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29 Questions for a Silver Futures Broker - Answers

By: Jason Hommel, Silver Stock Report

-- Posted 16 March, 2009 | | Discuss This Article - Comments: Source:

(6 Futures Brokers Answer)

Silver Stock Report

On February 19th, I issued a challenge to futures brokers to answer 29 questions, and in return for their answers, I gave a futures contract of my own.  I said I would publish them, here, to my 80,000 readers, which would give them publicity.  Six Futures Brokers rose to the challenge.  I was going to publish just the best answers of each, which I do below, but I decided it would be best if I published everyone's full sets of answers.  And so, I forced myself to take the time to format everyone's full sets of answers, and this report links to 6 more full reports of answers.

Their answers are in bold, so you should view this report online, and not in email, in case your email does not read html.
See this report, here:

Here's my original 29 Questions

This is probably some of the most important reporting and commentating that I have ever done, or seen anywhere else. 

This really cuts to the heart of the matter of what is wrong in America today.  Many people know that it's the money powers that are controlling our politicians.  The Achilles heel to the money powers is physical silver, because there is so much less of it than gold. 

To manipulate silver, and keep it suppressed, they use futures markets.  One bank now, likely JP Morgan, has an overwhelming short position in silver.

These brokers who answer below, work, indirectly, for those money powers that are wrecking everything.  They help divert investment demand away from physical silver, and into the paper products of the money powers that control everything.  They may not be consciously aware that that's what they are doing, but then again, that's just my perspective.

The answers these industry professionals give are just fantastic for the insight they bring to the table, mostly, how unaware they are of the data that I present to them that indicates the scope of the financial fraud in the industry in which they work. 

Some of them seem unconcerned about defaults, and some do recognize the possibility.  Overall, I was shocked by their answers.  They seem generally so unaware, and unconcerned, except a few of them, just a little bit concerned.

They just don't seem to be aware of the data.  Most have never heard of the CPM Group, a key industry group that gathers and publishes statistics on silver in an annual yearbook, that I continue to hammer home to my readers. 

Also, since they don't know the data, they seem to be mentally incapable of analyzing the data, to be able to compare the values of key numbers, such as the total amount of annual physical investor demand for silver, (50-100 million ounces) with the total number of short positions (up to 800 million ounces).

They don't seem to realize that diverting investment demand away from physical silver, and into paper, is price suppressive of the physical price.

They don't seem to realize that the physical silver market is $1 billion annually, and the paper shorts stand to lose $8 billion if the silver price doubles.

They don't seem to realize that if all paper longs simply bought physical silver instead, the silver price would be multiples higher than it is today.

They don't seem to realize that if all paper longs, such as bondholders bought silver, the price of silver would be hundreds, thousands, if not millions of times higher than it is today.

I was most shocked at how short term most futures trades are, only a few months.  And then, they expire, and have to be sold, for new paper instruments, and each time, they have to pay a commission, to these guys who answer below, to do so. 

The self-deceiving lies of one respondent shocked me, as he claimed, "everything expires". 

Silver itself does not expire!  Silver lasts thousands of years, even with a little tarnish that actually protects the silver from further decay.  There is no "time limit" on one's personal savings that may need to last nearly one's entire lifetime, or more, to leave behind an inheritance for one's children's children.  These days, you are likely to outlive and outlast most financial institutions!

Back about 9 years ago, before I knew much of anything about finance, back when people were first beginning to pay for "clicks" on the internet, some of the highest bids recorded were up to $10 per click, being paid by futures brokers desperately looking for clients.  These guys stand to make more money from your losses than any other financial professional, except perhaps JP Morgan or the Federal Reserve, or a company like MONEX with their own proprietary "futures" "atlas account".  See for more info on that group.

While the names of the brokers who responded are listed in each report, here also are the names and contact information for each person and company who responded, and key excerpts from their answers:

========== Answers #1 ==========

Yitzchok at Bullion Trading LLC accepts orders of any size and processes orders using the spot price.
Bullion Trading LLC only sells from their active inventory and only stocks in-demand grain, coin and bar products.
Come visit & see for yourself at:
Answers #1:

After he answered, Yitzchok wrote back, regarding his answer to question 12:   I started to write an answer to your questions. As I got to this question & began to answer it I thought that I should just clip this and see what you think.

