Introduction: Ted Butler was the first research analyst to publicly recognize and write about the ramifications of precious metals lending and forward-sale fiasco His work preceded by years, any other such analysis. In addition, he has taken the high road in his analysis and reporting of the leasing problem, in that he openly approached and agitated the appropriate regulatory and industry officials in his effort to bring about the termination of metal leasing. He is a longtime writer for Investment Rarities and his silver analyses circulate widely on the ‘Net.
Daily Bell: Thanks for sitting down with us. You are truly a legend in the field of silver and silver investing.
Butler: Those are some very kind words, so thank you. I just hope I can live up to them in this interview.
Daily Bell: The economic crisis is grave and getting graver. Give us a high-altitude overview of how the current economic situation affects silver – and how silver as a money metal might benefit in terms of price and popularity.
Butler: You are correct, these are certainly the most severe economic conditions I have ever witnessed. But whether we sink or swim economically, silver looks positioned to prevail better than any other asset I can think of. That's because of its dual-role, as a vital industrial material and as a primary investment asset.
To keep it simple, if economic growth resumes, silver will be driven by industrial consumption. If times get tougher financially, it has great investment appeal. I don't know of another asset where that's true to the extent it is true in silver.
Daily Bell: What do you think will be the result of the current economic crisis? Depression? Hyperinflation? Both?
Butler: At this point, neither. Or, at least, I hope. Times are tough for many people and in too many industries and economies. Any recovery is going to be slow. At this point, the various stimulus programs should keep us out of a severe depression. But we did have way too many excesses and it's not all bad that we are adjusting away from those excesses. It had to happen at some point.
I know hyperinflation is on everyone's mind, but the monetization has been absorbed by the sinking economy and any hyperinflation, should it come, will not come quickly. And perhaps not at all. Of course, I reserve the right to change my mind.
Daily Bell: Will the bailouts taking place in the West help at all?
Butler: I hope so. What's the alternative, let everything slide down a big black hole? I agree that it is shameful that we allowed things to get to this extreme state and there is plenty of blame to go around, but how do you turn back the clock and undo all the policy mistakes over many years?
It's distasteful to see bailouts of entities that should normally be allowed to fail, but these aren't normal times. You have to play the cards you're dealt, not wish you had different cards. One thing the authorities could do along with the bailouts, though, is throw more people in jail who were responsible for much of the damage.
I would like to make one point. While all these current issues consume our thoughts and time, we must not get sidetracked. At the end of the day, every investor must make the simple decision as to what to invest in specifically. To me, the choice seems clear – silver.
Daily Bell: Now let's try to be more specific. Where does silver go from here – price wise and industry-wise?
Butler: While I did have some concerns in the short term when the price was near $16, due to the market structure on the COMEX, those concerns have been lessened by recent liquidation and new statements from the CFTC concerning a fresh look at position limits. The long term looks better than ever. I think we will look back at current prices and marvel about how cheap they were, much like we look back at $4 silver now.
Daily Bell: What are the biggest industry and investment issues affecting silver today?
Butler: I think it boils down to a few things. I believe there is a tremendous mismatch between the general perception of silver and the actual facts. As the perception recognizes and catches up with the facts, the price should reflect that and adjust dramatically higher.
The uniqueness of silver's dual role as both an industrial commodity and as a basic investment asset is sort of known, but is still deeply underappreciated. That dual role guarantees, at some point, an inevitable bidding war between industrial consumers and investors. It cannot be avoided. I can't think of any other asset where the stage is similarly set. Not gold, not anything. Add in how little silver remains above ground and how strongly held is that inventory, when that bidding competition commences, there is no way to predict how high the price will climb. That's because we've never had such a set up like this in history.
Daily Bell: For 25 years you have waged the good fight against silver manipulation. Yet the Commodity Futures Trading Commission STILL believes there is no evidence of silver market manipulation. Have you changed your opinion at all, given silver's rise in the past year?
Butler: I think a better question is if they have changed their opinion, given the continuing stream of their own data that has emerged proving manipulation. That evidence is so compelling that they can't even answer simple questions and must resort to make-believe investigations in order to stall and avoid answering. Like how can one or two US banks holding a short position equal to 25% of the world annual production of any commodity not be manipulation?
It's not about price alone. Manipulation is about how the market is structured. The CFTC is not treating silver (and gold) as they have treated other past manipulations and as commodity law dictates. This is just about applying the law fairly and evenly.
You know, I wouldn't have a leg to stand on if the short side wasn't so concentrated among so few traders. If there were a comparable level of concentration between the large silver and gold buyers and sellers, as there is among virtually all other commodities, I'd drop the issue.
Daily Bell: You've claimed there is a real problem in silver market, having to do with the vulnerability of the largest players. Are there more players in the market these days, or are the positions just as concentrated?
