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Guest Post: CME Actions Both Confirming And Contradictory
Submitted by Jeffrey Snider, President & CIO of Atlantic Capital Management
CME Actions Both Confirming And Contradictory
Given the actions of the CME Group, the governing body of the futures exchange, we should expect an imminent reduction in silver futures margins. Margin increases were stated to be tools of volatility suppression, yet have been nearly universal in their amplification of volatility and only in one direction (down). But now that the exchange has reduced the margin requirements for its e-mini financial sector product (XAF), should we not expect a similar move for silver or gold?
The volatility in XAF has not diminished over the past few weeks or months. As is well known today, the banking sector is in the midst of a crisis and the stock prices of banks are routinely depressing all the way back to 2009 levels. So volatility manipulation can no longer be used as a universal rationale for margin policies.
That leaves investors to begin to ponder the actual motivation and guidelines the CME might be using to “alter” the nature of the investment game of futures. Silver prices were high and therefore required margin increases. Silver prices crashed, no offsetting reductions were offered. Silver prices rose again requiring still more margin moves, then crashed, with gold, while still awaiting the same treatment as the financial sector. For all its volatility suppression ability, the massive movements in silver prices seem to describe opposite. Since the margin increases come just before or just after these large down moves begin, investors might be forgiven if they begin to conclude that the exchanges find upward volatility in metals harmful.
The December XAF contract, on the other hand, has fallen from a high of 130 in mid-September to a low around 108, a rather large 17% move. Going back further, the contract was priced at 155 in early July, for an unnerving 30% decline. Inconsistent with public pronouncements for silver or gold, this decline is met with reduced margins.
In the middle of August, the December silver contract had reached the $44 mark. It now has settled in around $29.50 (first hitting a low of $26) for a comparable 33% crash. The greatest proportion of that decline came during the exact same period as the 17% move in XAF, yet silver margins remain at elevated levels. Investors are left to their interpretations of this obvious inconsistency.
However, judging by the Commitment of Traders Report for futures positions as of September 27, 2011, the extreme volatility in silver prices despite these margin moves allowed commercial shorts the fortuitous opportunity to cover an extremely large 10,794 short contracts (close to 15% of their total from the week before). On the other side, large speculators pulled out of 25% of their long positions during the silver crash.
If we go back a year to the Commitment of Traders Report for the week ended September 28, 2010, we see that the overall number of positions has dropped dramatically. Total open interest has declined by a third, to 102,014 silver contracts from 154,219 the year before. The decline is most pronounced in the long side large speculator category (an astounding drop from 66,066 to 25,153) and the short side commercials (from 94,447 to 62,287). Small speculators have been completely marginalized, falling from a total of 47,822 contracts in 2010 to 31,813 in 2011.
Amazingly, the only category to see enlarged positions is in the long side commercials (from 29,034 to 38,025).
I have no doubt that many will argue that this was precisely the point of the margin increases – dampening rampant and undue speculation. But it is hard to square that position with the move in XAF. Is the CME encouraging speculation in stock prices of the financial sector while simultaneously discouraging it in precious metals? To date the CME has yet to pronounce a predictable and uniform standard (or any standard) for what represents arbitrary or capricious speculation (as appears to be their stance with gold and silver) and what standard is used to determine beneficial speculation (as appears to be the case with XAF).
Beyond any simple, direct relationship between futures machinations and underlying price movements, there is a larger symptom of dysfunction at play here. Whether or not you believe the CME is actively shepherding investors out of precious metals and into financial sector futures, there is a pervasive and growing perception that this is actually occurring. Perceptions matter.
This pattern of “enhancing” investment flows and price-massaging fits within the overall narrative of the centralized economic and financial control that has been emanating out of the Federal Reserve and its central bank cousins since the beginning of the crisis. The Fed, the ECB, the SNB, etc., have all moved beyond setting interest rates that “encourage” credit creation to actively managing financial expectations through manifest price manipulation. That is no small change, and in far too many places it is understated or carelessly dismissed (as the CME actions will be).