12.  What gives you confidence that there won't be a default in silver futures contracts at the NYMEX?

Futures Broker:

If any contract would default then this would be a problem for the entire system not just the silver market. When I buy a contract the brokerage firm is garrenting (sic) that I will make good on this commitment. In addition the brokerage firm has its own insurance for this. This is also on top on the margin that I need to hold. In the event that the silver market goes straight up first I would get stopped out because I would not have enough money in my account the difference would then be charged to the brokerage & then the insurance would have to pay the balance. Also the way things are right now the government would then be making some sort of a bail out. If you really think about it & you really believe that there is a short manipulation going on by some of the big firms then you also need to believe that the government would be bailing them out so they really do not need to worry about this short position because the government would need to continue to carry this short position while they bail them out. The government would not close out this short as this would hurt them in a big way sooo I now really do not think that buying silver because of a supposed short position would be worthwhile.

Yitzchok wrote:  The part that I would like your thought is on the bail out part.

I wrote back:  There are a lot of issues to what you are saying.  If the government bails out, but as you said, the government might not want to bail out.

I think you are still stuck in the "paper gains" mode of understanding.  A paper bail out is still not silver.

Yitzchok wrote back again:  I agree that a paper bail out is still not silver. Nevertheless even if the gov't were to bailout & this would have to be after JP fails. The gov't would now have to make good on the short position. I think that they would keep this position (if it does exist) open; thereby silver would effectively not be changed by such a transaction.  

I am really glad that I responded to these questions as they clarified some of the nagging thoughts that I had.

========== Answers #2 ==========

Allan Bartlett
Excel Futures
4440 Von Karman Ave. Ste. # 115
Newport Beach, Ca. 92660
Toll Free: (888) 959-9955 / Local: (714) 843-9884 / Fax: (949) 250-8931
Answers #2:

Alan also answered very well.  Here are his best answers:

12.  What gives you confidence that there won't be a default in silver futures contracts at the NYMEX?

Futures Broker: There's never been a default on any Commodity Exchange to my knowledge, but I don't have the confidence that they're (sic) couldn't ever be a default.  If there were a default, I guess they would try to cash settle the contracts, but then again, what would that “cash” actually be worth if there were a default.  You ask good questions.

14.  I'm concerned about default because the open interest is always so much higher than the silver that is in the warehouses, both registered and eligible for delivery.

As of 2-10, the open interest is 130,692 contracts for 5000 oz. each.
That's a total of 653,460,000 ounces, is that correct?

Right now, the silver warehouse stocks, total, registered and eligible, for all 4 warehouses, is 124.7 million ounces.
See "Warehouse Stocks" and then "Silver Stocks" at the bottom of the page.

That seems to be quite an imbalance, so what is the guarantee that the shorts can deliver silver to the longs?

Futures Broker:  I think you've answered your own question.  There is no guarantee.   I don't think the shorts can guarantee delivery if everyone who's long right now stands for delivery.  The system has never been “stress tested” IMO to know what would happen in this case if everyone stood for delivery.  Obviously, there is not enough silver in the wharehouse (sic) right now to cover the current outstanding contracts.

16.  There is another major market in silver, besides the NYMEX, and I'm speaking of the LBMA, the London Bullion Market Association, which is a group of very large bullion banks that all act as market makers for bullion orders for their own clients.

In the 2008 CPM Group yearbook, on page 16, they list the Estimated Silver Inventories in London and Zurich at about 75 million ounces for 2006.  That seems a rather small amount, what do you think?

Futures Broker:  I think the amount is especially small given that they are one of the largest physical suppliers overseas.  75 million ounces is not a lot inventory if a few large institutional investors came in and bought up all the supply.  

