Interview With Theodore Butler
By: James Cook & Theodore Butler
Posted 24 November, 2010
Cook: For the past ten years you have been claiming that silver was the best thing people could own. How do you feel now with silver around $25 an ounce?
Butler: I have a sense of relief that I could not possibly have hurt anyone who followed my advice. I also feel intellectually vindicated about the way things are turning out. Lastly, I feel amazed how good silver still looks for further gains.
Cook: How high could it climb?
Butler: Real high, but by now you should know I shy away from specific price targets.
Cook: A lot has been going on with silver lately. Most of the things you’ve written about are starting to happen. What do you think about the recent spate of lawsuits against JPMorgan and HSBC?
Butler: It’s a big deal. The main thing is not the outcome of this case, but rather the fact that they were filed.
Cook: How many lawsuits were filed?
Butler: The latest tally is 25, I’ve been told.
Cook: Why do you think these lawsuits are important?
Butler: It is another confirmation of the growing recognition that silver has been manipulated in price.
Cook: They must be reading your newsletter because everything claimed in the first lawsuit originated with you. Do you agree?
Butler: Yes, I know that for a fact.
Cook: The basis of the lawsuit is that these big banks are short an inordinate amount of silver. How much to be exact?
Butler: It varies over time, but at the time referenced in the lawsuit, JPMorgan, either alone or with another U.S. bank, held short on the COMEX the equivalent of 25% of world annual mine production
Cook: How many ounces is that?
Butler: In most recent CFTC data, it is 150 million ounces, but within the past year it has been over 200 million ounces
Cook: You’re claiming that’s manipulative?
Butler: Absolutely. It would be impossible for such a concentrated short position not to be manipulative. It was this observation that led to the current CFTC silver investigation which, in turn, led to this lawsuit.
Cook: How many ounces are there held short in total?
Butler: The total net short position in COMEX futures is around 550 million ounces, but if you include everything, especially unbacked bank certificates and pool accounts, it grows to 2 or 3 billion ounces.
Cook: Who are these short sellers outside of the big one or two?
Butler: On the COMEX, there are about 8 commercial entities short over 300 million ounces, including the biggest.
Cook: They got squeezed pretty good when silver hit $29, didn’t they?
Butler: You bet.
Cook: How big have the losses been for the shorts?
Butler: In silver, the big 8 were out over $3 billion at the top, and more than $5 billion if you include all the shorts.
Cook: You pointed out that there had to be a lot of margin calls, when gold is included, what’s the total?
Butler: All in all, almost $15 billion.
Cook: They actually had to cough up $15 billion?
Butler: Absolutely. That’s a key component of the clearinghouse system.
Cook: Did anybody fail to make their margin calls?
Butler: It’s hard to tell.
Cook: I thought the price rise to $29 might have been because some folks couldn’t make margin calls and the brokerage firm bought back their position. No?
Butler: I’m certain there was a lot of that; they liquidate the contracts to satisfy the margin calls.
Cook: They don’t mess around do they?
Butler: This is basic commodity stuff. As a customer, if you don’t meet your margin calls your broker will liquidate your position. Otherwise the brokerage firm must eat the customer’s loss. Brokerage firms don’t allow customers a free ride. If a brokerage firm doesn’t meet its overall margin requirements to the clearinghouse, that’s a default, a real no-no.
Cook: It’s hard for me to believe that JPMorgan is sitting flatfooted waiting for the axe to fall. Don’t you think they’ve dug up a lot of silver to help reduce this short position?
Butler: I’m sure they’ve come up with as much silver as possible, but there are physical constraints to that. Their problem is not a money problem, but a physical material problem.
Cook: I see they raised margin requirements on silver. Why only silver?
Butler: Silver had moved the most and the margins should have been raised. The scandal was when they raised the margins. This is an issue of timing. They waited until prices made a downside reversal and then raised silver margins.
Cook: Is this fishy?
Butler: This is an example of why I refer to the CME Group (COMEX) as operating a criminal enterprise, as I’ve seen them pull this dirty trick numerous times in the past. The exchange times the margin increase so that it comes when it is least likely to hurt, and maybe help, its big constituent member short holders. That time is always best when the price makes a sudden reversal down after a big climb. This way, the margin increase actually hurts the longs and benefits the shorts. The reversal to the downside swings the financial tide against the longs temporarily.
Cook: What should they have done?