Butler: That's the amazing thing – there are fewer players on the short side and they are holding bigger and more concentrated short positions. By definition, that automatically increases the risk of something going wrong.
Daily Bell: Can you elaborate?
Butler: Sure. Look no further than AIG and their massively concentrated position in credit default swaps. When these derivatives bets went bad, precisely because their position was so big and concentrated, it almost sunk the entire financial system. That's why all the regulators, including the CFTC, try to guard against concentration. Just not on the short side in silver, at least not yet.
Daily Bell: Will the Commission ever move to prevent and eliminate excessive concentration?
Butler: I wish I knew. Certainly very recent statements by the new Chairman, Gary Gensler, are encouraging. What I do know is that if they don't move against this short side concentration in silver before the market does, they will be blamed like no other regulator has ever been blamed for any failure. This silver manipulation allegation goes to the very core of why they exist in the first place. And they can't claim they weren't aware of it, as the SEC did with Madoff. There is no question that the manipulation is going to end, it's just a question if the CFTC gets ahead of it or not. To date, they have not.
Daily Bell: You've also said there is less silver in the world today than yesterday,
Butler: That was true, but not any more. Everyday, for more than 60 years, up until a couple of years ago, there was less silver in the world than the day before. Now, that's no longer true, because the structural deficit has come to an end, at least temporarily.
But because investors are buying silver for the first time in decades, the existing inventories, while not actually falling, are increasingly being made unavailable. In essence, this has the same effect as if those inventories were being consumed, at least for the time being. It's really quite remarkable timing-wise how investors have started to discover silver, just as the structural deficit came to an end.
Daily Bell: Are concentrated short sellers covering?
Butler: They have yet to cover when prices rise, they have only covered when they can rig a sell-off and get the technical funds and traders to sell. That selling enables the big shorts to cover.
Daily Bell: How high would silver go if they covered? And what could impel them to do so?
Butler: There is one glaring reason for them to cover – being short silver in such large quantities is dumb. It's just not an intelligent trade. Not that the big shorts are dumb, mind you, just that it's a dumb trade. They are stuck in a trade they must continue to manage. Where's the big payday? It's not possible for silver to go bankrupt, like a security. It will always have value and the short position must be resolved, either bought back or delivered against, at some point. Because they are not dumb, the big shorts know this and are looking for ways to get out of this giant short position. That's why they engineer sell-offs.
As far as how high the price of silver could go in a genuine short covering by the big shorts to the upside, there is no way to construct a rational price script. Determined short covering of the most concentrated short position in history would involve emotion and dynamics rarely witnessed. If that short covering coincided with price momentum investors entering the market and industrial users attempting to build physical inventories, that combination of sudden buying pressure would be unprecedented. Pick any crazy price that comes to mind.
Daily Bell: Is the CFTC under increasing pressure as silver continues to move up in price — and the likelihood of the manipulation is exposed?
Butler: I would imagine they might be under pressure because the data they publish paints such a clear picture of manipulation. Concentration is their measurement and front line defense against manipulation. It's not something I dreamed up – it's their issue and has been from the birth of commodity regulation.
They don't appear to be convincing growing numbers of investors that there is no manipulation. Unless I'm reading it all wrong, more people are becoming convinced that there is a silver manipulation. Of course, there are many people who refuse to even consider the possibility of manipulation, because their minds are already made up. That might include the CFTC.
Daily Bell: Have the big boys, the big shorters, miscalculated?
Butler: Absolutely. That's the problem. They had a good game going for a long while of tricking the technical funds, maneuvering those funds in and out of the market. But they got too entrenched in the game and now their short position is too big to resolve quietly.
Daily Bell: How are you waging your war against silver manipulation these days?
Butler: I'm doing it right now, in this interview. Thanks for the assistance. It's just a matter of exposing the facts and letting people use their common sense and decide for themselves.
Daily Bell: You wrote a letter to the Commission just about a year ago – to A. Roy Lavik. What has happened to your dialogue since then? Can you update our readers?
Butler: There is no dialogue. I raise the issues and instead of attempting to resolve them privately or debate them publicly, they conduct closed investigations, only interviewing the crooked shorts and those with a vested interest in maintaining the manipulation. Then they proclaim no problem exists in silver. It's kind of funny, they're on their third silver investigation in five years, but they don't want to hear from the instigator of all those investigations. I think they are afraid to confront the issues openly. But I am hopeful change may come with the new Chairman.
A. Roy Lavik is the Inspector General of the CFTC. I wrote to him several times (as well as many other officials), because the manner in which the CFTC was conducting their silver investigations seemed un-American to me, in that only the shorts were allowed to present their case. That stinks. Sad to say, the current investigation is more than 10 months old and from what I observe, they don't appear to be investigating many specific allegations I have sent to them. So it still stinks.
