Wednesday, November 10, 2010

Guest Post: Interpreting The Silver Move Yesterday (ZeroHedge)

Tyler Durden's picture

Submitted by FMX Connect
Interpreting the Silver Move Yesterday
The game is rigged. The small guy cannot compete. Today's margin raise in #Silver is an example. You cannot compete with the unintended consequences of flawed market structure no matter how smart you are.
They have unlimited cash for margin borrowed at fed discount window. You have a 20% rate Mastercard with unredeemable points (capital one lies).
They tell their creditor, the US Treasury, what assets on their books are worth (mark to myth). You get told what yours are worth by the banks or some objective 3rd party and must pony up the cash to cover the difference.
They have no need to assess VaR, their balance sheet is infinite. You have to think about your next pay check and must decide whether 2 cars are really 1 too many.
When the comex raises margins, all these things force you to puke your longs, and incentivizes them to add to shorts.
And somehow the info comes out post floor hours, during the thinnest trading time of all. Not hard to push a market on news like that. But more telling is that the silver market drops precipitously before the close.
Your superior intelligence and bankroll mgt is no match for their fed sponsored balance sheet. You will not win in the long run.
Casinos change decks midgame too you know.
If you’re right, they raise margins, prevent physical delivery, tax sales, make ownership illegal. You cannot win.
Like everything else, those that are in power want only to stay in power. Free competition is a risk for incumbents in fin, pol or govt
Right now levers are being pulled, rules lobbied against and changed, markets managed to make sure they stay in power. Its not a conspiracy, just self interest.
There are good people with good intentions out there trying to keep the markets level and fair, but the money determines the rules now in a significant way. Rules can be gamed.
We are a nation of laws , not ethics, and you cannot legislate morality without leaving a loophole somewhere.
Raising margins was not an exchange ploy to hurt you. But when was the last time margins were raised after a sell off? It has probably happened but I’m willing to bet the action is lopsided to the rally side.
Raising margins was not a scheme to crush you. But why is it needed, when for every long there is a short? And when the shorts have infinitely more capital than you, and there is no short squeeze of physical (as evidenced by the contango in the spreads) Trading SLV doesn’t help, they arbitrage both sides from one account.  You unfortunately do not have a letter of exemption for position limits and  for carrying positions in 2 markets and cross margining agreement with your clearinghouse.
By  Elizabeth Thawne

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