Butler: What they should have done is raised margins on the way up, but that would have hurt the shorts, something the exchange would never do. By timing the margin increase just after a price reversal to the downside, the exchange helps the shorts.
Cook: Are they above the law?
Butler: What’s particularly infuriating and illegal is that the exchange is designated under commodity law as a self-regulatory organization (SRO). That means the CME Group is supposed to do things on a fair and even-handed basis, not cater to the selfish interests of its most important members. The phrase that comes to mind when describing how the CME fulfills its regulatory obligations is letting the fox guard the henhouse.
Cook: How in the world did this come about?
Butler: The CFTC and Congress made a very big mistake when they turned over so much regulation to the exchanges years ago. There is a conflict of interest in what the exchange does in its regulatory role. That’s why the COMEX is fighting the CFTC tooth and nail over position limits and every other issue that may infringe on its own interests.
Cook: The Commodity Future Trading Commission has ruled that within 3 months or so they will put limits on how much one entity can be long or short. Will this break up the concentrated short position?
Butler: If they stick to the timeline dictated by the new law and if they impose legitimate limits and throw out the phony exemptions to those limits.
Cook: Won’t that set silver “free at last?”
Butler: Yes, “thank God Almighty.”
Cook: Will the COMEX back down?
Butler: I don’t think so. They know this is the one issue that can blow the lid off silver.
Cook: Silver could turn into a runaway train. Why don’t these short sellers get out of the way and cover now?
Butler: They desperately want to, but it’s easier said than done because their position is so large that they are trapped. Just covering the limited amount of shorts to date has already had a profound impact on price. Why do you think we’ve risen so much in the past few months?
Cook: One of the commissioners at the CFTC has made a number of statements criticizing the shorts and the Commodity Exchange itself. Sounds like the senior regulators have embraced your views. Do you agree?
Butler: It’s hard to reach any other conclusion.
Cook: If that’s true then position limits are inevitable would you say?
Butler: The new law has mandated position limits, so unless the law is repealed I would say they are inevitable. But more than that, it’s important to remember that position limits are of specific relevance for silver more than any other market.
Cook: What do you mean?
Butler: COMEX silver is the only market which must have position limits radically reduced from the current accountability level. In all other commodities, including gold, the level of position limits is not so important because the short position is not that large. In silver, it’s the core issue.
Cook: What kind of position limit level do we need to see in silver?
Butler: If we don’t see a new level of close to 1500 contracts, instead of the current 6000 contract level, then this market is more crooked than I have been alleging. And I would think those in the public who follow this issue closely will be outraged and demand an explanation from the regulators. I know I will be.
Cook: Is it safe to say that silver is a buy until the short position is covered?
Butler: At least until the concentrated short position is reduced.
Cook: The volume on the SLV, the exchange traded fund, went ballistic recently. How many shares were trading before this jump and what did it go to?
Butler: There was an average daily volume of close to 15 million shares a day and it jumped to ten times that on a recent trading day.
Cook: How much of that was day trading?
Butler: Close to 99%, same as in every other market.
Cook: OK, but how much silver do you think was purchased on balance and must be delivered to the SLV?
Butler: I had been guessing close to 20 million ounces, but much to BlackRock’s credit (they’re the new sponsor), the silver is being brought in much more quickly than when Barclays was the sponsor.
Cook: Where is the silver coming from?
Butler: No one knows for sure, but the hallmarks on many of the new bars being deposited were from Russia and China. I think that’s good, because as those two countries wake up to the silver manipulation, they should be unlikely to continue supplying material at artificially depressed prices.
Cook: I heard a big delivery came in to the SLV last week. True?
Butler: Yes, there was an extraordinary deposit of 11.3 million ounces into the SLV on Wednesday, November 10, the largest one day deposit in the ETF since 2006. This brings the deposits into the Trust to over 18 million ounces in little more than a week and a half, to a new record of over 344 million ounces.
Cook: Are you underestimating the amount of silver available? Seems like there is always more silver.
Butler: While it is certainly possible that I have underestimated the amount of silver bullion in the world, that is not yet evident to date. I have always estimated about one billion ounces and we haven’t grown above that amount yet. What has happened is that more silver is being transferred from unreported inventories to reported inventories. This does create the illusion that the supply of silver is endless. It is not.
Cook: How much is left in unreported inventories that can come into the market?
