I can\’t make these numbers add up

On my show, Keiser Report, I recently invited Michael Krieger, a regular contributor of Zero Hedge (the WikiLeaks of finance). We posited that if 5% of the world\’s population each bought a one-ounce coin of silver, JP Morgan would be forced to cover their shorts – an estimated $1.5tn liability – against their market capital of $150bn, and the company would therefore go bankrupt.

Umm, silver is about $30 an ounce.

So a 3 billion ounce position (which itself sounds rather large for the silver market) is a $90 billion dollar position.

Now, yes, it is true that potential losses from a short position are unlimited: but I can\’t really see how anyone is going to lose $1.5 trillion on a $90 billion position. That would seem to be implying that silver would go to $450 an ounce…..and that JP Morgan would be riding that short position all the way to that top.

Then again, Max Keiser currently presents an investment show on Press TV, that Iranian Government sponsored station. Not entirely where I would get my investment advice from it has to be said.

4 thoughts on “I can\’t make these numbers add up”

  1. I can’t follow your maths, Tim. 5% of the world’s population buying 1oz each equals 3 billion ounces? 300 million ounces, Shirley?

    Tim adds: Sorry, the 3 billion number comes from hte article, that’s the size of (supposedly) Morgan’s short position.

  2. Don’t worry about the maths. Logic says that you can sell more of something short than there is in existence, so you can indeed lose more than the total value of the underlying.

    This is part of how those cunning coves at Porsche manged to stiff the hedge funds.

    Somehow, they worked out that hedge funds had sold more VW shares short than were freely traded (ony about a quarter are freely traded, the rest belong to the State of Niedersachsen, trade unions etc).

    So Porsche then bought a lot of non-existent shares from the short sellers and then did a ‘dawn raid’ – buying actual shares and thus pushing up the quoed price – and the hedge funds were forced to try and buy enough shares to try and cover their short positions, as a result of which VW shares went up several hundred per cent in a few days or weeks.

    In between other complications, Porsche ended up owning VW (or something). All very complicated but enormously good fun.

  3. That would seem to be implying that silver would go to $450 an ounce

    Isn’t there as much silver as there is gold, and gold is at well over $1,000/oz ?

  4. No, there’s a lot more silver than gold in terms of crustal abundance, and scarcity isn’t why one costs more than the other.

    Although the scarcity of both are why metal-backed currencies compared to the size of global wealth make the gold-bugs look like such swivel-eyed loonies. There’s only $7 trillion worth (roughly) of gold in existence at current prices.

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