The Largest Physical Silver Hoard On Earth (Part 1)

This is the edited transcript to Dr. Lewis’ interview with Ted Butler detailing JP Morgan’s large physical silver position.

Years ago, Ted Butler was able to identify JP Morgan as the big silver short. We began by talking about how that evolved.

Ted Butler: Okay, I mean, to me it’s, fluid and seamless, and I’ll start anywhere you want me to start. Do you want to start from the very beginning with JP Morgan? I’ll make it fast, but the very beginning?

Ted Butler: The very beginning is in late 2008 or early 2008. I didn’t know about it till late 2008, but in early 2008, in March, Bear Stearns went out of business. I didn’t know it at the time because they never showed up in any report. They were an investment bank, and therefore would not be included in the Bank Participation Report, which covers only commercial banks. Because Bear Stearns was an investment bank, they were in the big concentrated short position in the Commitment of Traders Report, of course, but not identified by name, and they didn’t show up at all in the Bank Participation Report, so there was, I had no inkling that Bear Stearns was the big short in both gold and silver. They inherited the position from AIG; AIG had originally inherited the big short position, silver short position from Drexel Burnham, going back years. And so it came to Bear Stearns in March of 2008. Silver had run up from the end of 2007. The end of the year, December 30th, 2007, silver’s about fifteen dollars; gold is about eight hundred; in the next three months, a couple of months, it ran up as much as twenty one dollars in silver–six dollar advance–about a two hundred dollar advance in gold–the first time it hit a thousand. In any event, this caused, based on the size of Bear Stearns’ position, them massive losses. Combined margin calls and paper losses, even though their paper losses, unrealized, they were maintenance margins adding up every day. Combined it was like two billion dollars they needed. The market in gold and silver moved against them in the two and a half months from the end of 2007 to the tune of about two billion dollars, and obviously they didn’t have the money, and they were having problems with mortgages and other things too, but I think it was the cash requirement demanded by the COMEX, because they were clearing firm, and they needed to put the money up everyday, and they obviously didn’t have it. The government arranged for JP Morgan to take over Bear Stearns as a whole and therefore take over their short position. If JP Morgan hadn’t come in and taken over Bear Stearns, the company and specifically their short positions in gold and silver, instead of running to twenty one dollars, silver would’ve run to a hundred or two hundred dollars at the time, and a big increase, proportional increase in gold because it would’ve been, in the case of silver, something like forty thousand contracts, that they would have to just buy at the market. They couldn’t deliver, they couldn’t maintain the margin, obviously. And if those live short contracts were forced to cover at that time as, you know, in some ways, they should’ve been, okay, forced to do it, we would’ve had a tremendous run up. Instead, JP Morgan took over and didn’t miss a beat. They hired the main traders from Bear Stearns, and they put their money and muscle behind it and didn’t flinch and continued to sell short, cap the prices, and then they succeeded later on in the year with a series of price declines by getting the price actually under nine dollars an ounce for a while late in November, October/November of 2008, in which case, JP Morgan bought back a lot of their short position, that big profit that they inherited from Bear Stearns, and they repeated the process over the next couple years; in other words, as prices ran up from the lows, JP Morgan would go short. They were always the biggest short in the market.

When prices came down, when they maneuvered and rigged and manipulated prices lower by the sheer weight of their selling as prices were going high or going short, they made tremendous profit, hundreds of millions of dollars–perhaps billions over the full course of time. So they were, you know, milking the system since JP Morgan was milking the market by dominant control, by being the big short from taking over Bear Stearns in March of 2008 until late 2010 when silver started to run up from the fifteen/seventeen dollar mark in August of 2010 to almost the fifty dollar mark in April of 2011, and really put, you know, brought JP Morgan almost to the abyss because, not that they would’ve gone out of business or anything like that, but they had such a big short position on that it would’ve been a, you know, it would’ve been a big loss were they forced to cover, and instead, they got the exchange, CME, and probably the regulator, the CFTC, to look the other way while they rigged that big selloff, okay.