Daily Bell: Let's talk about silver in more general terms. What countries are most hospitable to silver mining today?
Butler: I think most countries are hospitable to silver mining today. But that may be because silver is real cheap in price, so there is little reason for them to be inhospitable. The low price leaves little incentive to grab more for their share. The real question is which countries will remain hospitable when silver is no longer cheap, in terms of increased taxes or royalties, to say nothing of nationalization. Many countries where silver is mined are relatively poor and may be tempted to tap into new-found sources of wealth.
Daily Bell: Can you give us the names of some important silver mining companies?
Butler: Since I'm not going to make any specific recommendations here, please allow me to take a pass on talking my book. But I will say this, while many silver mining companies should do well, generally them doing well is dependent on silver rising in price. In the very long run, considering all the possibilities, it would not surprise me if real silver metal ended up doing the best.
Daily Bell: What are the most important – seminal — articles of yours that you would encourage everyone to read? Where can they be found?
Butler: Many of my articles are written for an audience already familiar with most of the issues surrounding silver. A brand new reader probably should not try to jump into the issue of manipulation, for instance, from the start. I think he or she would be better served trying to get their arms around silver in a general way to see if it looks like it may hold interest for them.
I gave a speech in Phoenix a few months ago, "Silver – Past, Present and Future." that provides a broad overview on silver. New readers should be able to decide if they would care to pursue the topic after reading that piece. You can get it at InvestmentRarities.com, silverseek.com or butlerresearch.com or just google it.
Daily Bell: On behalf of all of our readers we thank you for sharing your views with us – and for your courageous and important work.
Butler: Thanks again for the very kind words and for the opportunity to be heard.
It is certainly a pleasure to interview one of the seminal hard-money silver analysts. While Ted is not a melancholy fellow to speak to, there is a melancholy side to this interview in that again we get allegations of widespread market manipulation of silver. We heard this in our interview with another top silver analyst David Morgan and we hear it again now.
What makes such allegations even more melancholy is that while the regulatory crowd is avowedly anti-stock manipulation, the evidence of monetary manipulation generally and securities and metals manipulation is obvious, according to these wise heads. We confess we can see it too. Gold and silver markets do not seem to act "normally" in the best of times. When it comes to gold, one can see the New York marts – during certain episodes and epochs – knock the price down regularly every morning almost like clockwork.
This leaves us with an acidic aftertaste in that the markets have come to resemble the American and European financial and industrial strata. If you are big enough, you can manipulate the markets and you will not be challenged. In fact your manipulation may be seen in a positive light by the central banking community – which surely does its fair share of outright money manipulation. There is, in other words, a strata of too-big-to-fail market players. Their trades will not be scrutinized, their manipulations will not be examined and their vast profits will be taken without exposure.
Of course, no one knows for certain if this is true. Perhaps there is no manipulation at all, and the large trading firms and their central bank and regulatory watchdogs are pure and without guile. We doubt this is so. GATA, Morgan, Butler and others, countless others – associations and individuals alike – have mustered persuasive evidence of market manipulation. The saga of Barack Gold, and its hush-hush settlement, all but confirms it. The regulatory authorities, in concert with the largest private firms, work hand-in-hand alongside established treasury offices and governments to ensure certain outcomes as much as possible.
One could see this mechanism at work most directly during this recent financial crisis when duress did not allow for the usual secrecy. In the United States, the Treasury Secretary worked directly with the chairman of the Federal Reserve – and alongside the president and congress – to hand out first billions and then apparently trillions to the Western financial entities around the world. Much of the money was provided in a hush-hush manner and the Treasury Secretary himself seemed to take the opportunity, as a sideline anyway, to deny a competitor to his former firm the funds necessary to stay afloat.
But enough about market manipulation. Over time – often a good deal of time – markets tend to move in the direction they are going to go. Ted Butler is doubtless correct when he says that the silver market is going to move up hard before this business cycle is finished. There is already significant inflation in place around the world and when this inflation translates into price inflation … watch out.
Understanding a market move, by the way, does not translate into immediate investing success. Markets are unpredictable and timing is difficult to get just right. That's why it is often helpful to understand business cycles themselves and also to understand the dominant social themes of the monetary elite. Put these two together and you may find yourself with a good understanding about how markets work and what might seem attractive over the next months and years.
It also helps, if one is apt to approach markets this way, to gain insight and information from top industry analysts who are divorced from mainstream media coverage of the marketplace. We are grateful, therefore, that we have the insights and wisdom of those such as Ted Butler – along with others whom we have interviewed in these pages. Their considered and honest analyses when combined with business cycle insights and observations of the monetary elite can yield successful investment focuses.