Hi Pic!

I too find comfort in my bullion ownership during these prolonged downtrends. In fact I have been adding more along the way and may buy more gold today. Conversely I find I have less and less confidence that my ownership in mining stocks is safe. I do not mean from the point of view that they hold value, I mean secure ownership of an asset that cannot be stolen from me through fraud. The daily manipulation of these stocks is bad enough, but what if the level of naked shorting is in fact so high that the companies have become completely undermined by 'counterfit' shares that will never be delivered?

I speak with retail investors all the time and most of the guys I know have been buying more shares on the dips for the juniors they like. When I see a limitless supply of paper hitting the market everyday for weeks, it makes me wonder. Is this really liquidation from institutional funds? Why would they wait for ECU to trade below 70 cents again to sell out now?

What if it is almost entirely naked shorts that have been dumping huge blocks into this market? Therefore my friends are buying shares which may never be delivered? How would this be reconciled? Would all of the vulture funds just get a stern warning and a slap on the wrist? Will they be forced into bankruptcy when they cannot cover that huge short position and then how will the buyers get the shares they are owed?

I think the regulators have left the door wide open for a total collapse. By looking the other way and letting the shorts run the table, they have created the potential for a total default. Just as the paper silver short overhang cannot be covered without bankrupting the participants, the potential for undelivered shares would also undermine the entire market and take out some big players. Those who paid for shares they bought in the open market would be notified that they own nothing and would become unsecured creditors as some corrupt fund is liquidated.

I know if I want to short a stock, sometimes I am informed that my order cannot be filled since there is no inventory of borrowed shares available. So obviously not all players are able to naked short. Also, if I short a stock, I must pledge market value plus 30% in margin. IF the position goes against me I must increase my margin or the broker will cover the trade and close out the position. I am a retail schmuck so the rules are enforced for people like me. But the larger funds may be using the old boy network to break the rules and that would certainly explain why so many juniors are in freefall this month.

You better believe I take comfort in owning metal that cannot be created out of thin air. I find myself trusting the system less and less. I really fear that by allowing a handful of crooks to get away with breaking some rules the situation is now in danger of destroying the integrity of our entire market system. In fact, I would very much like to hear from others that contradict my worst case scenario outlined above.

Selloffs do not scare me. This is a generational bull market that will go on for a long time yet and all of the juniors will recover along with the metals. But if the system is broke, and if there are tens of millions of shares of companies like ECU naked shorted that cannot be delivered, what the hell happens then?

cheers!

mike