Too many people believe the crap foisted on them by pseudo-survivalist right-wing fascist fruitcakes on ZeroHedge and tfmetalsreport and the bulletin boards. There's not much I know about stock trading, but having read a nice short succinct 200-page book by Jim Rogers on commodity trading, this much I do know, which is still apparently more than 99% of the people who post on bulletin boards and conspiracy websites*:
The commodity exchanges hike margins in order to reduce the impact of price volatility on positions. Margin hikes make the commodity exchanges survivable.
Commodity exchanges are absolutely nothing like the typical retail dolt's experience of stock exchanges. Apparently, to trade a commodity contract, you might put up as low a figure as 5%. The margin price is actually set by the exchange, depending on the commodity and the contract size.
In the case of silver, if you only put up 5%, then when it has a 5% down day (or two days that add up to 5% down) you're wiped out. You get a phone call from someone at the bank the next day, and have to liquidate everything you have to pay them back for their 95% stake.
So higher margins actually create stability in the commodity markets.
I would assume that the CME actually has a formula where they determine an acceptable margin based on the volatility of the commodity. (I don't know if they use fat tails for the calculation - I'd assume they'd absolutely have to, but who knows?)
When silver was having it's monster run back in the spring, yes indeed the CME was hiking margins regularly! Because they had to! Because the advance in silver was outstripping its previous margin requirements!
ZeroHedge and Turd Ferguson like to spout off their nonsense that margin hiking is an evil plot to destroy the silver price. As if JP Morgan, the Lizard People and the Joos have some secret plot to screw you out of your cruddy silver rounds in preparation for the coming One World Government and coming of the Antichrist. There's really no such thing.**
Watch out who you listen to on the bulletin boards. These people don't have to pass an IQ test to trade stocks and post about it. Same about ZeroHedge. In fact, you get booted off of ZeroHedge for calling them on their fabulous bullshit. I know, because I was.
Groupthink is always dangerous.
* - feel free to correct anything I say here, if you actually know more about commodity trading than me. I am only a market newbie, and have never traded on a commod exchange, and unlike most retail pilgrims am always happy to be corrected by someone who truly knows more than me. I am simply assuming that nobody who actually knows more than me would ever read my blog.
** - funny enough, guess what unifies conspiracy theories about JP Morgan, The Lizard People, The Joos, The New World Order, and the coming of the Antichrist? All of these are right wing conspiracy theories, spouted off by American patriot neo-Nazi and fundamentalist types. Again, we can go back to the discussion about how dumbass traders with $20,000 in their IRA, who put it all into junior miners, suddenly decide they must toe a Tea Party Republican party line and spout off all sorts of other right wing bullshit to fit their supposed profile.
Like, blacks don't work and are poor (you really so sure that white trash don't outnumber them?), it's bad that Central Americans are swarming over the border (who's going to do all your farm labour? fat white folks?), taxing the rich is bad (who has more at stake in keeping the country running? poor folks or rich folks? ever read Marx?), Obama is a socialist (pft! he's pretty well disproved that by now, hasn't he?), Republicans aren't mentally retarded (ever watch Jon Stewart?), and so on.
I guess this is aided by the fact that most of the people who write about junior miners are fundamentalist Christians, racists, neo-Nazis, "paleo-conservatives", or at least far to the right of Strom Thurmond.***
The good things about these people are:
- their thought patterns are terribly predictable.
- because of (1), you can easily fleece them out of all their cash.
- they're stupid enough to keep coming back for more.
*** - which, I guess, makes for a very good reason to only stick to blogs written by commie socialist pinko Old Labour rogue Peruvian bloggers. At least you can be sure he'll always drive away the right-wing fascist groupthink. Like garlic for a vampire.