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Hunts Death Revives Memory of Fortune Lost on Silver Bet

To Nelson Bunker Hunt, the world was full of enemies.

There was inflation. It was running as high as 13 percent in the 1970s, like a thief threatening to steal the family fortune earned by his father, H.L., in the oil fields of East Texas.

There was Muammar Qaddafi and the American oil men who collaborated with him. When Hunt and his brothers William Herbert and Lamar had refused to pay Qaddafi half their earnings from the Libyan oil fields, like their competitors had, Qaddafi had simply snatched the Hunts 8 million acres.

There were the communists, the liberals, the proponents of the welfare state. If inflation didnt rob him of his billions, the tax man would.

The answer was silver. Enough silver to hedge against inflation. Enough to stay rich despite Qaddafi and the Internal Revenue Service, said Tim Knight, author of Panic, Prosperity and Progress: Five Centuries of History and the Markets (2014).

Silver to him was not a pump-and-dump scheme, Knight said in an interview. Hunt had a paranoid world view and it made sense to him to amass silver and hang on to it. He was a true believer.

Hunt died Oct. 21 at the age of 88 of congestive heart failure after a long battle with cancer and dementia, according to The Dallas Morning News.

When he began buying silver with his brothers in 1973, it cost $2 an ounce and a big consumer was Eastman Kodak Co., which used it to make film.

Before the Hunts were through, seven years later, theyd stockpiled more than 200 million ounces, the price was soaring past $45 an ounce and regulators were preparing to take measures to make sure nothing like what Nelson Bunker Hunt had done would ever happen again.

The Hunts moved the price of silver around the world, said Thomas O. Gorman, a partner at Dorsey & Whitney LLP in Washington who successfully sued the Hunts for market manipulation.

Most traders buy and sell paper. The actual stuff represented by that paper is delivered to someone else. Hunt wanted the silver. He chartered three 707 jet aircraft to haul the metal to warehouses in Switzerland and hired a dozen sharpshooting cowboys to provide security, according to Knight.

In the late 1970s, the Hunts were accumulating so much silver they needed surrogates to buy it for them, said George Gero, who traded the metal at the Commodity Exchange Inc.s open outcry pit in New York for the investment bank Drexel Burnham Lambert.

The main buyer for Nelson Bunker Hunt was Conti Commodities, and when we saw the Conti broker coming to the pit, wed all buy some silver, raising the price, said Gero, now vice president, global futures, for RBC Capital Markets in New York.

Through the 1970s the price rose slowly, steadily. Then, in 1979, quickly. Silver started the year around $6 an ounce and ended the year at more than $32.

Everyone got in on the trade. Grandmothers sold the family cutlery. Thieves were making off with silver jewelry and melting it down.

It got so bad that Tiffany & Co., the New York-based jeweler, bought an advertisement in the New York Times that said, We think it is unconscionable for anyone to hoard several billion, yes billion, dollars worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver from baby spoons to tea sets, as well as photographic film and other products.

On Jan. 7, 1980, in response to the Hunts position, Comex and the Chicago Board of Trade imposed emergency rules that included higher margin requirements.

They broke the ascent by basically outlawing the buying of silver, said Knight, who blogs at slopeofhope.com. Only liquidation orders would be accepted. Its almost criminal what they did.

The silver price hit a high of $49.45 an ounce that month. By March 18, it was $16.60.

Hunt traveled to France and then Saudi Arabia with the idea of selling bonds backed by his silver hoard. Time magazine said at the time that the Hunts were trying to sell silver without selling silver.

Then came the margin call.

Traders had to cover their bets every day. If they couldnt, they had to start selling. Those were the exchange rules.

On March 27, 1980 -- what came to be known as silver Thursday -- Comex asked Bache Group, the Hunts broker, for $134 million. The three Hunt brothers had $4.5 billion in silver holdings, $3.5 billion of it pure profit, Knight said. But they didnt have $134 million.

An administrative glitch was the reason, according to Jeffrey Christian, who was a reporter at Metals Week at the time. The only person who could authorize the funds transfer to pay the margin call was Bunker Hunt, and he was overseas and unreachable, Christian said.

Bache had no discretion to do anything but liquidate the position, said Christian, whos now managing partner at CPM Group LLC, a New York-based commodities research and consulting company. All Hunt had to do was make a phone call.

The price of silver dropped that day to $10.80 an ounce from $15.70.

The Hunts had put up oil and gas leases, real estate, coal leases, antiques, even a Mercedes and a Rolex, and lost them all, according to Kurt Eichenwalds Serpent on the Rock (2005).

Twelve U.S. banks, the American branches of four foreign banks and five brokerage houses had provided the Hunts silver-buying venture with more than $800 million -- equivalent to almost 10 percent of all the bank lending in the country in the previous two months, William Greider wrote in Secrets of the Temple (1987). The collateral also included silver, whose price was plunging.

Making matters worse, the Hunts had bought futures contracts on 19 million ounces of silver with delivery scheduled for the next Monday, March 31, Greider wrote. The seller was demanding his money. If he didnt get it, the silver price would plummet again, dragging the lenders of the $800 million down with it, Greider said.

A $1.1 billion loan from a group of banks, blessed by Federal Reserve Chairman Paul Volcker despite his otherwise firm stand against speculative lending as inflation crept higher, stopped the bleeding, Greider said.

For six days late in March 1980 it appeared to government officials, Wall Street and the public at large that a default by a single family on its obligations in the plummeting silver market might seriously disrupt the U.S. financial system, said a 1982 U.S. Securities and Exchange Commission report.

During the seven-year increase in silver prices, a Peruvian firm had bet the price was going to fall. It sued Bunker Hunt and Herbert Hunt for manipulating the market.

The case finally came to court in 1988. The trial took six months, said Gorman, the Peruvian companys attorney. The Hunts lost.

I remember them being totally stunned, totally shocked, Gorman said.

The $180 million judgment against them pushed the Hunts into bankruptcy. All Bunker Hunt had left from his billions were a few million, a stable of racehorses and a $90 million tax bill to be paid over a 15-year period, Knight said.

Bunker would never talk to me, Gorman said. He said the last time he saw Hunt was at a Dallas restaurant. After they ate lunch at separate tables, they arrived at the elevators at the same time. Gorman said he held the door, but Hunt insisted Gorman get in first, then declined to get in with him and thumbed his nose at the lawyer as the doors slid shut.

The case against the Hunts was the most important manipulation case ever tried, Jeffrey C. Williams, a witness who testified on behalf of the Hunts, wrote in his chronicle of the case, Manipulation on Trial (1995).

They never tried to corner the market, Christian said. They bought a lot of silver. They invested, in a big way, a sloppy way. Cornering is not an accurate description.

In the aftermath, the Commodity Futures Trading Commission adopted new limits on the positions that speculators could amass.

Hunt lived for a quarter century after his humiliation. He was banned from trading commodities. His fathers company, Hunt Oil Co., born in the East Texas oil fields during the Great Depression, survived. His brother Herbert became a billionaire all over again, investing in North Dakota shale oil.

Rule changes were made in the wake of the Hunts rout, and theyre Hunts legacy, said David Kovel, an attorney at New York-based Kirby McInerney LLP specializing in commodities.

The CFTC, in a November 2013 proposal to limit the number of contracts a single trader can hold across a variety of markets, cited the Hunts silver trading as an example of why such limits are necessary.

Exchanges are now seen as fairly secure places without as much systemic risk as the over-the-counter market, Kovel said in an e-mail.

Hunts Death Revives Memory of Fortune Lost on Silver Bet 1

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