-- Posted 21 September, 2009 | | Discuss This Article - Comments:

This is an excerpt from an article prepared for subscribers to www.butlerresearch.com on Sep 17, 2009……..

The other thing that could cause the silver shorts to be overrun is regulatory intervention. This intervention is long overdue, as well. I make no apologies for recent optimism concerning the intent of the new chairman of the CFTC, Gary Gensler, in this matter. If and when the time comes to admit that I was wrong, I will do so, but not before. In fact, I believe a new impetus has just been given to Chairman Gensler to do the right thing and set and enforce legitimate position limits in all commodities, including silver. Amazingly, the impetus was neither expected nor intended.

Yesterday, the CME Group, Inc., the world’s largest derivatives exchange and owner of the COMEX, issued a “white paper” on its observations and recommendations in the matter of proposed position limits and the enforcement of those limits. You can read the white paper here -  http://www.cmegroup.com/company/files/PositionLimitsWhitePaper.pdf

While I urge you to read the entire report, please allow me to give you my take on it.  I don’t think I’ve read a more obnoxious, self-serving or arrogant presentation in my life. Not only was it devoid of substance, it was presented in a manner seemingly designed to infuriate.  It was nothing less than a deep and personal insult to Chairman Gensler. The report, in effect, told the CFTC to get lost and that the CME knew best about everything under the sun. I found myself getting angry and insulted even though I knew it wasn’t intended for me. I can only imagine how Chairman Gensler felt.

The good news, if I’m not completely off the mark, is that the CME, led by its condescending CEO, Craig Donohue, has made a significant blunder.  I watched him during the recent public hearings and had the same impression then, namely, that he was insulting and demeaning towards Chairman Gensler. I think this was a big mistake on the part of the CME. This is the wrong approach to take with your primary regulator if you are trying to win the Commission over. It is the right approach if you are looking to get your head bashed in on this matter. I think the CME is going to get its head bashed in. If I were a CME shareholder, this white paper and the recent public hearings would make me question my CEO and the direction he was taking the organization. For me, and all silver investors, this white paper is great news. It makes me question if the exchange, and by extension, the big silver shorts know what the heck they are doing.

That’s the real bottom line here. I know the shorts are corrupt and powerful. I know the technical fund longs have been easy to deceive. I know the COT structure is negative. I know what usually happens in previous set ups. And I know that it may happen again. But I also know that if a physical silver shortage is at hand, the shorts don’t have a prayer. I know that a regulated entity should not be arrogant and insulting to its regulator. I know how to judge a man by his word, and how Chairman Gensler’s words have been unusually clear. I know I have sent him just about everything I have written on this matter and how if these commercial crooks take this market down again, that he was warned that the bank was going to be robbed at a precise time and place.

For silver investors, the advice is clear. Maintain a meaningful long exposure in metal, shares and ETFs. Be prepared for a sell-off, financially and emotionally. Be just as prepared for a price explosion. Don’t let anyone tell you they know how it will be resolved in the short term, but know it will be resolved.   

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