Butler: Unless you have Superman’s x-ray vision and can see all the world’s vaults simultaneously, there is no way to know how much is left in unreported inventories. And I guarantee that you will make yourself crazy if you persist in trying to figure out the amount remaining.
Cook: Are you still sane?
Butler: No one comes with a butterfly net.
Cook: How much is known or in the reported category?
Butler: Since 2006, more than 550 million ounces have been transferred from unreported silver into reported world inventories, including the SLV and all other similar programs. Currently there are more than 716 million ounces in total world visible silver bullion inventories. That’s a very big chunk of my long-time estimate of one billion ounces in total world inventories. The way to look at it is that there are 550 million ounces less that can be transferred in the future. The long-term rise in price would seem to confirm my thinking.
Cook: Could the big shorts be buying the SLV to cover their short position?
Butler: Sure, but not to excessive amounts, as that would require lying to the SEC on ownership disclosure regulations. That’s not likely.
Cook: How much silver do you think JPMorgan and one other bank are short?
Butler: As of this moment, I’m guessing JPM may now be below 25,000 contracts. That’s 125 million ounces. But we won’t know for sure until more CFTC data are released.
Cook: How about the big eight shorts?
Butler: My guess is they are down to 56,000 contracts. That’s 280 million ounces.
Cook: How about all the shorts combined?
Butler: In COMEX futures total, I’d guess a bit under 500 million.
Cook: How does that compare with other commodities?
Butler: Still way off the charts when comparing paper contracts to real world production and inventories.
Cook: Do you see this leading to a price explosion in silver soon?
Butler: It’s one of several things that will lead to an explosion.
Cook: How does the silver short position compare to gold?
Butler: The silver short position is much bigger than gold in every measurement, especially compared to world inventories. Silver’s relative short position is more than 100 times larger than gold’s.
Cook: Do you think silver will outperform gold?
Butler: Yes. Silver has yet to leave gold in the dust, although it has fully matched or exceeded gold’s price performance. That is actually an advantage to those gold investors who have yet to make the switch into silver. It’s not too late.
Cook: Are you suggesting a switch now?
Butler: Yes. The facts suggest silver will outperform gold in the future, the logical investment action would be to convert gold into silver. Not because gold is likely to go down necessarily, but because silver is likely to offer better investment bang for the same buck.
Cook: Have people begun to switch?
Butler: There has been a noticeable shift to physical silver investment demand, perhaps from gold investors, although I still believe it’s in the early stages. Additionally, U.S. Mint sales of Silver Eagles are particularly strong relative to Gold Eagle sales, further confirming what may be a growing investor preference for silver over gold. Given how little silver exists compared to gold, if this trend continues, the influence on silver prices should be profound.
Cook: What’s the gold-silver ratio now?
Butler: The gold/silver ratio narrowed to almost 52. This is the best relative reading for silver since the summer of 2008, just before the price of silver was manipulated lower by JPMorgan and other commercial crooks on the COMEX.
Cook: You’ve got big cahunas calling JPMorgan a crook over and over again. Ever hear from their lawyers?
Butler: Not a peep and I send every article I write in which I mention JPMorgan to Jamie Dimon, CEO of JPMorgan and to the top regulatory officials at the CME, in addition to the CFTC.
Cook: I wonder why they haven’t sued you. If someone was calling my company crooked I think I would at least have my lawyer send them a letter.
Butler: Look, I’m not looking to get sued, but I don’t know of any other way to flush these weasels out. I know that JPM and the CME are operating as a criminal enterprise when it comes to silver.
Cook: What about the COMEX? You’ve been calling them sleazy for years. Have you ever received an answer to the numerous letters you’ve sent them?
Butler: Up until a few years ago, they would respond from time to time, but more recently they’ve been hiding behind the CFTC’s skirt and letting the Commission do their dirty work.
Cook: Yes, but now I see the COMEX has been in bitter disagreement with the CFTC on position limits. Why are they so opposed?
Butler: It may indicate that the CFTC, under Gary Gensler, is sick of the exchange using the CFTC. The reason the CME is so opposed to position limits is because of silver, not any other commodity. Don’t be fooled into thinking this isn’t a silver-specific issue.
Cook: Why only silver?
Butler: This is an important point. There is no position limit problem in any other commodity apart from silver. Not in oil, or grains or gold. Just silver. It’s the dirty secret that’s about to be revealed.
Cook: How much money have the banks made over the years with this big short position in silver?
Butler: Cumulatively, it could be billions of dollars.
