Look for the silver lining

A contact has pointed me to a Guardian piece, redolent of conspiracism, by Max Keiser, who appears to suggest that if we all buy some shiny metal we can - and should - bust JPMorgan Chase.

As part of the ongoing exposé, it has now become clear that JP Morgan is sitting on what is estimated to be 3.3bn ounce "short" position in silver (which they have sold short, meaning they don't own it to begin with) in an attempt to keep the price artificially low in order to keep the relative appeal of the dollar and other fiat currencies high. The potential liability for JP Morgan has been an open secret for a few years.

On my show, Keiser Report, I recently invited Michael Krieger, a regular contributor of Zero Hedge (the WikiLeaks of finance). We posited that if 5% of the world's population each bought a one-ounce coin of silver, JP Morgan would be forced to cover their shorts – an estimated $1.5tn liability – against their market capital of $150bn, and the company would therefore go bankrupt. A few days later, I suggested on the Alex Jones show that he launch a "Google bomb" with the key phrase "crash jp morgan buy silver".

Within a couple of hours, it went viral and hundreds of videos have been made to support the campaign.

Right now, silver eagle sales for the month of November hit an all-time record high and the availability of silver on a wholesale level is drying up. The most important indicator is the price itself – holding just under a 30-year high. With each uptick JP Morgan gets closer to going bust or requiring a bailout.

Putting aside a fundamental distaste for the Alex Jones Show (a venue for 9/11 Denialism and claims that the British Monarch is actually a large green extraterrestrial 'reptilian') my immediate response is to ask whether there is anyone with an interest in boosting the price of silver other than as a way of ostensibly punishing a big bad bank? Will it end in tears?

Large-scale speculation in shiny metal has a long history. I am reminded of the bursting of the speculative bubble on 'Silver Thursday', ie 27 March 1980, with panic on futures exchanges, a bailout of brokers and the disposal of the art collection (including the Euphronios Krater) of the "famously wealthy" and infamously right wing Hunt family.

Nelson Bunker Hunt and Herbert Hunt had attempted to corner the global market in silver, reportedly gaining rights over a third of the world's non-government holdings of the metal and in the process pushing up the price from US$2.90 per ounce to US48.70. Wealth has its ironies. The rise elicited an ad from Tiffanys - of course on a purely philanthropic basis - that declaimed

We think it is unconscionable for anyone to hoard several billion, yes billion, dollars worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver

Government-induced collapse of the bubble saw the brothers face a potential loss of US$1.7 billion and anxieties about the demise of other speculators and brokers, addressed through a US$1.1 billion line of credit from a consortium of US banks. Mitchel Abolafia & Martin Kilduff's 'Enacting Market Crisis:
The Social Construction of a Speculative Bubble' in (1988) 33 Administrative Science Quarterly 177-193 comment that

On October 26, 1979, the Chicago Board of Trade decreed that those traders holding in excess of 600 contracts for speculation in the silver futures market had to reduce their positions. "You can't do it," was Nelson Bunker Hunt's incredulous reaction. "You wouldn't dare. You're the last bastion of free enterprise in the world" .... Hunt found himself confronted by an organization with the power to redefine the rules of transaction and the temerity to violate the sacrosanct principles of a free nnarket. Over the next six months Hunt was to receive more lessons on the organizational context of free markets, as regulatory agencies and futures exchanges sought to control what they regarded as an artificial inflation in the price of silver.

The Hunts lost over a billion dollars, later being found guilty of conspiracy to corner the silver market and eventually declaring bankruptcy. Their travails are recorded in Stephen Fay's Beyond Greed (Viking,  1982), 'Spending: the Hunts, silver, and dynastic families in America' by George Marcus in (1985) 26(2) European Journal of Sociology 224-259, and Bryan Burroughs' The Big Rich: The Rise and Fall of the Greatest Texas Oil Fortunes (The Penguin Press, 2009).