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The
Hunt Brothers
Brian
Trumbore
President/Editor, StocksandNews.com
Note: In light of the incredible volatility
in the commodities pits these days, I thought it was
appropriate to re-run a piece I first wrote in Sept.
1999 on the cornering of the silver market. It's been
beefed up a bit utilizing some new sources I have
come across since the initial posting.
---
In
1973, the Hunt family of Texas, some of the biggest
a-holes this country has produced, as well as possibly
the richest family in America at the time (some say
the world), decided to buy precious metals as a hedge
against inflation. Gold could not physically be held
by private citizens at that time so instead the Hunts
began to buy silver in enormous quantities.
By
1979, the sons of patriarch H.L. Hunt, Nelson Bunker
and William Herbert, together with some wealthy Arabs,
had formed a silver pool. In a short period of time
they had amassed more than 200 million ounces of the
metal, equivalent to half the world's deliverable
supply.
When
the Hunts had first begun accumulating silver back
in 1973 the price was in the $1.95 / ounce range.
Early in '79, the price was up to $5. By January 1980,
it had risen ten-fold to $50.06. [Intraday, it peaked
at $54.]
But
the Hunts were borrowing heavily to secure their purchases,
much of it at a time when the prime rate was 19%,
so their costs were huge. And while the brothers and
their partners had cornered the silver market, with
the public joining in the chase as everyone quickly
cleaned out their attics and sold their tea services,
a combination of changed trading rules on the New
York Metals Market (COMEX) and the intervention of
the Federal Reserve put an end to the game.
Silver
began to slide, culminating in a 50% one-day decline
on March 27, 1980, what became known as "Silver Thursday,"
with the price plummeting from $21.62 to $10.80.
The
collapse of the silver market meant countless losses
for speculators, let alone the Hunts, and even after
working out a debt repayment plan with their brokers,
the Hunt brothers were still forced to declare bankruptcy
as by 1987 their liabilities had grown to nearly $2.5
billion against assets of $1.5 billion. In August
1988, the Hunts were convicted of conspiring to manipulate
the market.
One
other experience in the silver bubble worth noting,
according to author Edward Chancellor ("Devil Take
the Hindmost"), is the experience of an official at
the Peruvian Ministry of Commerce, employed to hedge
his country's silver production, who ended up losing
$80 million by illicitly selling silver short. Said
Chancellor, "Although a relatively small sum for a
sovereign nation, it was an omen: the 'rogue trader'
had appeared on the modern financial scene."
As
for the U.S. equity market, it had its own troubles
during the rise and fall of silver. The Dow Jones
peaked on February 13, 1980, at 903.84. The day of
the collapse, March 27, the Dow closed at 759.98,
a decline of 16% in just 6 weeks. [However, intraday,
the loss between the 2/13 high of 918.17 and the 3/27
intraday low of 729.95 was actually 20%.]
For
many traders the collapse in silver was the final
straw for a stock market already under siege from
worries as diverse as the Iranian hostage crisis,
the Russian invasion of Afghanistan and soaring interest
rates. [The consumer price index climbed at a 13%
rate for 1979. The prime lending rate hit 22% in early
1980]. But by year end the whole decline was almost
forgotten. The Dow finished the year at 963.99, thanks
in large part to the euphoria over the election of
Ronald Reagan.
*And
now for another side of the Hunt family that has nothing
to do with the financial markets.
On
the morning of November 22, 1963, President John F.
Kennedy was shown an inflammatory full page advertisement
that appeared in that day's Dallas Morning News. The
ad asked twelve loaded questions, including: "Why
did you host, salute and entertain Tito - Moscow's
Trojan Horse?" "Why has the Foreign Policy of the
U.S. degenerated to the point that the CIA is arranging
coups and having staunch Anti-Communist Allies of
the U.S. bloodily exterminated?" Jackie Kennedy was
sickened by the display. JFK said to an aide, "We're
heading into nut country today." Hours later he was
assassinated. The ad was the responsibility of Nelson
Bunker Hunt (and an associate). H.L. Hunt was a leader
of the John Birch Society, the anti-Semitic and racist
organization.
Sources:
Edward
Chancellor, "Devil Take the Hindmost"
David Colbert, "Eyewitness to Wall Street"
Harold Evans, "The American Century"
David Hackett Fischer, "The Great Wave"
John Steele Gordon, "The Business of America"
Suzanne McGee / Wall Street Journal
Richard Reeves, "Profile of Power"
Wall
Street History returns next week.
Brian
Trumbore
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