Silver Shorts are so Naked, they've "Gone Wild"
(A Primer on Usury.)
Silver Stock Report
by Jason Hommel, June 12th, 2008
Many people expect me to comment on this essay that has gotten wide
"Putting Loincloth on the
Naked Bogeyman" (A Primer on the Silver Basis)
By: Antal E.
You should read his essay first. Today's
email is my reply.
First, thank you Antal for honoring my work and
Ted Butler's work with a public essay to teach us about basis, and
why the silver shorts might not be naked.
Although Antal and I agree on many things, there are
areas of disagreement on this topic that I would like to highlight
for the sake of learning and discussion. Since I like him and his
work so much, I'll try to go easy on him, but I've always found it hard to
be kind while in disagreement, and I'm known for not being very
tactful. Sorry, I guess that's why I'm such a geek and like to
research and write this kind of stuff, and not so keen on dealing with
My overall reply can be summed up very simply: In my
view, "Basis" is another word for "usury".
Silver Traders who try to make money on the basis
are usurers, and thus extortioners and harlots according to my
understanding of Scripture (Proverbs 28:8, Ezekiel 22:12, Revelation
For more of my views on usury, see my three essays
Enslaves Jan 19, 2004
Usury Jan 23, 2004
The Great Harlot of Rev
17-18 is Jerusalem, & what that means. October,
I'm not trying to call Antal a whore-monger
or pimp daddy (bank apologist?), I've just had a viewpoint about the
nature of usury since 2002. It's nothing personal,
I believe that usurers are called harlots in the
Bible because they turn to men and the promises of men for
security, rather than trusting in God's ways such as the free market
process. Usury is harlotry, because we are to be married to
Christ. When we trust another more than God's ways, it's spiritual
adultery, or harlotry.
According to the Bible, the promises of men
are vain things, and we ought to not make such promises, nor trust
them. Anything more than a "yes" or "no", such as a contract, or
oath of performance, can lead to problems.
5:12 But above all things, my brethren, swear not, neither by heaven,
neither by the earth, neither by any other oath: but let your yea be yea;
and your nay, nay; lest ye fall into condemnation.
since we don't and cannot know our future, we must be cautious about it,
and not be so arrogant as to make promises.
James 4:13 Go to
now, ye that say, To day or to morrow we will go into such a city, and
continue there a year, and buy and sell, and get gain:
14 Whereas ye
know not what shall be on the morrow. For what is your life? It is even a
vapour, that appeareth for a little time, and then vanisheth
So, when men make promises to
deliver metal that they don't have, their positions are said to be
"naked", I think because they are "exposed" to market price fluctuations,
and are taking a risk.
But I have purposefully exposed myself to
the higher price potential of silver, and my physical silver holdings are
not called a "naked" position. Interesting, isn't it? But I
suppose it's because I've made no promises, and thus, I'm not exposed in
such a way as to be compelled, or forced to perform any promise I've made,
which is unlike the naked shorts!
And that further illustrates that
my position is the one of freedom, and that their position is contrary to
the free market, because they enslave themselves into performance through
their vain promises.
In my view, men in the mining
industry who fail to understand and trust free market processes and
prices will seek security, instead, by trying to get security
by "locking in" prices through forward sales of metals. But
locking in prices in terms of dollars, in a world heading into
hyperinflation, is financial suicide worse than slavery.
I try to avoid usury, I have no use for
Besides, I think the
basis on silver is low, and that the risk of default is extremely high,
higher than Antal thinks, I think.
I would not trust futures
contracts, and thus, if everyone had my viewpoint, silver futures would
enter severe backwardation, with no bids on futures, as Antal suspects may
Since I don't trust futures, I would not buy them even if they offered
me 25% more silver one year in the future than today (a 25% interest
Why wouldn't I accept 25% interest on my
silver? Because I think there is about an 80-100% certainty that the
markets will default at some point in the next 1-4 years. Therefore,
if that's the case, I'd not even get my silver back, let alone any
more. But I know that if they promised me 25% more silver (or
more) in a year, I think that would be an unrealistic promise, that it
would have to be a scam, and thus, I would still not buy it!
fact, I could sell all my silver today, and take all the cash, and buy
only silver options. And if silver prices go up 35% per year
like I think, I'd be a lot wealthier, and I could buy a lot more silver,
maybe even 10 times as much silver. But I'm not interested in that,
because I don't trust the contracts, I don't trust the exchange, and I
don't trust that I could get delivery, and I don't like the
And finally, setting aside the monetary risks and
incentives, there is the moral problem of enslaving others to perform to
meet their unbacked promises, and so, I'd still not buy futures contracts
in silver, regardless of how much the bribe of usury would be!
that's the big area of disagreement. The rest of my disagreements
with Antal, are merely details by comparison.
