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The story of the
Hunt Brothers is a fascinating tale. At one point in the story, around 1974,
they rounded up the best marksman cowboys in a contest held at the Circle K
Ranch in Texas. Then they hired these “Circle K Cowboys” as
security to move a large amount of silver out of the country. The Hunts were
worried about a 1930's style government confiscation of silver. So they
chartered three Boeing 707's and the cowboys flew to Chicago and New York
where they were met by convoy of armored trucks in the middle of the night.
In all, 4 million ounces of silver was loaded onto the three planes
and the cowboys accompanied the shipment to Zurich, Switzerland where they
were met by another convoy of armored trucks. This secretive operation cost
the Hunt Brothers $200,000.
In another interesting part of the story Bunker Hunt, one of the bothers,
went to Tehran, Iran to try to talk the family of the Shah of Iran into
investing in silver with them. But the Shah didn't know anything about the
Hunt brothers and the meeting didn't go too well so the deal fell apart.
Right after that, Bunker set up a meeting with King Faisal of Saudi Arabia to
get him to be a partner in their silver buying company. But Faisal was
assassinated just weeks before the meeting.
If you only read the American press accounts of the Hunt Brothers, they are
made out to be criminals or evil rich men. True, they were billionaires. At
one time in history, their father may have been the richest man in America.
They were also evil oil men. And everyone knows that if you are obscenely
rich, from Texas, and in oil, then of course you are a bad guy. Right?
Well I see the story a little differently. And I think there are some
important lessons in this story that may shed some light on what could happen
in our futures markets today.
First of all, the Hunt brothers started buying silver in the early 70's
because they believed in hard money and they also believed that high rates of
inflation were eating away at their considerable wealth. Why silver? Well at
the time that they started buying and for the first three years of their
buying, it was illegal for Americans to own gold. So silver was the next best
thing. And for those of you who are fortunate enough to have a substantial
amount of savings, you probably know the difficulties and costs of converting
large amounts of paper money into hard money. So imagine if you were a
billionaire trying to protect your wealth. You couldn't just go to your local
coin shop with $10K per day. That would take 200,000 days or 547 years to
convert the kind of cash they wanted to convert.
Secondly, you must understand the history of the Hunt family. You can read
about it here. Their late father, HL Hunt was a poker
player. He gambled both in cards and in business, and he was known for going
“All In”. In fact, he even funded his early oil well ventures
with money won at the tables. So the Hunt brothers inherited this “All
In” mentality from their father which might explain why they tried to
buy so much silver over the next decade.
So what happened to the Hunts?
Snippets from H.L. Hunt's Boys and the Circle K Cowboys by Larry LaBorde:
By the spring of
1974 silver rose to over $6/oz and rumors were flying that the Hunts were
trying to corner the silver market. At the time annual production was 245
million oz and annual demand was 450 million oz. The Hunt brothers had just
taken delivery of 55 million oz. The big question was how much silver was out
in private hands?
only about 200 million ounces was available for delivery against futures
contracts.
That same Spring Bunker appeared on the floor of COMEX in New York for the
first time and declared that "almost anything is better than paper
money" and "any fool can run a printing press".
The brothers quickly devised a swap where Great Western would trade 20
million oz of silver to the Philippines for sugar for their refineries; the
Philippines would then trade the silver to the Saudis for oil.
the IMF killed the deal. The IMF would not recognize the silver as an asset
of the Philippine government and would refuse other loans as a result. The
deal fell through and the brothers sold the 20 million oz of silver the next
year. Once again Bunker felt thwarted by the Eastern establishment.
The brothers then turned to another commodities play and invested in
soybeans. They were a little short on cash again so they used their silver as
collateral. As usual the brothers went into the market in a big way. The
legal limit for a single investor is 3 million bushels. The brothers brought
in family members and had a total stake of 22 million bushels. The CFTC cried
foul and filed suit against the Hunts.
They were fast gaining a reputation of playing fast and loose with the rules
concerning commodities trading.By the late 1970's the Hunt first family's
fortune was estimated to be in the range of 6 to 8 billion dollars.
In 1978 John Connally introduced Bunker to a Saudi sheik at the Mayflower
hotel in Washington.
A year later International Metal Investment was incorporated in Bermuda
between Bunker, Herbert and two Saudi sheiks. It was speculated that the two
sheiks were fronting for members of the Saudi royal family.
In the summer of 1979 the Hunt brothers started buying silver through the
International Metal Investment group along with their Saudi partners. Over 43
million oz of silver contracts were purchased through the COMEX and the CBOT
with delivery to be taken that fall. In the fall of 1979 the silver price
doubled from $8 to $16/oz in only two months.
The COMEX and the CBOT started to panic. In late 1979 the warehouses of the
two exchanges only held 120 million oz of silver and that amount was traded
in October alone.
Late in 1979 the CBOT changed the rules and stated that no investor could
hold over 3 million oz of silver contracts and the margin requirement were
raised. All contracts over 3 million oz per trader must be liquidated by
February of 1980.
Bunker accused the COMEX and CBOT board members of having a financial
interest in the silver market themselves. Investigations later found that many
had substantial silver short positions. Bunker knew that a shortage now
existed or they would not be screaming so loudly. He bought even more. The
price on the last day of 1979 was $34.45/oz.
Finally on January 7th of 1980 the COMEX changed their rules to only allow 10
million/oz of contracts per trader and that all contracts over that amount
must be liquidated before February 18th. . The CFTC promptly backed up the
ruling. On January 17th silver hit $50/oz, Bunker had continued to buy.
On January 21st the COMEX announced that it was suspending trading in silver.
By March 14th silver was down to $21/oz.
Finally on March 25th of 1980 the Hunt brothers ran out of cash. Bunker
called Herbert and simply said, "Shut it down". Herbert promptly
told his broker the following morning that they could not meet their $135
million dollar margin call that day.The Hunt's brokers promptly sold $100
million dollars worth of silver that day
When it was all over they owed $1.5 billion dollars.
After the smoke cleared it appeared that the drama was not just a one sided
manipulation by the Hunts. The shorts and the Eastern establishment had
just as much at stake as the Hunts. By the mid 1980's silver was bumping
$17/oz again.
In 1988 Bunker filed for personal bankruptcy. In 1989 he left bankruptcy with
a net worth of $5 to 10 million dollars and a debt to the IRS of $90 million
dollars to be repaid in 15 years. Bunker's trusts, set up by his father H.L.
Hunt, are currently valued at $200 million dollars. Last year the payments to
the IRS finally stopped.
So what are the lessons we can learn from the Hunt Brothers (other than the
obvious, don't buy on margin)? I will attempt to address this question in my
next post. And I will look at those lessons in light of the writings of
Another. One question I will ask myself is what would the Hunt Brothers have
done differently if they had had the advantage of reading Another? And how
would things have turned out then?
I encourage you to read the full story from the above link. And also read
this article that appeared in Time Magazine right after the Hunt's appeared
before Congress in 1980.
Bunker's Busted Silver Bubble – Time
From the article:
As the brothers
told the tale, they were just worrying, like most Americans, about the
worsening economy. As Bunker Hunt has reportedly said, "A billion
dollars is not what it used to be." Inflation had destroyed their
faith in the dollar, so early in 1979 they began putting even more of
their wealth into a "harder" currency: silver.
"At no time," said Herbert solemnly, "did I attempt to corner,
squeeze or manipulate the silver market."
In some ways this is simply the sad tale of a misguided hard money advocate
who just happened to be a billionaire.
FOFOA
FOFOA is A Tribute to the Thoughts of Another
and his Friend
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Also
by Fofoa
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