of the next bout of central bank largesse, Citi's global macro strategy group remain bullish of the precious metal and the charts below suggest they are not alone - as the view that precious metals are a put on political stupidity remains front-and-center.

Back in April, when gas at the pump hit all time highs for that time of the year, and when the world was still hoping the euphoria from the LTRO would last (it didn't), Obama decided to implement his own centrally-planned vision of events in yet another market: crude. Recall: "now that Obama's uber-central planning mandate has proven completely powerless to redirect the flow of zero-cost money from acquiring real, as opposed to paper-based, assets (read crude), the Teleprompter in Chief will have a sit down with the nation at 11:10 am and in the latest sermon from the White House mound, will "confront" oil speculators once and for all. His plan: why encourage margin hikes of course - the same principle that crushed the spine of the gold and silver spike in 2011." Furthermore as part of his then adopted plan, Obama would "Give the Commodity Futures Trading Commission authority to increase the amount of money that a trader must put up to back a trading position. The administration officials said such authority could help limit disruptions in energy markets." Our conclusion was that "Obama is about to become the Margin Hiker-in-Chief." 4 months later, the MaHinC has fired the first warning shot. After all, while Obama would love to have 1600 on the S&P the day before the election, the last thing he would like is to also have the $150 in WTI that would necesssarily accompany it, and guarantee his reelection failure. Sure enough: the first attempt at disconnecting the hard asset market from the S&P has arrived, as the CME just hiked various Crude margins by about 3.7%.

The silver market was affected by “devious efforts” to move the price of the precious metal, according to Bart Chilton, a member of the U.S. Commodity Futures Trading Commission, as reported by Bloomberg. “I continue to believe, consistent with my previous statements and information from the public, that there have been devious efforts related to moving the price of silver,” Chilton said by e-mail today in response to questions from Bloomberg. “There have also been silver and gold market anomalies outside of the silver investigate window that have raised, and continue to raise, market concerns.” The enforcement division of the Washington-based agency, the main U.S. overseer of derivatives markets, began pursuing allegations of manipulation in the silver market in September 2008.  Investigators have analyzed more than 100,000 documents and interviewed dozens of witnesses, the CFTC said in a November 2011 statement. Chilton said last month the investigation may be completed as early as September.

Market players are watching for any details on the ECB’s bond purchasing plans, after bank chief Mario Draghi said last week that the ECB would target short-term debt, fuelling optimism in the bond markets. A Reuter’s poll of economists on Friday highlighted that they expect the Fed to start QE3 in September, but a top Fed official said that a stimulus package so close to a presidential election would not be prudent. Since the ECB conditioned it would buy more government debt from Spain & Italy if they agreed to strict austerity packages, this has decreased pressure on either country to act quickly. The Financial Times interviewed Ken Wattret, a BNP Paribas economist who said: “If people think this will all be sorted in a matter of days, or weeks, then they will be disappointed. We could be in limbo for months.”

Last week we wrote that we were not surprised to learn that the first party of interest in the PFG bankruptcy was "none other than JPMorgan, which together with various other banks, will be the target of a subpoena by the PFG trustee." We added "How shocking will it be to find that Dimon's company is once again implicated in this particular episode of monetary vaporization." It appears that we were not the only ones shocked to learn that Jamie Dimon's firm could make a repeat appearance again when it comes to missing client money: JPM itself seems to not have expected this development. The result, as just reported by Reuters: "JPMorgan Chase & Co on Monday sought to limit the power the bankruptcy trustee for Peregrine Financial Group has to subpoena information from financial institutions that did business with the failed brokerage." Why, whatever may JPMorgan be hiding, and whyever is it taking preemptive steps from preventing such information from leaking into the public domain: because it is too "burdensome" - it is only logical that Jamie can not dedicate one person of his 261,453 employees to this modest matter. No fear though: even if it is found that just like in the MF Global bankruptcy JPM may have overreached just a tad when it comes to money that doesn't belong to it, the CFTC can just say that as a result of an extensive 4 year investigation, JPM was found to have done nothing wrong, and if the public can please already disperse.

In what may be the most amusing news of the day, according to the FT the CFTC will shortly drop its 4 year old investigation into silver manipulation, "after US regulators failed to find enough evidence to support a legal case, according to three people familiar with the situation." How about evidence to support an "illegal" case? Of course, that this is happening after the recent discovery that the world's most pervasive fixed income benchmark was manipulated for years, if not decades, can only be reason for laughter and wonder if the CFTC used the same assiduous diligence methods in pursuing the alleged perpetrators of precious metal manipulation as it did in letting the fraud at PFG slip through its fingers for two decades. We will probably never know, or at least not until an email mentioning bottles of Bollinger and silver price "fixing", (or "banging the close" for that matter) in the same sentence inexplicably turns up and makes a complete mockery of the CFTC yet again.