On May 1st, 2011, they dropped silver six dollars on a Sunday evening, and it dropped as much as fifteen dollars over the next week or so, and that broke the back of the run up in silver. But you have to understand, the reason silver ran from seventeen dollars or so in August/September of 2010 up to almost fifty dollars in April of 2011, seven/eight months later, was not because of excessive speculation on the COMEX. The data shows the positions didn’t change that much. So, by process of elimination, the only thing you can point at – that was driving prices up to those highs – was a tightness shortage. Call it a “shortage” in the physical wholesale market. That was behind the move up. Now, this took, in my opinion, JP Morgan by surprise. They weren’t prepared for this. They could see, being the biggest dealer in physical silver, along with being in the futures market. And they learned firsthand that silver was a very finite resource and could go into shortage. It went against them, and they bailed themselves out. But it went against them a tremendous amount, and they were the biggest short on the run up. Sometimes when you’re faced with extreme adversity, as JP Morgan was at that time on that run up, you learn things. You pay attention, you recognize things that you may not have recognized before. I believe that JP Morgan recognized that there was a shortage in silver and this was not a fluke thing. This is not a corn crop, or something where the supply is set in the next year, and you just grow a new supply. This is a commodity that’s been around for thousands of years, and you just can’t adjust supply and demand that quickly. And the fact that it was in a shortage at that time would seem to indicate or highly suggest that it could very easily go into a shortage in the future. Silver is unique in that not only is it an industrial commodity, it is an investment asset, and it’s that investment asset that you never know when it’s going to kick in and turn the silver market from being adequately supplied to being completely unavailable. If investment demand picks up–and it does, that’s it’s habit– because it’s run by human beings — you can have a shortage at any time. You’re not going to have that in crude oil or corn or even copper. You can have it in gold, but gold doesn’t have the industrial kicker that silver does, so silver’s very unique in that way. I think JP Morgan recognized that, and I think at that moment in 2011, when it was hitting the high, they made the conscious decision that, “Hey, given the opportunity, we’re going to load up on silver.” And I think from that point on, (that’s four and a half years ago), they’ve spent every waking day in the process of accumulating physical silver. We can get into the details of how I think that they did it, but the kicker to the thing is that they were still the big short in the paper market on the COMEX and COMEX silver futures, so they had the best of both worlds in that they were depressing, intentionally manipulating the price lower, via their big paper short sales. But for the express purpose of picking up physical silver cheaper than they would have to pay otherwise if they weren’t depressing, or suppressing the price on the COMEX. It’s a perfect scam, it’s a perfect fraud. The problem is that it’s illegal. But government came in and asked/requested that JP Morgan bailout/takeover Bear Stearns in 2011. Now they’ve kind of been forced to look the other way now that JP Morgan decided that it wanted to be the biggest owner in the history the world. The largest private owner in the history of the world in terms of physical silver. And they’ve done that, and I can show you how I think that they’ve done that. And the process, now they’ve close to eliminating their net short. They may not even be short anymore on the COMEX, and they’re left with this huge 350/400 million ounce plus physical position. They are now in a position now to inherit the biggest windfall in the history in commodities if silver becomes un-manipulated and begins to move up, which is, I think, the whole purpose of why they bought it.

Dr. Lewis: From August 2010 to April 2011, or from seventeen to fifty dollars, there was retail confirmation of shortage and yet there was no change in the managed money short that we see now.

Ted Butler: You’re right. You can look at the data on the Commitment of Traders. It didn’t change that much in the run up. That wasn’t the driving force that drove prices higher. I don’t even think it was, there was a retail shortage at the time, okay, and there’s been retail shortages in silver on a number of occasions both before and since that time–we’re in one right now, with the Mint running out of Silver Eagles once again. But there’s a difference, you want to keep it–there’s a big difference between retail and wholesale.

Ted Butler: And back in the Fall of 2010 to early, (to the Winter of 2011), there developed a wholesale shortage. When I say wholesale, I’m talking about thousand ounce bars. If you have a shortage like we have now of Silver Eagles and bags of junk coins, that’s a retail shortage. That shouldn’t affect the wholesale market, or the market for thousand ounce bars. They’re two different markets. It’s symptomatic, if you have a retail shortage, it’s symptomatic. We don’t have silver falling out of the sky like a lot of people want to assume from time to time. If you get a wholesale shortage, that’s a completely different thing. We had a wholesale shortage for the first time in history in early 2011. What I would look at for proof of that, it’s not so much about the sales of Silver Eagles. Look the Sprott Organization. They brought out a silver ETF, and they had to wait months to get thousand ounce bars. When they did get their thousand ounce bars, they could tell when they got them by the serial numbers and the hallmarks, that a lot of them were actually produced, were refined and smelted, after the order that Sprott put in. So, in other words, the silver didn’t exist at the time Sprott bought it and was manufactured only after the order took place. He had to wait, when you have a delay, that’s a shortage. A delay means, “We don’t have it today; we’ll get it for you tomorrow,” and that’s the basic definition of a shortage: You must wait to get what you want, what you’re willing to buy, because it’s not available. Doesn’t mean it has to last forever; doesn’t mean it has to go away immediately, either. It depends on circumstances at the time. In this case, it probably would’ve really developed into a shortage had silver prices not cracked wide open intentionally to the down side in on May 1st, because that’s just the way markets are. Prices go higher in an investment asset, and you get more and more demand, investment demand, and we were suddenly in that mode when the authorities, JP Morgan, the CME, colluded to knock the price down at all costs on May 1st, that Sunday evening in 2011. And they’ve succeeded since then. We’re down, you know, obviously, substantially for four years. It’s just what the doctor ordered, I believe, for JP Morgan because they’ve picked up this close to 400 million ounces that I allege they have over the last four and a half year. So on the order of 100 million ounces a year, which is highly doable because that’s exactly the amount of silver we’ve had left over after all total fabrication demands were subtracted from total supply, mine and recycling. So, it just matches up on so many different angles that JP Morgan has been the big buyer since then, and it’s like one of the most perfect investment plans and schemes I’ve ever seen. The problem is it’s like, on the surface, it looks to be highly illegal. And you got to call JP Morgan crooked–and I do. So far without, knock on wood, so far without retribution from them or whatever. But anyway, that’s the timeline. Now, you know, four and a half years after this peak in silver I think we’re at the lows price-wise, and JP Morgan has positioned itself perfectly now for the upside, and while it’s hard to figure exactly what day they’re going to do it, or let it run or whatever, you know, I sense it’s close. The path of least resistance, contrary to the public sentiment, appears to be definitely higher rather than lower at this time. At market bottom, everybody feels terrible; at market top, everybody’s euphoric. Nobody’s really feeling euphoric right now, and that’s probably one of the big signs of the bottom.

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