(And what to do about it)
Silver Stock Report
by Jason Hommel, June 17th, 2008
Antal Fekete responded again, and I was going to take the time to continue our debate on the dangers and harm of debt and usury and whether the silver shorts are naked short, but there is too much to report about short selling to get into the theory of that today. Also, there is an easy and practical solution that we can do to fix things. Buy physical silver, take delivery, and store it yourself! And contact Jim Sinclair! If you are interested in my continuing discussion with Dr. Fekete, please let me know.
Ted Butler reveals the scam of short selling the silver ETF. Ted came out with a blockbuster report on how the iShares Silver ETF is allowed to be naked shorted, which is an entirely new form of short selling silver.
http://www.investmentrarities.com/06-16-08.html
That the silver ETF can be shorted is revolting. You can see the current short sales position here:
Nasdaq.com
Currently, with 256,000 shares sold short, that’s worth 2.5 million ounces of silver.
A lot of people have trouble understanding the concept of a short sale. The way it’s supposed to work is that a person will borrow shares from a broker, who is holding shares for clients who have agreed to let their broker lend out their shares. If you use a margin account, you have likely already agreed to let your broker borrow and lend out your shares. But it’s not always done that way. Many times, the shares are sold short without borrowing, and in that case, the short position is said to be a naked short sale, as distinguished from a real short sale. But either way, this creates extra shares on the market which can put a downward pressure on the underlying security, as two or more people will think they own the same share. In come cases companies have reported proxy votes of up to 80 million votes when there are only 60 million shares outstanding, which creates problems.
So, since the silver ETF can be shorted, I’ll explain it like this: Imagine a silver bank that operated with 100% integrity, with 100% precious metal backing of all the accounts for all clients. But then, they installed a back door in the vault, and let other people walk out with the bullion and replace it with a piece of paper that says “IOU”.
That’s not exactly the same, since no physical silver leaves the custodian when a short sale is made, but new customer accounts are made, and no silver is deposited when new investors buy the newly shorted shares. So it turns the silver ETF into a form of fractional reserve banking, all the same. So, to allow the silver ETF to be sold short circumvents the entire purpose of the ETF in the first place, unless the purpose all along was to create another way that silver could be sold short.
If you own shares of the silver ETF, I suggest you slowly sell your iShares for real silver. Don’t do it all at once, because silver prices could move up 5-10% per day while you are waiting for your cash to clear and before you can find or get delivery of real silver.
There is another story I must share: the Hunts have sold Hunt Petroleum for $4.2 billion. There is speculation that they may buy silver again, and it would be poetic justice if they did it right this time, with no debt and no leverage. If they did, they could increase their fortune by ten times or more, and grow their wealth to be comparable to Bill Gates and Warren Buffett, or even surpass that.
http://arabianmoney.net/2008/06/12/will-the-hunts-buy-silver-again-after-selling-hunt-petroleum/
It is my belief that the reason the Hunts were blamed in the silver price run up to $50/oz. in 1980 is that their leveraged positions made them a target, and left them vulnerable, both financially and politically. But if they buy real silver, directly from refineries, before it ever gets to the COMEX, and pay for it in full, then they will have the full protection that silver offers. Their wealth would be anonymous, hidden, and not confiscable.
My advice to the Hunts is to buy real silver as fast as possible, without moving up the price more than 5-10% a week. They should send agents to the Penoles refinery in Mexico, or over to other refineries Peru, the top two silver producing nations in the world. Or event to Poland, another top silver producing nation. Or perhaps they should go to China. They should buy directly from the refineries listed here:
THE GOOD DELIVERY LIST OF ACCEPTABLE REFINERS: SILVER
http://www.lbma.org.uk/good_delivery_silver.html
Another thing the Hunts should consider this time is minting silver coinage, as close as possible to the cost. They should use their pool of silver, as a real pool, to help fill customer demand to drive the price up. The last time, they tried to issue silver bonds, but that’s a failed and failing strategy. If they sell real silver, it will continue to put pressure on all who have sold short phantom silver that does not exist. I’ve considered doing that myself, but my own capitalization is barely sufficient, and I lack the needed time and help, and I’d rather focus on writing and investing in mining and exploration stocks for now.