In its epic battle to foster or enforce positive expectations about the future, adhering to its rational expectations theory, the Fed has essentially changed the financial landscape to fit the narrative it wants prices to signal to the wider world. The starkest examples are US treasury and mortgage rates. September’s Operation Twist is but a determined effort by the central bank to change the shape of the yield curve to fit a pre-determined pattern described by the often-mistaken mathematical calculations of its economic models. Carrying this out operationally requires a concerted effort to manipulate the price of debt (by buying and selling US treasury securities regardless of actual financial risk/reward considerations – the rules that everyone else plays the game by).
Investment considerations of risk and reward are now displaced to fit the new role of cajoling consumers into “rational” expectations of a recovery or economic growth that those same consumers know is far-fetched to begin with. Any price signal of inconvenience, then, meets the glowering disapproval of the same authorities that crafted the artificial message. Chairman Bernanke was serious in his rather haughty dismissal of gold as a relic of “tradition”.
Precious metals have been a thorn in the side of monetary policy since 2009, replicating their role from the 1970’s. Whether or not the Fed or the Wall Street Banks or the CME purposefully engineered the crash in metals no longer really matters. The aura of the Fed and the banking system is dashed and shattered by these perceived parlor tricks. If monetary policy cannot stand the glare of rising precious metals, then it is too weak to be successful at any point. Inconsistently applying futures requirements fits this narrative all too well. Central banks and national authorities that design truly workable solutions do not need to fear opposition from investors seeking to remove themselves from such solutions.
You do not need stress tests to convince the public that the banking system is fine; you only need healthy banks. In fact, in nearly all cases the stress tests serve as a validation of the public’s mistrust. The banking regulator that conducts them is acknowledging such widespread doubt and attempting to dispel it through empirical, yet blatant and comically arbitrary, means.
If the banking system is not healthy, allowing unfettered price discovery to ferret out the bad banks would eventually bring investors back to the sector in a far more beneficial way than inviting leveraged futures speculation. Despite the short-term horror, the long-term healing that comes from culling the bad and stupid ideas from existence makes up for any disruption. Investor confidence comes from brutal market discipline, meaning those that made the worst mistakes end up paying the biggest price (finally upsetting the indoctrinated status quo).
Prices do not always equate to value and that is the biggest mistake that the monetary system of central banks and central exchanges seem to be making. In a crisis, prices rarely equate to value, so price manipulation ends up being completely counterproductive. The more prices are moved away from the perceptions of value, the greater distrust grows and spreads.
Eventually, if prices are held artificially so far away from perceived value then the fomented wariness itself becomes the universal standard of the crisis – a debilitating instability that ends up invalidating both bad policies and good ones (should one ever get proposed). Good policy can withstand fervent and determined opposition. After all, good policy typically delivers actual results, winning any debate empirically and unambiguously. The perception that authorities may be resorting to shenanigans is all you need to know about the potential efficacy of their efforts. A confident or fairly positioned central bank would outright denounce any and all manipulations like those that seem to be constantly employed at the CME.
In this age of constant intervention, with the “benevolence” of central bankers guarding us from ourselves, it is only a matter of time before continued failure is met with more determined suppression. I might not be able to eat gold or silver, but neither can Chairman Bernanke or the CME. At some point though, as this high stakes game of changing the rules suggests, they may be forced to in order to maintain their defective and tendentious grasp.
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Anyone else notice that the silver price keeps getting supressed so it is always under the JPM stock price? Hmmmm...
Jews.
Gentiles?
1%?
Fraudsters?
1%?
Saudi Princes?
1%?
My Jewish neighbor? Fucked and underwater on his mortgage he put down 25% on in '05, like me...apparently he's not in the club anyfuckingmore than I'm in on the Vatican Catholic cabal.
99%!
shhhhhhh! be quiet! i'm still stacking, goddammit!
stack away troll.
Friday Metals Fix:
WATCH: Turky and Vorndran "Gold is the final money."
I also have been concerned about the power the cme has in controlling market trends. They have their favored and unfavored markets. Metals remain unfavored while equities remain favored. Crude oil, which is most impactful on the economy when it rises, has had minimal margin increases compared to the metals. It is clear they do not want metals to achieve higher prices. I believe it should not be acceptable to have such power over the markets on their exchange. The cme should implement certain volatility thresholds or percent price moves that automatically lead to margin increases and decreases. This should be a set technical rule unlike the arbitrary, contradictory way they conduct themselves now.
gold may be the final money but right now i'm gobbling up silver. you can't beat a 55:1 ratio.