I understand, for
example, that if spot prices are higher than futures, then you can sell
silver spot, buy the futures, and pocket the price spread, or basis, in
silver. However, this does not eliminate price risk, it
transfers it into default risk. Somebody else may fail to deliver
silver to you, in a shortage.
I understand also that if spot prices
are lower than futures, you can buy silver spot, and sell in the futures,
to pocket the difference in dollars. While there appears to be no
default risk of a failed silver delivery in this case, this does
involve price risk, the value of dollars can go down, and you can end
up receiving dollars that are worth much less than you thought you
would get, even if you get a bit more than a typical bond!
This is the kind of trade that Antal feels dominates the silver futures
market, and hence, the silver futures, he must feel, have little risk of
default, because they are not "naked", meaning, being without
But I don't think that's likely. As we know,
the major banking institutions offer to hold silver for you, or put silver
into your trading account, but they do not necessarily go into
the market to purchase actual silver. The banking institutions, not
surprisingly, practice fractional reserve silver banking, just like they
practice fractional reserve lending with dollars. They don't have
the silver they say they hold for you, as they admit.
"I found it appalling that Morgan Stanley would
claim to store silver that didn't exist and even have the
chutzpah to charge for the storage."
"In fact, in the court documents summarizing the proposed
settlement, one of Morgan Stanley's defenses was that they were not doing
anything unusual by charging storage on metal that didn't exist, as
this is a widespread industry practice."
That's the smoking gun. They are naked,
because they admit they are naked.
Furthermore, the London
Bullion Market Association (LBMA) market trades about 100 times as much
paper silver in a year as actual silver is mined, but has been decreasing
in the last ten years. These must be paper promises of silver,
and not real silver bars. The 2008 CPM Group yearbook, on
page 19, lists LBMA silver trading volume for 2007 as 30 billion
ounces of silver, yet annual silver mine supply is 0.5 billion ounces of
silver. On page 16, the yearbook lists Estimated Silver Inventories
in London and Zurich at about 75 million ounces for 2006. It is
beyond my own level of comprehension and understanding how 0.075 billion
ounces of silver can support the trade of 30 billion ounces of silver in a
year without there being unbacked silver promises being traded at the
LBMA. (30/0.075=400) In other words, they trade 400 times as
much silver as they have! LBMA members, I believe, are short
Does anyone know a stock that traded 400 times more than
the float in a year? Or several times more than all the issued
and outstanding shares every day? The only stocks I know of that
come close to that are micro penny stocks trading for 0.001 penny and are
clearly scam companies being shorted into the ground by further scammers
who sell stock that does not exist! Come on, people wake up!
LBMA Market Making members, who must offer to buy and sell silver to
their own clients, include:
- The Bank of Nova Scotia - ScotiaMocatta
- Barclays Bank PLC
- Bear Stearns
- Forex Inc.
- Deutsche Bank AG
- Goldman Sachs International
- HSBC Bank USA
- National Association, London Branch
- JP Morgan Chase Bank
- Mitsui & Co
- Precious Metals Inc, London Branch
- Royal Bank of Canada Limited
- Société Générale
- UBS AG
It is my contention that you will never see any of
these banks, or any other major bank, issue a real bullish report on
silver. If they do publish a bullish report, it will be to suggest
only that silver may go up 5 to 10% in a year or so, to be followed by a
"surplus" in following years, and they will never mention potential
monetary demand (nor will even the CPM Group!) Or, they will
constantly "revise upward" their prior price estimates of silver price
projections for the year, and claim they are bullish, while projecting
next year's prices to be about 5-10% under the current spot
Fortunately, the LBMA also publishes a list of all the
major refineries in the world that produce silver bars that are good for
London Delivery, which are probably much better sources for silver than
the banks, which are middlemen, who always charge higher
THE GOOD DELIVERY LIST OF ACCEPTABLE REFINERS: SILVER
says that silver sellers don't wish to reveal their identity, and that is
true, technically. But I just did.
We actually cannot
find out who the 4-8 silver shorts are who hold a concentrated short
position that dominates 80% of the NYMEX silver futures market, but I have
no reason to believe it is anyone other than those LBMA members, and
that it is most likely a revolving list among those 14
LBMA market making members.
