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Beware
the Banking Cartel and the Collaborating
CFTC
March
27, 2006
By:
Charleston Voice (Bill Rummel)
Courtesy:
Silver
Seek
Mr.
Bill Rummel recounts his early experience
speculating in silver by pyramiding COMEX
silver futures during a bear market rally
in 1987. He implies that the silver rally
may have collapsed as a result of rising
margin rates imposed by the exchange, or
that at least he was forced to liquidate
his positions due to the higher margin requirements.
He then goes on to spin this experience
into an all out "government is out
to get you" conspiracy rant. While
we could very well have included this
piece under our "Bad Calls Worth Axing"
for its conspiracy angle, we intend to deal
with the whole manipulation issue in
a much more holistic manner at a later date.
Instead, we have included this commentary
in our "Wisdom" section because
it carries a wise message for speculators
and perma-bulls to never get carried away
and also discusses a largely misunderstood
market mechanism, the margin rate.
Simply
put, the margin rate on a futures contract
can be equated to the interest rate in an
economy. The lower the margin or interest
rate, the looser the fiscal policy and the
greater the urge to speculate. When things
get out of hand or overheated, margin and
interest rates are increased for the same
reason: to try to cool things down. In the
case of the COMEX, there is also the problem
of extreme volatility potentially creating
wipeout magnitude losses which could bankrupt
a number of traders and require the exchange
to settle counterparty losses from its own
reserve fund. So obviously it is in the
exchange's best interest not to let things
get so out of hand that the exhange ends
up being on the hook for a large number
of losing futures contracts.
For
conspiracy theory spinners to yell about
the Fed's loose interest rate policy while
attacking the futures exchanges for tightening
their margin rates is the height of hypocrisy.
More on this later in an educational piece
we are currently researching about the COMEX
which will be due out in April. In addition,
we will also address this issue in our forthcoming
comprehensive look at the gold/silver manipulation
argument.
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