Agreed. Doing same.
i am gobbling up oil. swimming pool is full.
tru dat.
gold is shorthand for gold and silver.
what i dont get right now is why platinum is cheaper than gold. it does worry me that this could be a signal, a warning sign if you will, from the cartels of an impending hit job.
Really? Tell me more...
Mises, bitchez!!!
Bill Cosby
Oh, I get it. You're mocking that Outlaw dude. Funny! I give you a greeny!
You spelled it wrong that's why the thumbs down. It's Joos. As in Jooish Cartel runs everything.
It's an 80/20 split with JPM and HSBC, their silver derivatives are estimated in the trillions. What it'll take to expose this shit no one knows...
what is the CME? nothing but a vehicle to control the markets, supress prices and a tool for the wall street to generate profits out of speculation i.e. short selling. let them wall street banks go to hell asap.
Confirming and contradictory? Aw well, it's all transitory!
Irrelevant - find more synonyms to transitory! Reply back.
hey, edward no-scissors-hands!
lQQk @ the index charts on bloomie's commodities for dummies page Commodity Futures Online Trading - Bloomberg
this lQQks eerily similar to many "stock index" charts, too!
now, the FED's first "press conference" was 4.27.11; if you'd just do a modicum of research, you could place the chairsatan's "transitory inflation" remarks on the time-line of the commodity index charts, and stop fingering your roget's
Fuck you Ron Paul.
You're being handed a gift.. on a silver fucking platter...
Public opinion is against the FED.. At no point in time has there
been a better opportunity to END the FED.. Firing Ben is NOT acceptable.
The Federal Reserve System in its entirety needs to be dissolved.
Quit wasting your time running for POTUS and do the job you have right
now.. Call the members board in one by one for public questioning.
Hey FED.. Why do you only list 5 members on your site? Oh.. that's right,
because you're lying, cheating criminals.
http://www.federalreserve.gov/aboutthefed/default.htm
Ben S. Bernanke - Chairman
Janet L. Yellen - Vice Chair
Elizabeth A. Duke
Daniel K. Tarullo
Sarah Bloom Raskin
Hey govt.. You work for the 99% "Public". There is no "Top Secret" or "secret"
anymore. We are replacing you. All of you..
We are legion.
respect us.
I believe I have read this same rant from you like 3 times before. Perhaps there is another of the 534 congressman that you would like them to do something? How about Ron is busy and finally his AUDIT THE FED bill is in committee. Ron has been a lone voice on many votes and has introduced numerous bills but since the NECON AIPAC REPUBLICONS and VESTED INTEREST REPUBLICRATS don't have the foresight and fortitude to listen to Ron. SO NOW WE ARE IN THIS PLACE, TIME, and situation. Ron has done more for the cause of liberty than most others. WTF have you done for this country?
You know what? FUCK YOU
If JPM was short silver to such an extraordinary degree I would imagine they already closed out those positions with the latest plunge. As such maybe there will be less games being played with the metals in terms of major shakeouts going forward. Needless to say this is just me attempting to apply logic to markets that have been taken over by bureaucratic/banker interests.
Not sure if this has been verified by other sources, but think it's worth posting, even though it came from SA.
http://seekingalpha.com/article/297365-silver-shorts-cover-nearly-half-their-position-in-one-week?source=yahoo
No, I don't read SA, this article was linked from another site.
What's the problem with the Seeking Alpha site ?
Logic. Yes, I kinda remember her. Sharp. Like a diamond.
Where did she go?
Bill I don't suppose we'll ever know what JPM's true positions are / were but I wouldn't be surprised to find out that they have played the rest of the market for suckers and made money on both the long side and the short side, with every violent manipulated move, designed to shake out any other speculators.
