Tuesday, May 22, 2012

Silverbugs II: The Hunt Brothers and the 'Silver Express'


Herbert and Bunker Hunt testifying before the U.S. Congress, 1981.
Silver prices peaked from 1979-1980, thanks to the Hunt brothers.
Bernard Welch, the Ghost Burglar, concentrated his efforts on stealing
and smelting Sterling silver during this time.
 In late 1977, with a stagnant silver market draining their resources, the Hunt brothers tried attract the attention of various wealthy Arabs to interest them in getting onboard their “silver express.” Herbert and Bunker Hunt knew the sheiks and royal families of the Middle East had immense disposable income from their oil holdings. If the brothers could influence these super-rich to join the noble cause and purchase a few million ounces of silver bullion, the price would surely be pressed upward. The greed factor can affect even these wealthy people, and many were persuaded by the easy assurances from Bunker Hunt that their money would be doubled in a short period of time.

In early 1979, the International Metals Investment Company (IMIC) was chartered in Bermuda. This outfit was backed by Arab money and also by Bunker and Herbert Hunt. The Hunt brothers proceeded to purchase contracts that called for the delivery 50 million ounces of silver in February and March of 1980. This added to the brothers' prior holdings of futures contracts for 75 million ounces, putting the value of their position at $1.2 billion dollars.     

By September of 1979 the price of silver had surged to $12.54 per ounce.

In mid-October, silver was at $17.50 and the Commodities Futures Trading Commission was hearing rumors that the Saudi government was acting in concert with the Hunt brothers to corner the silver market. At the end of December 1979, the commissioners figured that, at the rate the Hunt Brothers and Saudi investors were buying, they would own the entire world’s supply of deliverable silver by early 1982. On December 31st 1979, the price had surged to $32.00 per ounce. The Commodities Futures Trading Commission concluded that their only option was to enforce silver futures contract limits, and soon.

The commission’s decision on silver futures contracts limits meant that the Hunts, and the other investors acting in concert with them, would be forced to reduce their contract holdings from 90 million ounces to 20 million by mid-February. By January 16, 1980 silver was at $48 an ounce. At this point, the Saudis, the Hunt Brothers, and various affiliated investors had futures contracts and actual physical silver holdings worth in excess of $10 billion.  On Friday January 18, the price of silver hit $50 an ounce for the first time in history. The following Monday, the Commodities Exchange in New York put into force a new rule that trading in silver could only be for liquidation. The bulls, the big buyers of silver like the Saudis, and the brothers Hunt were now placed in the position of only being allowed to sell. The only buyers left were those who had hedged and sold silver short or smaller new buyers of the contracts.

This situation forced the price of futures contracts and silver down rapidly. In early February, the downturn in silver prices forced many of the big silver buyers to pay money back into the brokerage houses for the first time. They had been buying more and more silver with margin accounts, mainly based on the increase in value on their current holdings. The Hunt brothers and the Saudi investors were now facing substantial margin calls for the first time. If you include the International Metals Investment Company’s $500,000,000 indebtedness, at this point, Bunker and Herbert Hunt had loans outstanding for almost $1.5 billion dollars.

The price of silver had slipped to the high teens by Wednesday, March 26th.  The next day at the commodities market was undoubtedly the worst in its history. At the end of the days’ trading, the price of silver dropped $3.65 per ounce to $16, a loss of 19 percent. Not only that, but just 20 days earlier, the price was $36 an ounce. This huge loss at the end of the unstoppable slide of silver prices earned this day of March 27, 1980, the dark title of “Silver Thursday.” The frantic manipulation, ending in the dumping of silver to pay off the margin calls, had a deleterious effect on all speculative markets, worldwide. The brokerage house handling the Hunt brothers’ activities was forced to liquidate large blocks of blue chip stocks the Hunts had placed with them as collateral. Unloading these stocks on the market at such a volatile time forced other stocks prices down, too.

The Hunt brothers had to put virtually all their vast holdings up as security to pay off margin calls on the silver futures they still held that were coming due. Held as collateral were natural gas properties in the North Atlantic off Holland, and more than 100 oil and gas properties in The U.S. and Canada, from Louisiana to British Columbia. Other collateral included coal reserves in North Dakota and stock held in 39 South African gold mines. The Hunt brothers were also forbidden to trade commodities or other futures positions for any speculative purpose. Basically, everything they owned was secured against loans to pay off their debts. The Hunts were not forced to divest themselves of their remaining silver holdings immediately because that glut of silver would have had a dramatically negative effect on the silver commodities market. In the end, the Hunt brothers had to list every possession they had, even personal property, such as watches, cars, houses, fur coats, livestock, and racehorses. To Bunker and Herbert's chagrin, these listings became part of the public record and hit the pages of numerous local and national publications.      

After all of the trials and lawsuits ended, Bunker Hunt’s comment about the self-inflicted financial misfortunes of the Hunt family was memorable, “A billion dollars isn’t what it used to be.”     
– Jack Burch

 

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