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silvermargin

Silver margin is raised to ensure the financial integrity of the silver market. Unlike the equity market, margin in the commodity space is a misnomer. Initial margin is considered a down payment on the full notional value of the contract. (5,000 ounces x the price of the contract).

Commodity futures exchanges set the margin (in this case the COMEX), not any government entity. Margin is not raised to dampen speculator involvement. Most professional commodity traders allocate only between 8 – 12% of their overall assets to margin, so an increase will not cause any type of liquidity squeeze on them or force liquidations in an otherwise strong bull market.

Looking at the chart above, the purple line shows volatility as measured by the 20-day Average True Range (ATR), a popular indicator of volatility measurement. As you can see, volatility has doubled from $1.05 on April 4 to approximately $2.20 as of today. Since silver is standardized at 5,000 ounces per contract, that means that the average swing in one’s equity has risen from about $5,000 per day to over $10,000!

To put that in perspective, an account with $1,000,000 in equity that held just 1 silver contract would see an incredible 1% volatility in the account. That is staggering.

The volatility accelerated since the reversal in silver that occurred on April 25. That is why the margins have been increased. The bump in margin rates were affected well after silver began to sell off. To suggest otherwise is either a conspiracy theory or an instance of causality.

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willowbay

Willow Bay and Michael Martin

I had the chance to spend a great deal of time with some of the top journalists from both print and mainstream media at the Milken Global Conference this week in Beverly Hills. Although there are many talented on-air personalities, I don’t think anyone has Willow Bay’s combination of intellect and presence.

Willow covered the event for Bloomberg Television and I covered it for The Business Insider blog. We both are affiliated with The Huffington Post — Willow is the Senior Editor and I am a Contributor (unpaid :) ).

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Sen. Bernie Sanders wrote an open letter to the President about high oil prices, according to a Huffington Post article Bernie Sanders Demands Action From Obama on Wall St. Oil ‘Gambling written by Zach Carter.

“Sen. Bernie Sanders (I-Vt.) demanded on Thursday that regulators impose limits on oil speculation to help lower the price of gas in a letter sent to President Obama. ‘There is mounting evidence that the skyrocketing price of gas and oil has nothing to do with the fundamentals of supply and demand, and has everything to do with Wall Street firms that are artificially jacking up the price of oil in the energy futures markets,'” Mr. Carter reported.

In the current regulatory environment, the Green Mountain State is included in those who are defined a speculators. They provide the corpus — the money — as investments in hedge funds and commodity indices. In effect, Sen. Sanders is mad with the labor unions and civil service employee retirement plans — the largest investors in the asset class known as Managed Futures — what some like to call speculators.

Read the rest of my article at The Huffington Post.

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Barron’s Washington Editor Jim McTague speaks with Michael Martin on assignment for The Business Insider at the Milken Global Conference in Beverly Hills, CA. McTague’s new book Crapshoot Investing discusses the dangers of high-frequency trading and how it all came to be.

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Lou Rukeyser succumbed to cancer 5 years ago at the age of 73 on May 2, 2006. In my mind’s eye, he was the best TV financial journalist of his time. Here is part of a longer interview he did with another great, Charlie Rose.

Here is another episode immediately after the crash in 1987.

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