-- Published: Thursday, 28 April 2016 | Print | Disqus
By Bill Holter
In response to my article yesterday The Chances Of A COMEX Default… (Public Article), Bob Moriarty decided to respond and attack me personally in this article. He claims me to be a "GURU" (an insult according to him), a fool, a bad writer with poor grammatical skills (I agree), with poor logic ...and a liar. To start, calling someone a "liar" is a very big leap because it means there is an "intent to deceive" as opposed to just being wrong or even stupid. Moriarty says I "feed people's fantasies" to entice them to subscribe to our newsletter which is now one month old. I wonder had I written the article over a month ago when all of my work was public what he would have claimed my motives to be? Many have read my work since 2007 at http://www.lemetropolecafe.com/ and dozens of other sites, does anyone see a shift in my logic since those days in order "fool subscribers"?
As for my grammatical skills, I agree, they suck! People do not read my work to make sure whether proper tense or punctuation is correct, they read it for the logic. I try to take complicated subjects and break them down so the average person can understand what is happening. The logic in this case is there are several hundred ounces of gold/silver represented by paper contracts but backed by only one ounce. Put simply, COMEX is a fraud. A call on this contractual metal cannot be met because the metal simply does not exist. I believe when the "call" for delivery comes, COMEX will be forced to declare force majeure and settle with cash. As I asked in the article, is this a default or is it not? In the real world it will make no difference at all whether it is "legally" a default or not, "practically" IT IS! In the real world the prices of gold and silver will have exploded and the "cash" so generously provided by COMEX to "settle" will not purchase the ounces you thought it would. In essence, while gold and silver supplies go into hiding, you will be left holding a pile of devaluing and worthless dollars that will not "buy" what you were promised.
If you want to be "technical", here are several passages from COMEX rules:
Section 702 of the rules states in part:
“In the event a clearing member fails to perform its delivery obligations to the Clearing House, such failure may be deemed a default pursuant to Rule 802.”
Section 714 of the rules states in part:
“A failure by a clearing member carrying a short futures position to tender a Delivery Notice on or before the time specified by the Clearing House on the last day on which such notice is permitted shall be deemed a violation of this Rule, except that the President of the Clearing House may, for good cause, extend the time to present such notice. Unexcused failure to make delivery shall be deemed an act detrimental to the interest or welfare of the Exchange. In addition to any penalties imposed as provided in Chapter 4, the Clearing House Risk Committee shall determine and assess the damages incurred by the buyer.”
Section 802 of the rules states in part:
“1. Default by Clearing Member
If a clearing member of CME, CBOT, NYMEX , COMEX, or an OTC Clearing Member, (i) fails promptly to discharge any obligation to the Clearing House or (ii) becomes subject to any bankruptcy, reorganization, arrangement, insolvency, moratorium, or liquidation proceedings, or other similar proceedings under U.S. federal or state bankruptcy laws or other applicable law, the Clearing House may declare such clearing member to be in default. For purposes of this Rule 802, each default by a clearing member will be considered a separate default event, provided that if a clearing member has been declared in default, subsequent failures to pay by such defaulting clearing member shall not be considered separate default events unless and until the original default has been fully resolved and such clearing member has been restored to good standing.”
The obvious question is this, if COMEX uses the word "default" in their own legal language then how is it impossible to ever occur? Would they really address an impossibility? While these rules pertain to individual members, what happens collectively were the longs to demand delivery of non existent metal? What will it be called when collectively the members cannot perform and deliver? "Default(s)" as in "plural" or just one grand default?
Further, Mr. Moriarty wrote "If Mr. Holter and Ted Butler want instead to make an argument that since the short position is so large you will never be able to take delivery because there won’t be any silver, they can say that. Butler did in 2001 and managed to pick the absolute bottom of silver in real terms in 5000 years. Not only was there a lot of silver, it was at a low. There was no shortage then, there is no shortage now." I would ask this, if far more "paper" silver has been sold than actually exists, isn't this a "shortage" of real metal in and of itself? Buyers have "paid" for silver that doesn't even exist. This aids in suppressing price because the paper was used as a "relief valve" to divert real demand into fake supply. Is this not a scam? This by the way is "manipulation" pure and simple, something Moriarty denies. Deutsche Bank has graciously now moved what was "conspiracy theory" into the category of FACT!
After discussions with the CFTC, Harvey Organ has told me "the CFTC insists cash settlement is a no no, gold or 'equivalent' must be delivered for settlement". As a side note, I find it quite odd COMEX which trades in 100 ounce gold bars continually reports ".000" (triple zero) movements which is a statistical impossibility. They have also been reporting many movements and adjustments that are divisible by 32.15 indicating these are kilo bars. It is also odd because the 100 ounce bars are only 99.5 fine while kilo bars are 99.99 fine, how is this accounted for if kilo bars are used to settle? Something fishy here?
Mention of "naked shorting" definitely needs mentioning because there certainly IS such a thing. One needs look no further than COMEX itself. What exactly are the contracts sold over and above available metal? Or look at shorts in various stocks, there have been times where more stock was sold short than authorized and issued. What would you call this? "Naked shorts" are the reason for the old saying "he who sells what isn't his'n, buys it back or goes to prison".
As for fake bars of gold, they have already intermittently shown up at this point. Rob Kirby is cited in this article saying 6,000 400 ounce bars were discovered in China. The New York Post reported on fake gold in New York followed by more fake gold found in New York. As I see it, when the call for delivery comes, either fake bars, no bars or cash will be the only options available.