But even if they do make money on every gyration I remain convinced that we are in a massive bull market which will take silver well into 3 digits. At that time I expect to find JPM are massively long, and make even more money than us ZHrs. There will be some big losers - probably the a lot of the miners - especially in poorer countries - will have signed away decades of production ahead of the big highs - and lots of small speculators will have been wiped out along the way.
They only help us *bugs in the end. 100% physical market.... the way it oughta be!
agree 100%. all in the hands of joe blow and some dictators:-)
The Chinese have the CME figured out and are doing something about it, from the link below:
"Get ready for the Pan Asian Gold Exchange, scheduled to open in June, 2012 in Kunming City, Yunman Province– the gateway to all of Southeast Asia. This is serious, as the Pan Asian Gold Exchange is a part of China’s five year plan– which means it is part of China’s strategy for dominance in global financial markets and the global economy."
http://www.forbes.com/sites/robertlenzner/2011/09/27/the-chinese-mean-to-control-the-global-gold-market/
Yeah... keep looking, more like join the rackets.
Yea. Lenzer is a tool.
"I’d like to know who is going to oversee and regulate all this action. For example, when the Comex raises margin requirements to dampen speculative fervor– will China bew governed by that? I doubt it very much."
Robert, what exactly is "speculative fervor?" is that when PM prices go up? Is the buyer "speculating" or is the seller "speculating"
Anything the Chinese do will be primarily to enhance their own interests. They helped TPTB to smack silver down to 26.05, briefly, by timing the margin hikes on the Shanghai exchange so carefully. They will be happy to connive with the CME if it serves their interests.
On the other hand PAGE will help increase access to gold and silver - and an increased market is a bullish factor - but don't expect a sudden introduction of fair play.
Everything financial is controlled. No White Knight. Different game on the same computer. It's ugly. It's deep. And if you pretend otherwise....
The solution really sucks. But it is the only solution. Big Hurt coming.
Yes Clint, that gives them the tool to bring it all down, but since they are currently coordinating their margin hikes with the West, I doubt they will end the supression of PM prices anytime soon.
GETTING BACK TO BASICS
Fractional Reserve used to mean Gold backing the FED NOTES. Today it means how much supposed fiat dollars backs the debts of the banks. This is for sure the biggest ponzi scheme ever. With gold and most likely silver trading at 50-100/1 in paper on the Comex and LBMA...its a wonder anyone pays any attention to the paper price whatsoever.
The PPT run by the US GOVT, Fed and Treasury make sure gold and silver behave and don't get too out of hand. Anyone still following Technical Analysis needs to check themself into the nearest CATSCAN office and get a complete checkup.
The charts are painted by the PPT to make analysts still believe the TA SCIENCE still works. Those who don't understand this princible trade accordingly. What a fricken DOG & PONY SHOW to say the least.
Own the physical and wait.
I hear ya, I am buying hand over fist at these prices. There is a coin dealer here that often sells gold and silver US commemorative coins right at spot. I cleaned them out of everything they had at spot price yesterday (which included 30 80% Canadian silver dollars).
Buy, hold and wait...
Exactly - a ponzi inside a ponzi, inside a third ponzi. Even 20 years ago, you could not have sold this shit as a plot for a science fiction novel. Now, thanks to high-speed computers, we live it AND take it seriously. Mass delusion never goes out of style. If you can't eat gold, I guess you can't eat freedom, either.
Never question your overlords. They know better than you. Obviously financials are a safer asset than silver and gold that is why they are doing it. Please stop questioning and start following
The more you manipulate the market the more vicious the snapback. At this point I am convinced this is a mind game. They want to scare people away from PMs, which only tells me you should take advantage of the dips and buy more. The rise may be explosive in the end of this.
Lies beget lies.
Their margin raids on commodities are what is forcing hedgefunds to dump stocks. You can;t just pull liquidity out of the system for the leveraged players and expect to control what is going to actually sell off.
Look at May 1, when they first went after silver and oil. That is the day the stock market started rolling over.
The nice thing about the headline to this post is that it can be recycled later on today when we hear from Frau Merkel
I hope the Federal Reserve Bank doesn't read this. This looks like Racketeer Influenced and Corrupt Organization (RICO) violation.
"Gold & Silver will achieve market equilibrium ONLY when contracts trade at full cash value." James Turk said it and I believe him to be right.
