07/10/98 - 3 Trades for UKH
Ex Time Price Change Volume Buyer Seller Marks
T Jul 10 11:21:30 0.45 0.00 4000 070 McDermid 039 Midland K
T Jul 10 11:11:18 0.45 0.00 1000 009 Nesbitt 039 Midland K
T Jul 10 11:11:18 0.46 0.01 5000 089 Goepel Shields 039 Midland KL
Here's the article Dave referred to:
THE MOMENT OF TRUTH
Many years ago, a friend and client with whom I've unfortunately lost contact, would
recount his experiences growing up behind the Iron Curtain in Romania. One curious
aspect of his recollections were about the many stores and shops that had beautiful and
bountiful window displays, but upon entering these establishments, there was little or no
merchandise to be found inside. To actually purchase and remove merchandise from the
window was difficult and certainly expensive. It was throughout the then Communist world,
intended to create the illusion of plenty. My friend, Izzy, related this memory to me to make
the point about silver and the COMEX silver stocks. He claimed that when the ongoing
deficit in silver finally necessitated the withdrawal of the COMEX stocks, the end of the
great silver price manipulation and the illusion of abundant silver supplies was at hand.
When they had to take the silver stocks from the COMEX store window, he must have said
a thousand times in his Romanian accent, we would be at the "moment of true".
Izzy wasn't particularly book smart, but he possessed a worldly intelligence that can only
come from the experiences and travails of surviving and prospering against abnormal
odds. He is also the only one I have ever known (or heard or read about) that bought silver
under $4.50 in the late seventies and sold out completely over $45 in early 1980. I had no
idea at the time just what a remarkable accomplishment that was. Just to put it in
perspective, I doubt seriously that there has ever been anyone else that has captured a
ten-bagger (on a cash, not margin or option, basis) in a commodity in modern history,
since there have been so few ten fold movements in any commodity in a tradable time
frame, to say nothing of the skill or luck that would be necessary to capture same. I think of
this feat often, as well as my immigrant friend's words, as I contemplate the current
developments in silver.
If the total world stockpile of silver inventory is the set, COMEX silver stocks are the only
sub set that is visible. (For this equation, I am excluding the soon to be extinguished U.S.
Government inventory). It is precisely because of this visibility that this would be the last
sub set of inventory depleted, if there were, in fact, a downward price manipulation.
COMEX silver stocks have declined from over 280 million ounces a few years ago, and
from over 200 million ounces a little more than a year ago to under 90 million ounces
presently, a low water mark of some significance, since the real deficit is still running
150-200 million ounces a year. Are we witnessing the final, permanent withdrawal of the
COMEX "store window" stocks, that Izzy prophesied about, or is this a fake-out? Certainly
the price of silver says this is not the real thing, in unambiguous terms. After all, if we're
standing at the threshold of an all out scramble for the last of the silver stockpiles, you
would think we would see some indication in the price. Yet, we see none. In my mind, this is
due to the double barrel manipulation of fraudulent leasing and the epic paper short
position in silver. (Please see my previous articles for a detailed explanation, this piece is
about the silver stocks). But the very essence of a manipulation is that once it is ended, as
the silver con most assuredly will be some day, its end will be shocking and violent.
Presently, there are some tell tale signs that we may be closer to that day in silver.
Those signs center around Warren Buffett, the world's most successful investor, and
Eastman Kodak, the world's largest industrial consumer of silver. It's no secret that Mr.
Buffett bought 130 million ounces of silver in the past year, since it was purchased by his
publicly traded company, Berkshire Hathaway. It also no secret that most of that silver was
moved from the COMEX stockpile to London. This is the first sign that the COMEX is the
supplier of last resort, because if Mr. Buffett could have purchased the entire amount and
not have to draw from the COMEX, he would have. I say this because all the threats of
investigations and phony lawsuits focused primarily on the COMEX silver stock
withdrawals. Only a fool would not have side stepped that aggravation if possible, and as
you know, Mr. Buffett is no fool. The point is, the COMEX stocks appear to have been
needed to complete the transaction. The fact that COMEX silver stocks reached the
current low level several months ago at the time of the completion of the Buffett purchase
and have stayed at that level since then, confirms the relationship between COMEX stocks
and his purchase. In the interim, the deficit in silver has been satisfied by lease supplies
brought to market by the spike in lease rates earlier in the year.