Cook: This gravy train has suppressed the price, right?
Butler: Yes. The concentrated short position makes it impossible for the price not to have been suppressed.
Cook: If the market gets free of the concentrated short position it should revert to the true market price. Any idea what that is?
Butler: I’ll let the market tell us, but much higher than we’ve been in silver.
Cook: Do you think it will overshoot?
Butler: I think it’s impossible for it not to overshoot.
Cook: You think that Chairman Gensler at the CFTC is a straight shooter, right?
Butler: I think he walks on water. I may be dead wrong, but I’m a pretty good judge of human character.
Cook: Will he cure the silver mess?
Butler: If he follows the law and what he knows to be right.
Cook: Is he more competent than prior chiefs?
Butler: Gensler is the smartest guy in any room. It would be an insult to compare him to any former chairman or chairwoman.
Cook: Do you still claim the CFTC has looked the other way?
Butler: They have in the past, but I sense that is changing.
Cook: I think they hate your guts. Nobody’s been in their face with solid accusations like you have. Are they still hostile?
Butler: Hard to tell. I’m not concerned with past feelings. I don’t see why they would still be hostile; I offer constructive solutions where nobody else does. If they are hostile to anyone it should be towards those responsible for the manipulation, like JPMorgan and CME.
Cook: You’ve been the pioneer of virtually every new revelation about silver for over a decade. Just about everything that you predicted has come to pass. You’ve been a great conceptual thinker on silver and the premier whistleblower. Do you think the CFTC will ever acknowledge this and give you the award you deserve?
Butler: I sure hope so, but you’d have to ask them.
Cook: Everybody and his brother is writing about silver now. Some of it is amateurish and the good stuff originated with you. However, most of these articles never give credit to you. Do you agree that this is dishonorable?
Butler: Yes.
Cook: These organizations and individuals are trying to elbow themselves into position to take credit for your work. I’ve never seen anything like it, have you?
Butler: No.
Cook: What do you make of it?
Butler: Those that plagiarize are stealing my stuff and then lying by pretending they thought up my ideas. I’d avoid such people with a ten-foot pole.
Cook: They need to at least mention you if you are the source of their information. Right?
Butler: I think so.
Cook: Let’s change directions. What about COMEX silver inventories? What’s going on with them?
Butler: Recently, COMEX warehouse inventories dropped to near four year lows, at just under 108 million ounces. This drop, importantly, was accompanied with great turnover (in and out movements); highly suggestive of tightness and that the inventory is held in strong hands.
Cook: What’s the historical perspective on this?
Butler: COMEX silver inventories are down 60% from the 280 million ounce peak in the mid-1990’s. In contrast, COMEX gold inventories are at a record high of over 11.3 million ounces, the highest in the 45 year history of the COMEX. This is an apples to apples comparison, as the COMEX is the dominant market for both gold and silver trading.
Cook: Are we in a shortage?
Butler: I think we are in the early stages of a silver shortage that is bound to grow more severe.
Cook: Won’t this cause a surge in mining production?
Butler: Sure, eventually. But any mining increase in response to higher silver prices will take many years to hit the market. It’s not like flipping a light switch.
Cook: You’ve mentioned three things that will drive up the price of silver. It looks like one of them, investment demand, is kicking in. Will it get bigger than this?
Butler: I think that’s a certainty, as more people are waking up to the silver story.
Cook: Your second bullish factor is industrial demand. Do you still expect industrial users to panic because of a shortage?
Butler: Ever see what’s left in a supermarket after a hurricane warning?
Cook: Where does the price of silver burn itself out if a buying panic occurs?
Butler: Use your imagination. Then double it.
Cook: Your final and biggest bullish factor is the end of the concentrated short position. What will this do?
Butler: Terminating the concentrated short position will end the decades-old manipulation itself. That will bring about an honest and free market.
Cook: How will they cover the short position?
Butler: By buying back the position, delivering against it or by defaulting on it.
Cook: What about going forward? What will no big short sellers mean for the future?
Butler: It will be a different world price-wise.
Cook: According to the CFTC, the deadline for position limits is just over 2 months. Is silver a ticking time bomb until then?
Butler: Silver is a ticking time bomb for many reasons and the coming open debate on position limits is one of them.
Cook: The shorts are going to have to buy back futures aren’t they?
Butler: At some point, the shorts buying back is the post plausible outcome, as the only other choices are to deliver metal or default.