Given the actions of the CME Group, the governing body of the futures exchange, we should expect an imminent reduction in silver futures margins.
I thought Friday afternoon humor didn't post until 1600 EDT...?
Everytime there is a decent correction, all the talking heads come out saying the bubble has burst (yeah fuck you Gartman). I'm 30 years old and am the only one I know in my age group to actually own PM, they are extremely underowned. My generation has grown up completely under the fiat system, that is all they know. I worry for today's young adults and kids growing up, all their faith is in nothing but pieces of paper. Trying to tell them that gold and silver are money is like talking to a brick wall, god help them when this doomed experiment comes to an end.
Jayda1850....I am a bit older than you but know exactly what you are talking about. When I go to a restaurant or store I sometimes bring out an Eisenhower dollar and a Silver Eagle. The Silver Eagle is almost brand new. I ask them which one would they take and why.
They normally pick the glorified Slug called an Eisenhower Dollar because they believe its older and worth more. They have no clue about real money.
When the PHAT LADY finally SINGS and the Grand Fiat Currency Fractional Reserve Compound Interest Show ends....they won't know what hit em.
I've no problem with the concept of a Futures Market - but those participating should be in a position to deliver 100% of the cash - or 100% of the commodity. If you've got no silver to sell you shouldn't be allowed to short it - it's just gambling - the term 'price discovery' gets used too much.
The whole point of the futures market is to lock in a price of a commodity that you haven't produced yet as to eliminate the necessity of gambling on the weather or some other unforeseen circumstance they may hinder your ability to deliver your product to market.
It's criminal that there is not some formula that could define excessive speculation though. I thought there was one until I read this article. What a racket.
The only paper I own is the stuff I wipe my ass with. Market paper is worthless, because I cannot do a good job of wiping my ass with it. Gold was worth $28.00 an ounce when I was a kid. Silver was worth whatever was printed on the coin you spent. Any one think those days are coming back? All of the lying bum fucking aristocracy of the Age Of Paper Power can burn in their paper suits soonest. I won't even bother pissing on them to put out the flames. I collect gold, silver, lead, copper, real dry powder, food, tools, diesel fuel, and other useful commodities. There is a community of folks all doing the same, so skill sets and extra eyes and hands can guard each others sixes, and "break on through to the other side, break on through to the other side, YEAH "
If comex want to lower the margin, it could mean that "someone" is trying to naked short silver more. Remember, CME is not here to stabilize the market, it serve "someone's" purpose.
who's on th board, who are the ig members, etc. good post, but doesn't gie the info needed to say who is using the cme, yeah, i'd say the fed as well, but as easily as the big banks if they are on the board, etc.
O/T - Don't ya think they would feel better flooring Yen at 66.6 vs 76.6?
My goodness! This article is a complete pile of plop (shit). He doesn't say anything we don't know already and is so obvious in his appraisal of CME 'lopsided' margin policy that his amazement sounds disingenuous.
There is no big secret to be revealed here except to repeat the well-worn truth that CME are one of the agents used by the FRS to scare off silver and gold investors. The consequences of CME's illogical, irrational business dealings with the public, as far as silver and gold trading is concerned, is to ensure that virtually all available physical silver and gold for sale will disappear, only to be offered for sale again at prices we cannot yet imagine. The only explanation that now has any credibility whatsoever is that hoarding of gold and silver is being practised by those who perpetrate these abominable COMEX and LBMA manipulations. Anyone who thinks they are stacking fiat is an idiot! They are stacking the real thing faster than you or I possibly can. Especially now! And if your don't believe that then you are an even bigger fool.
The only remedy is not to use any margin whatsoever - CME or stock brokers' margin accounts, credit card, bank loans or lines of credit to buy physical gold and silver. The declining Open Interest in silver contracts on the CME is forceful evidence that this is already happening with the serious prospect of an ultimate complete collapse of silver trading on the COMEX in a matter of months.
Note to Tyler Durden - please vet your contributors with a little more consideration of the intellectual prowess of the majority of ZH members in future!
Class action suit for price manipulation soon to arrive at this shithole.
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