But the lease supplies may not be able to sustain the market much longer, or so it would
appear that that is what Eastman Kodak thinks. When it comes to silver, it's best to
observe what Kodak does, rather than says. On several occasions, over the years, senior
officials have reiterated (verbally and in writing) to me that they don't hedge or use the
COMEX as a direct source of supply, relying on dealers for material on an as needed
basis. Obviously they have changed their mind, based upon recent public filings and
market rumors. While it certainly is its prerogative, Kodak's about-face and sudden
decision to hedge its silver exposure can only mean it now expects higher prices. Since
this is a company that could not survive without a steady supply of silver, you can be sure
its change of heart came after deep and careful investigation and research. The market
rumors may mean something beyond that. In the first three days of delivery for the current
July futures contract, Goldman Sachs has stopped (taken) delivery of 28 million ounces of
silver (this is not the rumor part). This is fully one third of the total COMEX silver stock of
86 million ounces. Since there is a 7.5 million ounce limit on what an individual speculator
can stop in any delivery month, the rumor that Goldman Sachs is acting on behalf of Kodak
rings true, as commercial firms are exempt from the restriction, if they can demonstrate
they use that much in the normal course of their operations. Besides, there aren't that
many likely candidates - maybe Du Pont, maybe Fuji. Anyway, we should know who soon
enough, as this would appear to be the stuff of public filings. While the who isn't that
important, the why is. Assuming it's Kodak for the sake of argument, why would Kodak, who
up until the last year or so, never even hedged, now demand physical delivery of a giant
chunk of COMEX silver stocks? Remember, Kodak for the past fifty years has not, and will
not ever, intentionally take any action that would appear bullish for the price of silver. Not in
any circumstance. For them to hedge the price suddenly, and if the rumors are true,
demand physical delivery for an unprecedented percentage of the only visible stockpile in
the world is monumental. There truly is change afoot in the world of silver. I wonder what
Izzy would say?
In fact, I think I know what he would say. He would probably say, "are they taking delivery of
my silver?" You see, because of the hardships he experienced in growing up, he was more
suspicious and leery than most people in a number of ways. For one, he distrusted margin
and would only hold silver by paying in full for COMEX silver certificates by accepting
(stopping) delivery on a futures purchase, and having the certificate shipped to him. I
thought this was odd at first, but have come to accept it eventually as the most intelligent
way of holding decent quantities of fully paid for silver (based on commission costs,
storage costs, safety, liquidity, taxes, etc.). I'm convinced that he would never had set what
I believe was a world record for his ten bagger, if he didn't do it on a cash basis. Aside
from the price, Izzy's only concern was could someone steal his silver if he had the
certificate. I also knew of other people who invested in silver in this logical manner (no
margin calls, no mark to market).
The point of all this is to demonstrate that there are lots of individual investors that own
silver certificates, and therefore, silver in the COMEX stockpile. While no one knows just
how much, for the past ten years or so, up until the past year, I thought that investors held
about 100 million ounces of the COMEX stocks. This was when the stockpile at the
COMEX was over 150, 200 or 250 million ounces. Now that the total stocks are below 86
million ounces, it's obvious that investors can't own 100 million. And with Goldman Sachs
taking delivery of 28 million ounces, it's now obvious that investors can't own more than 58
million ounces. But I will tell you this - they own some quantity above zero and below 58
million. And if the number is closer to 58 than 0, as I strongly suspect, there are no
available stocks effectively left on the COMEX. The COMEX stockpile of silver can never
go to zero on a statistical basis, while it can go to zero on an effective basis. This is
because the investors who hold certificates have no motivation to withdraw the silver, only
to sell it at a higher price. As long as the price is kept low, they'll leave the silver where it is,
and wait for higher prices to sell. But it is a mistake of the highest order to think that this
investor silver "parked" at the COMEX is available at anywhere near current prices. The
same goes for Kodak, if they are the ones who have taken delivery through Goldman.
Kodak will only move that silver out in the most extreme circumstances. If Kodak owns that
28 million ounces, they will never relinquish control of it at this stage of the soon to be
recognized great silver shortage. While silver stocks at the COMEX will undoubtedly move
up and down from current levels, the market will soon learn the difference between
reported and available stocks, just like Warren Buffett and Eastman Kodak. As for Izzy, I
don't know what he's up to, but I feel in my bones that he's going to hit another ten bagger.
Ted Butler
5 July 1998
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