5/19/2015

TheGreatSilverDebate|SeekingAlpha

TheGreatSilverDebate
May.15,20159:30AMET
by:BillHolter

Overthelastseveralweeks,agreatdebatehaseruptedregardingsilver.Moretothepoint,TedButlerclaimsJP
Morgan(NYSE:JPM)hasaccumulatedatleast350millionphysicalounces.Somepoohpoohthisandsayitisnot
possiblewhileotherswhomaybelieveitarescaredwitlessbecausetheyareafraidMorganwilldumpthemetaland
destroythesilverprice.
Takingfirstthingsfirstandthenlaterexpanding,IbelieveitispossibleforMorgantohaveaccumulatedthissilver.If
youlookatthebleedfrombothCOMEXandSLVinventoriesandaddinthepurportedmovementsontheLBMA,Ido
believeitispossiblethatJPMhasamassedasilverwarchest.Fromadollarstandpoint,thisisonlyabout$5billion
whichwouldntevenneedtocomefromtheirequityastheyhaveadirectpipelinetothebowelsoftheFedand
Treasuryforcredit.
Toanswerthequestionoffearpropoundingthissilverwillbeusedtodestroythemarket,Iwouldfirstremindyouthat
deviousandstupidaretwoseparatedescriptions.Nomatterwhatanyonebelieves,JPMorganisnotstupid,devious
maybeanothermatteraltogetherwitheachfinetheyhavepaidasproof.JPMorganhashadahugeshortpaper
positioninsilverformanyyearsdatingbacktoatleast2007whentheyinheritedBearStearns'positions.Theposition
hasbeensolargeinfact,theycouldneverpossiblypushabuttontocoveritbecausethemetalsimplyneverexisted
tocoveritinashortperiodoftime.Anyattempttocoverwouldhavecreatedapanicofdemandandaminimumprice
of$100perounceforstarters!
Thisleadsustooneofseveraltheoriesandthemostobvious,JPMorganhasbeenamassingphysicalsilverandis
nowactuallyahedgeagainsttheirshortpositionasopposedtotheotherwayaround.Itmakeszerosensetomethat
Morganwoulddumpaphysicalpositionbecausetheaccumulationwassodifficulttoacquireinthefirstplace.AsIsaid
above,JPMorganisnotstupidandtheyunderstandthelogicofwherethemacroeconomicsareheaded.Theyknow
thegameiseitherinflateordieandcansurelymakethejudgmentastowhetherornottheywanttobenetlong,or
shortsilver.Andtrustme,theyalsoknowthedifferencebetweenpapercontractedsilverandtherealthingintheir
vaults.
Italsooccurredtome,whatiftheshortpositionisusedtorevaluethelongposition?Wehaveseensomanytimes
wherenakedcontractsweresoldsloppyandsoldBIG,whatifJPMdecidedtoactuallycovertheirshortbybuying
sloppy?Theyeffectivelycouldusetheshortpositionasaspringboardifyouwill?Whatwouldstopthemfrom
coveringtheshorttobecomeflatandjustkeeponbuyingsloppyinthefuturespitsandrunningeveryshortonthe
planet?Theymustsurelyknowtheupsidepressureistherenotonlytechnicallybutfundamentallybecauseofthe
supplybeingknockedoffstreambybelowproductionprices?Thisisaneasytradeforthemiftrulyhavebuiltaphysical
long,thusmakingtheirshorttounwindthesloppierthebetter!Thismakesmoresensetomethandumpingthe
physicallongwhicheveryoneissoafraidof.
AnothertheoryisthatJPMorganhasgottenverylongphysicalsilveratlowpricesbycompressingsaidpriceinthe
futuresmarkets.SomebelieveMorganunderstandswherethegameisheadedandalsounderstandstheusesfor
silverareexpandingexponentially,andinparticularthesolarenergyindustry.ThisispossibleinmyopinionasIdont
believethereisanyhoardof350millionouncesormoreanywhereelse.Maybetheyarelookingtothefutureandwant
tositontherealmetaltosupplyintoafuturemarketatgrosslyhigherpriceswithrealdemandunabletobesatisfied.
Thereisonemoretheory,onethatIcannotprovebutmakesalotofsense.IbelievetheChineselent300million
ouncesofsilvertotheU.S.backin2003andthiswasa10yearlease.Ibelievetheleaseranoutandwasdefaulted
onin2013,thiswouldpartiallyormostlyexplainwhysilverwasattackedinthepapermarketssobrutally.Thetree
hadtobeshakeninanefforttoshakesomerealsilverfromholdershands.Alsoifyouremember,itwasaroundthis
timethatWarrenBuffettletlooseofhis129millionouncepositionheannouncedoriginallyafewyearsearlier,the
divestiturecoincidentallycoincidedwiththeformationoftheETF,SLVthatwasfundedwithaverysimilarnumber
ofounces!
ItismybeliefthataftertheU.S.defaultedonitsleasetoChina,Chinawantedsomesortofassurancetheywould
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5/19/2015

TheGreatSilverDebate|SeekingAlpha

ultimatelybepaid.Itwasthisbrokentransactionandthefollowingagreementnottoletthepriceofsilver(orgold)to
getawaythathasallowedChinatoamasshugesumsofgoldinlieuofsilver.Ibelievethisbrokentransactionisthe
reasonsuppressionhasbeensoblatantandviolentsinceApril2013,timewilltell.
Isaytimewilltellbecausesomethingverydifferenthasjustbeguntohappen.Sovereignbondsallovertheworld
havebeguntogyratewildlywithyieldsmovingtotheupside.Theshortsqueeze/giantmargincallinthedollarseems
tobeendingandthedollarhasnowreversed.Goldandsilverarealsoactingunlikeanythingoverthelasttwoyears
justtoday.Theyopenedonthefirmside,jumpedhigher,andthenratherthanbeingcappeditisliketheyare
bulldozersinlowgearsteadilyrisingtickbytick.Wewillneedafewmoredaystoseeifthepreviouspatternsarefirmly
brokenbutitlookslikeitsofar.
TheoddsChinaannounceshowmuchgoldtheyhaveaccumulatedsometimelaterthisyearareveryhighinmy
opinion.Thecasefor10,000tonsisveryeasilyproven,justasisthecasethatmuchofthatgoldMUSThavecome
fromN.Y.,LondonandtheFRBNY(orFortKnox).Thepapershortpositionsingoldandsilverwillbedestroyedin
virtuallyovernightfashionafteranyannouncementbyChinaevencloseto10,000tons.
GettingbacktoJPMorganssilverposition,Icannotseethemtryingtofloodthemarketwithphysicalsilverbecause
amovelikethismighthavethestayingpowerof24hours.Forthemtosell$5billionworthofsilverislaughablein
dollartermsandwouldbeHooverizedbyphysicalbuyers(evenChinaherself)longbeforeithitanymarketor
exchange.IfJPMorgantrulydoeshave350millionouncesofrealphysicalsilveritisinmyopinionbecausetheyare
bullishonrealphysicalsilver!

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