In the recent May 13, 2008 CFTC Report
on Large Short Trader Activity in the Silver Futures Market,
on the top of page 9, they note that the major silver shorts are
a group of 10 traders.
"For the period as a whole, there were a
total of 10 different traders who at some point were counted among the top
four in terms of their net short futures position."
astounding to me to note, at the present moment I'm just realizing
this, that Bear Stearns is on the LBMA member list, and yet,
they just went bankrupt or were taken over by JP Morgan Chase Bank, and
then immediately thereafter, precious metals prices collapsed. At
the time, I did not realize that Bear Sterns was a LBMA member. I
thought they were forced into bankruptcy because they were "outside the
it is my hope that you will learn to distrust
promises of silver in the future, and that you will distrust anyone who
says they will hold your silver for you. I hear the Mogambo
Guru would love to hold your gold coins for you, send them
The essential nature of silver is that it is not a promise,
it is payment in full, and you only receive payment in full when you take
physical delivery of your silver.
The essential nature of silver is
that it is a protection from default, a protection from the bankruptcy of
others, a protection from the broken promises of another. To protect
yourself from those promises, you need to get silver in your own
possession, in your own safe.
I don't even
like the idea of selling my own silver, to buy someone else's silver for a
one week delivery, if such a thing were possible in today's market.
I don't do that because I know there is a time coming when you won't be
able to get silver. For example, there is an industry wide
delivery delay of 6-8 weeks for 100 ounce bars, as I keep repeating.
Border Gold in Surry B.C. Canada is now reporting an 8-12 week delivery
delay for 100 oz. bars!
The significance of these delivery delays
is explored well in a very insightful essay by Steven Kovaka,
"Silver Delivery 'Delays'"
excerpt from Steven's essay:
At this point we could expect to
see some combination of shortages and price increases,
and probably chaotic market conditions. We should not expect anyone to
ring a bell or make an authoritative announcement when this point is
reached. Far from that, those involved could be expected to do all in
their power to deny and disguise the shortage of deliverable silver, for
two very strong reasons:
1. Powerful interests
in the government/banking cartel community do not want the price of silver
or gold to rise because this amounts to a fall in the value of debt money
around the world. It is visible, undeniable evidence of decades of
past monetary inflation.
2. The amount of
promises to deliver silver greatly exceeds the amount of deliverable
silver. Shortages of deliverable silver bring the credibility of these
promises into severe doubt and may disrupt the market in
Interestingly, the "spot" price of silver might be
more accurately reflected by the U.S. Mint, which is selling silver Eagles
for $23.50 each, with a 5 coin limit! That's both a
shortage and price increase, as Steven predicted!
as Bix Weir
noted, the U.S. Mint is supposed to sell silver Eagles at the spot
price plus marginal minting costs.
Sale price.--The Secretary shall sell the coins minted under subsection
(e) to the public at a price equal to the market value of the
bullion at the time of sale, plus the cost of minting, marketing, and
distributing such coins (including labor, materials, dies, use of
machinery, and promotional and overhead
If you are outraged at
the U.S. Mint for charging such high prices, and imposing limits, and
rationing to dealers, you can email their customer service department
email may shame the U.S. mint into doing a better job.
other silver coin news, France may start minting gold and silver
bullion coins again. Will this continue of the trend
towards remonetization and much higher precious metals prices?
It was France who first stopped trusting U.S. paper dollars in late
1960's, which led to the end of the gold standard in 1971, and the
following rise in the price of gold.
For those of you who want to trust promises, why
not trade puts or options on futures for bonds?
It's hilarious. The
dollar used to be a promise to pay in silver, or gold. Bonds are
thus like an old defaulted version of gold futures contracts. Futures
contracts in bonds are a third form derivative on bonds which are
defaulted gold contract futures, and options on futures on bonds for
dollars are like a 4th form derivative on defaulted gold contracts.
The bankers have just gone wild!
Anyone want to buy an
option on options on futures on bonds in dollars that can't pay in
silver? Insanity! Get silver!
Oh yes, people often ask
me about IRA accounts, since they can't take delivery.
Maybe some people should cash out some, and get some
silver. I have a rather large IRA, and I use it for the mining
In case you miss an email,
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You can buy silver in
lots of 100-500 oz. at my auctions at www.seekbullion.com
Auctions end M-Th, Sat, At 7PM Pacific, but you can place bids anytime, 24/7.
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You can also buy silver at www.momsilvershop.com
ship overseas, and also in lots of more or less than 100
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