Another story of silver shorts must be shared:
The Perth Mint story of delivery delays finally got some press at crikey.com.au. It’s the third story down in the business section. You have to sign up to read the full story.
http://www.crikey.com.au/Business.html
http://www.crikey.com.au/Business/20080617-Are-Perth-Mints-silver-stocks-low.html
Key Excerpts:
A storm appears to be brewing around The Perth Mint, with speculation that the Mint’s precious metals pool has run dry. There have been recent reports from customers of delays or refusals from the Mint when making requests for the delivery of silver.
The Perth Mint Certificate Program allows customers to purchase precious metals without the burden of having to personally store them. However, dozens of customers have reported long delays or straight refusals from the Perth Mint when trying to physically collect their silver.
Currently the Mint has a precious metals liability of $880 million dollars, with $380 million going to subsidiaries to be used as an operating pool. With this much liability it seems inconceivable that the Mint could have run short of silver, and yet the signs seem to point to this. The Mint has told customers that there is no shortage, and that the delay is in production. But surely with an $880 million dollar operating pool they could ensure that production is completed on time.
If you own Perth Mint certificates, I suggest you slowly sell your certificates for real silver. Don’t do it all at once, because silver prices could move up 5-10% per day while you are waiting for your cash to clear and before you can find or get delivery of real silver.
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Next, Jim Sinclair has decided to fight the naked shorts as they are showing up among the mining exploration stocks more than ever. Please copy the letter below, or this entire letter, and send it to the management of every company in which you own shares. Since I have a large list of stocks, that will take me some time to do tomorrow.
Working Together, We Can Defeat Naked Short Sellers
Dear Friends,
I respectfully request that each of you send this missive to the management of your precious and base metals junior investment company. Please follow up to make sure it has been reviewed.
Strength In Numbers
The junior producer, along with exploration and development companies, need to consider the formation of a Chamber of Mines for this segment of the industry.
This Chamber should be free of any individual company agenda, free of fees and other interferences, and have the singular intention of protecting our shareholders from being attacked by those in the shadowy part of finance.
There are close to 2000 companies in this part of the industry, many of which are experiencing the same extreme nuisances.
The naked gold short seller is an entity engaged in a criminal act with a goal of doing serious injury for the purpose of profit. Therefore, the entity is a major target in terms of civil liability. The short and naked short pool operations are exactly the same but are more apt to be a conspiracy to injure, then become subject to RICO statutes (Racketeer Influenced and Corrupt Organizations Act).
The job of this working Chamber of Mines as a singular unit is to pull these criminals out of the shadows into the light of day. No matter how well they feel they are hidden, there is always a paper trail going back to the perpetrator in this financial world.
Certain financial areas of secrecy in many cases do not protect the spoils of criminal activities. This may be proven soon at UBS where an officer is under arrest in the USA and is due to go to court shortly.
It does not mean anything that neither regulators nor exchanges care about the naked short or short selling pools, regardless of whether they are naked or not. If the stockholders and the company whose values have been injured initiate civil proceedings, discovery will be full of legal opportunity. You cannot erase the paper trail that exists to every transaction.
My request is simple:
Contact the management of every junior precious metals producer, exploration and developer, asking them to pass along their expressions of interest to dan_duval@tanzanianroyalty.com so the Chamber can take form.
There is no hidden agenda here, no money to be collected, no desire to stroke egos, and no desire for private corporate information. I do not wish to be anything but a member. Let the organization elect its officers so we can act as one. We can speak as one. We can win as one even though we are weak and scattered as the industry is now. Organize and we are a legion. Expose the perpetrators and then it is all over. The data is there. It can be organized and it can be dissected, yielding the evidence trail of those who wish to hurt our membership – sometimes simply because they are mean but more often for illicit profits.
You stockholders must push your management hard. Personally there is nothing that I will not do to protect myself and my investors’ interests.
I herewith dedicate my time, my fortune and all that I am to the identification of the perpetrators and their conduits. Those sociopaths that take joy by inflicting severe injury for profit by conspiracy and the use of dirty tricks must be the hunted of nearly 2000 companies’ determined management and their more than 500,000 very angry stockholders.
There is only one way to defend stockholders and that is through the organization and strategy of a major offensive. Forget attorneys at this point. Regulators are of no help. A Chamber of Mines acting together can prevail. Nevertheless, I will go it alone if necessary.
Together we are legion. Alone and looking the other way we are victims. I have never been a victim. No one depending on me will be a victim.
There is NOTHING I will not do to protect those that depend on me. I am livid. Enough is enough.
We will add risk to the bad guys. That proposition you and they can depend on.
Sincerely,
Jason Hommel