By now even 5 year olds know that the one asset class driving the general stock market is the highly leverageable EURUSD: where the core pair goes, everything else follows, especially if the direction is up (when the EURUSD slides lately it is assumed to be a confirmation that the ECB will print; when it goes up, the agreed upon explanation is that more Fed easing is imminent). As such a key variable has been the amount of net shorts in the pair, as exposed every week by the CFTC in its COT report. And where two months ago, the net short position in the EUR hit an all time record, north of -200K contracts, in the interim this number has contracted by over a third, and as of minutes ago was revealed to be "just" 139K in the week ending July 31, a 10% drop in shorts in one week. Why is this important? Because while short covering rallies have long been yet another narrative to keep shorts on the sidelines, the probability of such an event has declined dramatically now that the bulk of the weak hands have been kicked out, and the net exposure is back to January 2012 levels. In other words, 8 months later we have completed one full shorting circle when it comes to the euro., which however now is 700 pips lower than where it was back then. The Jack in the Box potential of further squeezing is rapidly declining with every move such as today's when no news and mere rumor drives the pair up by 200 pips (only to be faded of course).

Just when you thought the Li(e)bor scandal had jumped the shark, Germany's Spiegel brings it back front-and-center with a detailed and critical insight into the 'organized fraud' and emergence of the cartel of 'bottom of the food chain' money market traders. "The trick is that you can't do it alone" one of the 'chosen' pointed out, but regulators have noiw spoken "mechanisms are now taking effect that I only knew of from mafia films." RICO anyone? "This is a real zinger," says an insider. In the past, bank manager lapses resulted from their stupidity for having bought securities without understanding them. "Now that was bad enough. But manipulating a market rate is criminal." A portion of the industry, adds the insider, apparently doesn't realize that the writing is on the wall.

The blunt trauma that JPMorgan was implicated in the missing millions from segregated accounts in Jon Corzine's bankrupt MF Global may have passed but the memory lingers, especially for all those whose cash is still locked up somewhere in vapor space. Yet one event that may tear the scab that patiently was healing, courtesy of a Copperfield market full of distractions such as JPM's CIO fiasco, Lieborgate, oh and, Europe, right off is the recent bankruptcy of Peregrine Financial, aka PFG, whose story we first broke, and which just as we suspected, has promptly become the second coming of MF Global, as at least $200 million has "evaporated." It is thus with little surprise that we find that the first party of interest is none other than JPMorgan, which together with various other banks, will be the target of a subpoena by the PFG trustee. How shocking will it be to find that Dimon's company is once again implicated in this particular episode of monetary vaporization.

There is no point in recapping the ongoing vendetta between former SIGTARP Neil Barofsky and former head of the NY Fed, and current Treasury secretary and resident TurboTax expert Tim Geithner. One need but follow the former on Twitter for a quick and concise sampling of the sentiments harbored vis-a-vis the latter. However, in the following interview Barfosky does touch on some points which in the context of the recent Liborgate, should be brought front and center, especially since the increasingly apathetic US audience seems to not care about one bit (as opposed to their distant cousins across the Atlantic for whom Lieborgate has become a daily distraction). Namely, what Barofsky says is that Geithner and other regulators who allowed Lieborgate to proceed should not only lose their job but we should "see [Geithner] in handcuffs."  Sadly that will never happen as it would actually be a deterrent to future crime among the highest echelons of America: something which is just not allowed to happen in a system whose very survival is increasingly reliant on rampant criminality.

Former Goldman appartchik Gary Gensler is about to take the stage (again) and explain why the CFTC should exist at all after allowing not only MF Global but a few weeks ago, Peregrine Financial, to steal hundreds of millions in client money without any regulatory supervision at all. All we can say here is: Free Corzine!

The three "de's:" deregulation, desupervision, and de facto decriminalization.

The CME, which is seeing an unprecedented exodus in trading and clients due to the recent fiascoes at MF Global and Peregrine Financial, and which is completely helpless to do anything about what is fundamentally a core feature of modern US 'capital markets', has resorted to the last ditch effort of every failing enterprise: writing and mailing letters to clients full of hollow promises. "We want you to know that CME Group is committed to making whatever changes are necessary to strengthen customer protections, restore confidence in the futures industry and ensure the effectiveness of these critical markets." Or until the next MFG or PFG at least. Sorry: too little, too late.

#444444; font-family: Verdana, Geneva, sans-serif; font-size: 12px; line-height: 16px;">Consumers are paying an easy $35 dollars per barrel over what they would otherwise#444444; font-family: Verdana, Geneva, sans-serif; font-size: 12px; line-height: 16px; font-weight: bold;"> #444444; font-size: 12px; font-family: Verdana, Geneva, sans-serif;">dole out for a barrel of oil if fund managers didn`t use the benchmark futures contracts as their own personal ATMs.

All throughout the epic surge in corn prices, the big Kahoona, Goldman Sachs, where buy means sell, and sell means Goldman's traders are buying everything its clients have to dump, was quiet. That is no longer the case: "we recommend a short May-13 CBOT wheat position vs. a long May-13 CBOT corn position." In other words, Goldman will now be selling May 13 corn. We all know how these recommendations end.