When it comes to derivatives, Mr. Moriarty wrote "I only know of three people who seem to understand derivatives. That would be Adam Hamilton, me, and a guy named Jim Sinclair". He followed later with "Maybe Mr. Holter could get someone to introduce him to Jim Sinclair. Sinclair knows who does and doesn’t understand derivatives. He also knows about commodities and how they cannot default. I don’t think he would dream of charging people $119 a year just to feed people’s fantasies." Isn't this interesting? I am not sure I understand, at the beginning of his piece he acknowledges Jim Sinclair as my partner but now someone "should introduce us"? And ...there are only three people in the world that he knows of who understand derivatives ...and one of them is my partner Jim Sinclair? I'm pretty sure the feeling is not mutual on Jim's part, he wrote me prior to my first article written
"Bill, I dismissed Moriarty for poor knowledge many years back. His insistence derivatives net out to zero was evidence of real world ignorance. Denial of notional value as total true value is warped logic. Notional value will bcome full value at that very moment in time they are called on to perform. As long as derivatives have no need to perform they remain unimportant. As you have written, what is a contract worth that cannot perform? COMEX comes immediately to mind. Ry, Jim"
I must confess, I wrote poorly and incorrectly when writing "I do want to point out, this is the same man who said a derivatives blowup can never happen." I should have included "because of 'notional' value". For this I apologize publicly. Failing to include "because of notional value" is the main point to where we disagree. This is where he and Jim Sinclair vehemently disagree. We believe notional value when markets become stressed will become real and TOTAL VALUE. Jim and I believe too much "notional value" is exactly what will cause a de facto default on the COMEX with gold and silver. You see, the notional value of all the futures contracts, the puts and calls, and OTC derivatives simply dwarf COMEX inventories. The derivatives on gold and silver dwarf ALL THE METALS EVER MINED IN ALL OF HISTORY FOR THAT MATTER! THIS is where we disagree. Notional values will ultimately be the root cause of cross party defaults in EVERYTHING ...INCLUDING COMEX GOLD AND SILVER!
I am not sure I get it, while talking about markets AND DERIVATIVES blowing up, Moriarty believes none of this can or will happen because of notional value? These derivatives that will blow up are all paper contracts based on stocks, bonds and currencies but not commodities nor silver or gold because those members and exchanges cannot default? I would suggest this, if an exchange settled with bananas instead of copper, that would be a default. Just as if COMEX settled gold or silver with dollars? Are not fiat dollars and physical precious metals the exact opposites of each other? Who wants dollars if they were expecting gold? Technically, under a situation of force majeure, settling in dollars may not be a legal default (though COMEX itself says it is in their own rules)... it is however a real world and de facto default settling in the exact opposite currency to what you were "betting" on as a speculator. Man up and call a spade a spade Bob!
To finish, I would like to address the most egregious personal attack Mr. Moriarty levelled against me. He called me a liar. As he obviously did not know Jim Sinclair and I are partners, he may not have known I was a stockbroker for 23 years and a branch manager for 12 of those. In a highly litigious business world, I worked 23 years without ever an arbitration, lawsuit or any type of settlement. Of more pride, none of my brokers were ever involved in any type of arbitration, lawsuit or settlement. After the Dot Com bust, of the 711 branch offices at AG Edwards, less than one dozen offices were not litigated against. Mine was one of those! A "liar" cannot go 23 years while supervising others and doing business on a handshake and verbal order without being sued multiple times in multiple venues. I tell it as I see it, if you disagree then that is your option. Call me what you want, liar is cannot be one of them.
Mr. Moriarty may not like my spelling or grammar (my schoolteachers did not either!), he may not like or agree with my logic though I believe it is sound. He may believe whatever he would like to, it does not make him correct nor logical. I tried to take the high road with this and simply argue the logic, or lack of. I would hope Mr. Moriarty would extend the same courtesy in the future. Lastly, so sorry for the spelling and grammatical errors but in reality I don't give a damn!
As an addendum, Jim Sinclair felt it necessary to chime in after reading the above:
"Mr. Moriarty and I had a serious disagreement extremely early in the recognition of the severe problems that derivatives and their financial interdependence threatened the financial community based on lack of full grasp of the impact of bankruptcy a complexity of contract law thereupon many years back. His insistence that derivatives net out to zero was correct in a theoretical and prefect world in which all parties to all derivatives performed as to what and when the contract called for. He even had a professor write an article to sustain his view. What they both missed was the critical financial factor and entirety of the problem OTC derivatives have landed us with in the trillions. His denial of notional value transmuting to total true value in default is under contract law simply untrue. Notional value will become full value at that moment in time they are called on to perform. If either party can't come up with the huge funds then called for or physical gold, then bankruptcy of one party leads to the initial default. The danger lies should this default be of size to become systemic in nature. If either party to the Comex contract buyer or seller fails to perform according the varied contract stipulation the agreement under contract law, default occurs and the agreements in nominal value becoming real cash value which is an enormous financial swing. It is in the present discussion to recognize that default occurs at the point of non performance of the contract. All that Force Majeure does in the Comex contract is to outline a possible form of a solution to which there is no guarantee of
Under the logical outline by Bill of events you can anticipate the Comex contract will default by not being able to perform in the contract manner called for. As far as the called for remedy by the halt that Force Majeure it is also theoretical in a perfect world. This is exactly what Bear Sterns and Lehman Brothers faced for the same reason which broke them both. Bill's argument is totally correct in the real world of finance"
Standing watch,
Bill Holter
Holter-Sinclair collaboration
Comments welcome bholter@hotmail.com
Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration.
Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid potential liabilities related to management of paper assets. In retirement he and his family moved to Costa Rica where he lived until 2011 when he moved back to the United States. Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-present.
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-- Published: Thursday, 28 April 2016 | E-Mail | Print | Source: GoldSeek.com