Cook: How many more shorts other than JPMorgan will have to cover?
Butler: My guess is somewhere around 15 to 20 thousand, a 75 to 100 million ounce equivalent.
Cook: Am I missing something or is this a lock?
Butler: If you mean much higher prices, then it looks like a lock to me.
Cook: This is so compelling I have to ask why it hasn’t been discounted in the silver price? How come it’s not $100 already?
Butler: I think it’s a combination of a lack of homework and the initial disbelief of the whole silver premise which prevents an objective investigation.
Cook: I remember when we first met ten years ago. You were telling me silver was the best thing on earth to own. Meanwhile, a well known investment service was sending out mailings suggesting people short silver at $4.00. They said silver was more plentiful than cockroaches. I wonder what happened to them?
Butler: I hope they covered their shorts quickly.
Cook: I bring this up because a lot of people have disagreed or argued with you along the way. They’ve all been proven wrong. However, to this day there are naysayers. What do you say to a guy like Jeffrey Christian at CPM who says there’s no way that JPMorgan is short that much silver?
Butler: Generally it’s good that disagreement exists so that market participants can hear both sides of the silver story.
Cook: What about Jon Nadler who says if Ted Butler was right the price would already have gone up?
Butler: The price has gone up and will continue to do so, in my opinion.
Cook: Why exactly has silver made this big recent move?
Butler: Primarily because of a lack of additional commercial short selling on the COMEX. It was the absence of additional commercial short selling, particularly by the big concentrated shorts, like JPMorgan, that allowed the price to climb as much as it did. On the rally it became obvious that the shorts were experiencing great financial stress, being forced to deposit many billions of dollars in margin calls. This should be taken as further proof of the manipulative role that the big shorts exerted on the price of silver.
Cook: Why did it get whacked?
Butler: The problem for the big shorts was that not only were they experiencing financial stress due to the rising price, they were unable to reduce their short position. That circumstance threatened to result in financial ruin if permitted to continue. Faced with financial ruin and the growing awareness by many of the predicament the big shorts were in, they resorted to their only alternative to that ruin – create a large and dramatic sell-off. That was what we began to see on Tuesday, with the CME’s unethically timed silver margin increase and the collusive vicious sell-off on Friday, under the cover of general commodity weakness.
Cook: What’s next?
Butler: No one knows for sure. It comes down to how much additional long liquidation the big shorts can engineer. We are still above all the critical moving averages, so there does exist the possibility we could go lower to get the technical funds completely flushed out. For sure, if we do go lower, it will be because JPMorgan and the other COMEX crooks are successful in tricking the technical funds into forced selling and not for any other reason. But there has been significant liquidation already, so it is just as possible it could be done or nearly so. Certainly there is nothing in the real world of silver that would account for further selling.
Cook: What’s the status of the formal investigation of silver by the CFTC, Enforcement Division?
Butler: It has yet to be concluded. A new director was just named which should help resolve the investigation that was initiated because of my revelations in 2008 and which Commissioner Bart Chilton publicly referenced recently. No one is more anxious than me to see what the investigation concludes.
Cook: You’ve made a big thing about pool accounts at brokerage firms, international banks and private mints. What can go wrong?
Butler: Everything. It is not hard to imagine investors ending up with a total loss because the metal may not exist to back these programs. If someone is claiming to store 1000-ounce bars for you and you don’t have the serial numbers for the exact bars you paid for, you should run, not walk, to a storage program that allows you to get the specific bars. I’d be especially wary of metal purported to be stored out of the country.
Cook: Are you recommending people switch from gold to silver?
Butler: Most definitely. That still appears to be a switch, which will be greatly rewarding. It amazes me how so many commentaries predict that silver will outperform gold, yet won’t come out and say that you should sell gold in order to buy silver. It makes no sense not to sell gold in order to buy silver if you are convinced silver will outperform gold. I think many feel it’s heresy to sell gold for any reason. But if your goal is to get the best return on your investment dollar in the future, which it should be, switch to silver from gold.
Cook: The bottom line is that people who followed your advice have made a lot of money. What advice would you give to our clients now?
Butler: Well, the days of 4 or 5, 7 to 12 dollar silver are over and that’s too bad for new buyers. At least we spared no effort in urging folks to buy all along. I think in the future we will look back at current prices with much the same result, namely, large profits for those who bought. Although the price is much higher now than it was then and conditions have changed, in many ways today’s new conditions are better.
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