tsx, tsx-v, goldtsx, silver, junior resource

Auguries Too Big To Whale

jay

March 16, 2013

gold, banks, jamie dimonDimon: It was this big.
Gold was up (at press time) $17.30 (+1.1%) for the week to $1,592.60, and silver was down $0.45 (-1.6%) to $28.51. Reuters reported March 15, “Gold hovered near $1,590 an ounce on Friday as [insert piffle about US economic “recovery” here—Editor] makes safe-haven assets like the precious metal less attractive.”

Clearly distressed by gold’s resilience, Reuters asked Li Ning of CIFCO Futures in Shanghai for an explanation. He replied, “It is a global trend that the value of paper money is diminishing, which attracts investors to gold, a hard asset.”

And now, an intermission. Commentary will resume shortly. In the interim, readers are invited to meditate upon the following quotations.

The love of money is a root from which every kind of evil springs, and there are those who have wandered away from the faith by making it their ambition, involving themselves in a world of sorrows.
1 Timothy 6:10 (Ronald Knox translation)

I have often thought it might be amusing to write a humorous essay on how to recognize the Dark Ages when you are in them. Did the average European in the last half of the fourth century know that the Dark Ages were closing in on him? I rather doubt it. Probably he took the overspreading of ignorance, corruption, violence and bestiality as being pretty much the regular thing, and evading or warding off their impact was merely so much in the day’s work.
Memoirs of a Superfluous Man, Albert Jay Nock, 1943

And we’re back. Matt Taibbi argued in Rolling Stone last year that, after his testimony before Britain’s Parliament, disgraced former Barclays chief Bob Diamond would “likely now replace Jamie Dimon (who replaced Lloyd Blankfein, who replaced Angelo Mozilo, etc) as the reigning hateable-white-guy Face of World Financial Corruption.”

At the time, Taibbi’s antipathy to Dimon put him very much in the minority. The Chairman, President and CEO of JPMorgan Chase & Co, America’s largest bank, was almost universally hailed as one of the good guys. Not least by Barack Hussein Obama II, who said in 2009, “There are a lot of banks that are actually pretty well managed, JPMorgan being a good example. Jamie Dimon, the CEO there, I don’t think should be punished for doing a pretty good job managing an enormous portfolio.” And after the “London Whale” scandal broke in 2012, the President leapt to Dimon’s defence: “First of all, JPMorgan is one of the best managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we’ve got.”

Perhaps all the praise swelled Dimon’s head. At a conference last month, an analyst asked him about JPMorgan’s lower capitalization compared to rival UBS. Cut to the quick, Dimon took it as a personal attack and responded, “That’s why I’m richer than you.” Take that, schmuck.

Time was when rich men did not draw attention to their wealth, let alone cite it as evidence of moral or intellectual superiority. But the WASP virtues are gone, replaced by the ethos of “Get rich, or die trying,” and “He who dies with the most toys wins.”

It is now an open question how many toys Dimon will have when he dies. If the United States were a republic governed by the rule of law, Dimon would likely share a cell with Bernie Madoff. As Josh Rosner has reported, JPMorgan “paid a stunning $8 billion in settlements in the years 2009-2012 and spent $16 billion in legal defense fees during that same period, which means that fully one-third of Chase’s net income has been spent on the cost of doing bad business, ie, cleaning up after its high risk and/or illegal behavior.”

And financial-services lawyers were doubtless heard shouting “Trebles all round” after Thursday’s release of a report on the London Whale by the Senate Permanent Committee on Investigations that stopped just short of accusing JPMorgan of criminal conspiracy.

But the United States is not a republic governed by the rule of law, at least when it comes to bankers. No less than Attorney General Eric Holder has said so: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that, if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”

What does all this have to do with precious metals, you might ask. Well, the London Whale, Bruno Iksil, was paid $100 million a year to exploit JPMorgan’s enormous position in derivatives to manipulate the market. After other traders cottoned on to his scheme, JPMorgan took a hit of $6.2 billion.

Now, JPMorgan just happens to be the “custodian” of SLV, the largest silver ETF. And it has long been accused of using an enormous position in naked shorts to manipulate the silver market, an accusation the Commodity Futures Trading Commission has been investigating since 2008. Despite this official interest, the financial media continues to regard the claim as a particularly risible “conspiracy theory.”

Who’s laughing now? Are we to believe that a company willing, indeed eager, to engage in criminal conduct with derivatives would not act in a similar manner with silver? Which brings us to Li Ning’s assertion that gold is a “hard asset.” Sometimes it is, but sometimes it’s just paper. Gold and silver are the Schrödinger’s cat of commodities. That being the case, would you entrust your precious metals to Jamie Dimon and that ilk?

One hears that silver will not remain “the poor’s man gold” much longer. Investors would be wise to follow Jeff Clark’s advice: “Make sure you own some silver bullion, my friends. And then buy the grossly undervalued miners.”

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