========== Answers #3 ==========

Robert Fuhrmann
Answers #3:

Robert's answer to point 12:

12.  What gives you confidence that there won't be a default in silver futures contracts at the NYMEX? 

Answer:  The exchange makes its money in part by collecting exchange/trading fees on the contracts traded there.  Its like any other product or service, if there is demand for it and COMEX can make money on it they will continue to keep offering it.  I think the question that you are really asking is what happens if the shorts default on their short positions.  The long answer could fill a short book.  The shorter answer is that the COMEX is not the guarantor of the positions, the clearing firms are.  Let's say that UBS has a client that is short silver and the market goes against them.  Any responsible clearing firm and or their brokers would liquidate the positions (forced liquidation) if that client were on a margin call, but lets say that either the market move is so big that the clearing firm does not have a chance to close the position before the client goes debit (with current margin requirements that would be more than a $3.00 move on silver at the very least) or that for some other reason they do not liquidate in a responsible manner.  The account would go debit, the clearing firm still guarantees the position to the counter party, so the COMEX would not have a debit situation, but the clearing firm may.  Worse case scenario is that the debit is so big, and the client cannot make up the debit that it bankrupts the clearing firm (similar to the rogue trader at Barings Brothers Bank depicted in the film “Rogue Trader”).  Give me a call if you would like to discus this topic in further detail as there has been a lot of talk of this circulating around the web.

I think Robert misses the fact that the big short is JP Morgan, not some "client", and that the "client" is most likely the U.S. Government, or a Federal Reserve Bank, or JP Morgan itself.

========== Answers #4 ==========

John C. Jensen
President, Heritage West Financial, Inc.
8775 Aero Dr., Suite 302
San Diego, CA 92123
Answers #4:

John's answer to point 8 is good.  It would take $23 million to buy options a year out, at the position limits imposed on paper longs, but that trade is larger than the open interest!

8.  I understand there are position limits of 1500 contracts in a given month.  How much money would it take, at a minimum, to buy 1500 silver options contracts, a year out, at the best prices, in your opinion?

What's the point and purpose of this question?  Is this a math test?  1,500 contracts, that's 7.5 million ounces.  How is this question relevant to your average silver trader/buyer?  Anyhow, simple math: see answer to question #5 ($3.10 x 5,000 ozs. x 1500 contracts) however, this is theoretical there isn't much open interest that far out.

========== Answers #5 ==========

Drew Klein, Greenrush Capital
Drew Klein, President
4348 Van Nuys Blvd, Suite 207
Sherman Oaks, CA  91403
TOLL FREE - (888) 548-RUSH (7874)
LOCAL/INTL - (818) 907-9337
FAX - (818) 907-9233
Answers #5:

Drew also gives a good answer to question #8, at approximately $17 million.

Key #12 answer:

12.  What gives you confidence that there won't be a default in silver futures contracts at the NYMEX?

Futures Broker (Drew Klein, Greenrush Capital): I can't be anymore confident that the NYMEX won't default than I can that the US Government won't default.  It's certainly possible, but my figures don't show it happening any time soon. 

========== Answers #6 ==========

Gil Nyerges
Morgan Stanley
55 S  Lake Ave # 800
Pasadena  Calif  91109
800-488-1240 x9369
Answers #6:


12.  What gives you confidence that there won't be a default in silver futures contracts at the NYMEX?

12. Default.  I don't think anyone  even thinks about it.  It a default occurs, and it has in various commodities in the past, the exchange will settle trades on the day of default and trading will be terminated.  You will be offset at that price for a gain or loss.

Point 14:

That seems to be quite an imbalance, so what is the guarantee that the shorts can deliver silver to the longs?

14. answered above,  less than 2 % will take delivery of any commodity,  and if the exchange determines too many non-commercials want delivery it will be restricted.

Gil was especially brave to answer, seeing as how he works for Morgan Stanley, a company implicated in wrongdoing in my report.  I hope for his sake that he does not get fired.  But then again, I hope he gets really courageous, enough to just quit!

If anyone is trading futures here is my simple plea.  Stop trusting the vain promises of what men may give you.  Instead, trust what God has already given you: your reason, and the provision of the world's silver.


    Jason Hommel

    In case you miss an email, check the archives: 

    You can buy REAL PHYSICAL silver at my auctions at
    Auctions end M-Th, Sat, At 7PM, but you can place bids anytime, 24/7. 

    -- Posted 16 March, 2009 | | Discuss This Article - Comments:

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