Afternoon everyone ….
I’m sure you might have heard about this pair of brothers that made the markets cringe. Do you think something like this could happen again?
It’s 1980 and silver has peaked shy of over $48 an ounce… how did this happen?! The Hunt brothers. Nelson Bunker Hunt and William Herber Hunt singlehandedly inflated the price of silver by more than 700%.
This is not a story of a couple of guys striking it rich on the silver market, oh no, this was messy. What began as a money-making machine, turned into a historic collapse known as Silver Thursday. The hysteria, panic, and overall madness led to legislation change.
Though these brothers are painted as having conspired to corner the silver market, Nelson Bunker Hunt denied these allegations. Either way, it makes for a compelling story. Culture is obsessed with stories of the “big guys” going down – Bernie Madoff, Mr. Copper, Lou Pearlman, the list goes on.
Cornering the silver market takes big money, and the Hunt brothers had plenty to draw from.
Where’d the Money Come From? A Bit of Hunt Family History
The Hunt fortune is said to have begun with Haroldson Lafayette Hunt – born into a struggling family, he was neither educated nor did he have the means to do so. At the age of 22, he found success as a businessman, buying and selling cotton and cotton plantations. His focus soon shifted towards bigger and faster money, oil. Haroldson struck BIG in Texas, amassing billions, and with his passing the Hunt brothers ran a bulk of the family business – Bunker, Herbert, and Lamar Hunt.
The Hunt brothers followed in their father’s footsteps, and had great success, in part because of the oil boom of the 1970s. The Hunt family was wary of the government and paper currencies, which influenced their holdings in oil, land, livestock, and precious metals.
Puppet Masters of the Silver Market
With a weakening dollar and a prediction for continued hyperinflation, the Hunt brothers began hoarding physical silver and purchasing silver futures contracts. Nelson Bunker Hunt and William Herbert Hunt were extremely bullish and convinced that silver’s value would skyrocket.
Rather than accept cash settlements for future contracts, they took the less common route of having the physical silver delivered. In the early 70s, as the Hunt brothers began to dabble in Silver, the price was $2 an ounce. By 1979, silver had risen to $6 an ounce. That’s big, however, that’s nowhere near the peak price.
It’s said that the Hunt brothers had over 100 million ounces of silver, close to a third of all the silver in the world! In December of 1979, silver prices were creeping up to $25 an ounce.
At today’s silver price of $31.93 per ounce, the Hunt brothers’ historical holding of 100 million ounces would be worth about $3.193 billion.
The global silver market began to experience heightened supply issues. Jewelry prices were rising, burglaries became more common, and everyday people were on the prowl for anything silver in their homes to cash in on the frenzy.
1980 started with a bang, silver prices peaked just short of $50 an ounce. The Hunt brothers continued to borrow money to accumulate even more silver.
It Worked Until It Didn’t…
The Hunt brother’s plan was working out just fine until the COMEX (Commodity Exchange, Inc.) decided to step in and interfere. On January 7, 1980 (about a week before silver’s peak), the COMEX introduced Silver Rule 7.
How Silver Rule 7 Sabotaged the Hunt Brothers
The Comex adopted this new rule to put the brakes on the Hunt brothers and curtail the excessive buying up of silver futures contracts. It placed heavy restrictions on the purchase of commodities on margin. Meaning, that using borrowed money from a brokerage proved to be more difficult. Keep in mind that the Hunt brothers were borrowing heavily to buy up silver futures.
The Hunt brothers cornered the global market, but it didn’t last long. From the hand of the Federal Reserve, banks were encouraged to stop making loans for speculative activity. Margin calls were beginning to take a toll on the Hunt brothers, and their ability to cover these loans began to slip.
What was Silver Thursday?
The commodities market took a deep dive on Thursday, March 27, 1980. The Hunt brothers missed a margin call and Silver Thursday came to fruition. The price of silver began dropping and it plunged more than 50% in a single day – under $11 an ounce.
Their billions of dollars in assets quickly morphed into over a billion dollars of debt. This wasn’t only bad for the Hunt brothers; it also threatened the collapse of several investment firms and banks. To prevent the bottom from dropping out, multiple banks banded together to give the brothers a $1.1 billion credit line to cover their obligations, though they were now personally bankrupt.
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So,@silverd510, the whole Silver Thursday saga pretty much teaches us that trying to manipulate markets can get super messy... like, don't put all your eggs in one basket kind of messy. The Hunt brothers went all-in on silver, borrowed a ton of money to do it, and found themselves in deep trouble when things went south.
It's a good reminder to spread your investments around, not take on too much debt,or better still don't go to debt investing! And always be ready for the unexpected. Makes sense, right?
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It’s greed that beat them. You can’t corner a market that still has resources available. It’s not like secretly buying up every painting of a dead painter. Silver is in the ground.
I see your point about the Hunters brothers. Attempting to corner a market like silver, which has readily available resources, is indeed a risky move. Unlike finite art pieces, silver can still be mined and supplied to the market. It's a game of control and scarcity, and clearly, the dynamics differ, @silverd510.
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That is pretty interesting story, I have never know that. and $50 dollar per ounce at that time would men's a lot more than today's currency inflation isn' it?
Man if only they cash out when they can maybe they can have more money, but they choose different route and now deeply in debt. Just like you said, greed often time get the best out of us.
And now it's perfectly legal for JP Morgan to own for more silver than what the Hunts had. As George Carlin stated, "...the rest of us are not in the Club."
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A story that should teach many a good lesson, I guess even today many are doing this with borrowed money and it can get very messy.
Thanks for this history lesson, as I didn't know about it until today.
Have a nice Sunday @silverd510
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