I find it amazing how effectively these people can coordinate their policies with the heads of the commodity exchanges and their pals at the big banks who are perennial shorts in the markets and have now managed to pluck the money out of hundreds of thousands of commodity trading accounts enriching the big banks (government sponsored hedge funds) in the process. Nothing like a freely operating financial system where the playing field is completely level and no one has an advantage over the next guy!
By their continued hiking of silver margins, the exchange effectively removed the liquidity in the silver market that the smaller specs have been providing. That left the market vulnerable to severe drops in price as these specs exited due to financial constraints which then removed a source of potential bids under the market as the CFTC commitments report has shown the small specs to be good buyers in the silver market. Even the bigger hedge funds are impacted by such a sharp hike in margins as their losses in silver then precipitate even more losses across other assorted commodity markets due to the cascading effect of mounting paper losses and margin calls and the need to raise cash.
As the silver market tanked the exchange officials could then warn about Clearinghouse integrity and have more reasons to drive margins even higher as they point to the increased volatility, volatility which I might add, they created themselves by hiking margins to such an extreme degree.
I find it hypocritical, if not downright wicked, that this is occurring against a backdrop of a senior executive at the CME Group, one Mr. Bryan Durkin to be exact, warning regulators against reining in High Frequency Traders. He parroted the usual BS about their presence providing much needed liquidity warning that any attempts to bring them under more intense scrutiny or curtail their activity would result in markets becoming less efficient. Does anyone besides me marvel at the temerity of these people who spout such idiocy and then go about deliberately instituting a series of devastating margin hikes which are deliberately designed to KILL LIQUIDITY guaranteeing less efficient markets and roiling the entire commodity complex in the process. Is this what an efficient market is supposed to look like when crude oil prices collapse nearly 9% in a single day because there are no bids or silver which is again down nearly 9% also in a single day?
The truth is that the exchanges are money hungry bastards that want the fees generated by the HFT crowd and do not want anyone to mess with their golden egg laying goose.
Regardless, this collusion on the part of the players involved has accomplished, for the time being only, what the Fed has been trying to do ever since it instituted its second round of QE, which by any standard of objective measurement, has failed. To wit - keep long term interest rates low to generate borrowing.
Unfortunately for the Fed, the bonds were not cooperating and were actually moving lower for a while as commodity prices were responding to the breakdown in the Dollar and holders of long term bonds were balking at hanging on to an "asset" that was priced in a collapsing currency while being threatened with a serious outbreak of inflation as a result of all the reckless money creation.
What could be done especially with the US Dollar within a mere point of crashing through a critical support level which would have seen the onset of a currency collapse and a resultant crisis?
Oh by the way, I might note here that the Japanese Yen has moved to within 58 pips of the level that brought about a massive coordinated intervention back in March that was tied to the tragic earthquake and tsunami. All of those billions spent on knocking the currency down have been wasted as the newest plan to derail the commodity markets brought about another unwinding of the Yen carry trade causing the exact same problem for Japan once again. In other words, less than two months later and after spending billions to derail the Yen and prop up the Dollar against it, we are right back to where we started on Dollar/Yen.
Next move guys???
Trader Dan's missive on the same subject