This week XTO Energy finally agreed to buy Hunt Petroleum for $4.2 billion after a long legal tussle between Hunt family heirs. The firm was founded by the late billionaire HL Hunt whose sons Nelson Bunker Hunt and William Herbert Hunt once cornered the world silver market in the 1970s.
Hunt is a privately held company which makes no public comment on its affairs. But commentators think the Hunts are calling the top of the oil market and that the price for Hunt Petroleum suggests a quick deal was the objective.
However, market watchers are bound to wonder if the Hunts are planning to re-enter the silver market which they so dramatically dominated in the 1970s. It was in 1973 that the family first decided to buy precious metals to hedge against inflation, much as many rich investors are doing today.
Together with several wealthy investors the Hunts formed a silver pool and by 1979 held half the world’s deliverable silver supply, some 200 million ounces. Having effectively cornered the markets, the pool used leverage to drive the price of silver to $54 an ounce. But the authorities changed the rules on margin trading and crashed the market. The Hunt brothers eventually declared bankruptcy and by 1987 their liabilities of $2.5 billion exceeded assets of $1.5 billion.
After that experience you would have to have a pretty thick skin to try playing the same game again. But history does have a habit of repeating itself, and you have to wonder what investment options are open to a family with $4.2 billion to tuck away in present markets.
Precious metals are once again an attractive diversification strategy at a time of high and mounting inflation. Nothing erodes the value of cash deposits like inflation. The ever secretive Hunts could learn from their past mistakes and avoid margin trading, and still take a commanding position in the silver market, although this sum is too small to impact much on gold.
Of course, the irony of the 1970’s episode may not have been lost on the next generation of Hunts. They did indeed select one of the best possible investment strategies for that decade, and if they had not gotten too greedy with margin trading their position would have been unassailable.
So personally I would imagine the Hunts might well venture back into precious metals, and probably in a big way. But don’t expect to read any announcements or for the family to get carried away trying to corner the market again.
How high could silver go? We are still a long way shy of the $54 an ounce high of 1980 reached courtesy of the Hunt pool, and every other commodity is now past its previous all-time high. The silver market is a relatively tight and small one, so any renewal of serious investor interest, perhaps on the back of another bull run for gold is likely to take prices far higher.
An inflation adjusted all-time peak silver price would be $120 on simple adjustment to the consumer price index and much higher if related to the money supply increase over 28 years. Could the Hunts again invest in the most undervalued commodity in the world to beat inflation? They would be foolish not to!
The Futures Commission raised margins, but that did not stop silver from rising. What stopped silver from rising was the rule that there could only be selling and not buying.
The Futures Commission is rotten. I wouldn’t trade futures if you paid me.
Comment by Jim Craig — June 12, 2008 @ 11:02 pm
All it needs is for 20,000 people to buy 10,000 ounces of silver( that’s not many people and not much silver) in Barclay’s ETF and the world supply would be “dried up”……!
Comment by Terry Jackman — June 13, 2008 @ 7:55 am
Strange things on the US yield curve.
2 year is up.
Long term is down.
Becoming straight horizontal line.
Banks can’t borrow and lend profitably.
If yield is brought back to 2% on 2 year, dollar with crash.
If interest rates increase to meet the yield, economy, housing, yada yada, will crash.
May be foreign buyers are finding the doors!
Checkmate, Kismet, Bernanke. Where you gonna go? How much longer does the helicopter fly over criminal Wall Street?
Oh, I know what to do.
We’ll blame the speculators, we’ll litigate against OPEC, we’ll investigate short-sellers.
Yup. That’ll sort it.
No problem here, people, - move along please.
Comment by I — June 13, 2008 @ 1:22 pm
If rates are raised banks lose profitability, - rising defaults, - more capital raising needed. More become toast. Fed orchestrated “take-overs”?
Housing, credit cards, auto loans, - all toast.
Several Fed Gov’ners open revolt on TAF, PDCF.
Ultimately economy, ergo $ is toast.
If rates held, - $ is toast, rampant inflation, economy is toast.
Current opinion is to favour rate rises, which will trash the economy.
If the end result of either action is essentially the same, surely an globally organised, gradual de-pegging from the $ is the solution.
We are at a flexion point in the evolution of global currencies, and also of US global hegemony.
With a modicum of thought this could have been avoided, the bells have been ringing for many years.
One is forced to the conclusion that it was, and is, deliberately orchestrated.
I need another drink
Comment by I — June 13, 2008 @ 2:15 pm
The current rule of no more than 1.5 million ounces a month being deliverable to a single trader makes it impossible for 1 trader to corner the market in silver. While you might get away with the the first month deliveries, people are going to notice your next batch of contracts and see what’s up and the prices would rise before a significant portion of the 4 Billion was invested.
I think a limit of 7.5M is deliverable each month regarless of number of traders.
With this kind of money the Hunts might be better off out bidding wheaton silver and take direct delivery from mines/refiners and write of the Comex as a broken corrupt institution.
The other option is buy up a couple of miners that sell silver as a by product and don’t take the silver to market. You can squeeze the market and build a possition by curbing supply at the mine and take the silver not money as your profit.
While the comex needs to be cracked and emptied, using it’s contract and delivery system will not work if they can change the rules on a whim.
Expecting the ETFs will be able solve the problem assumes the ETFs are legit and have 100% of the metals they claim, and that they can somehow demand delivery of the amount required to dry up the supply. The 1.5 million ounce rule would apply to the ETFs too, and if a run started to develop 1.5M will become .5M very quickly.
If you honestly have enough cash for thousands of ounces buy 1 single contract and take deliver rather than mess with ETFs, Even if you have to split a contract with 4 like minded investors and each take one 1000oz bar each. Remember not all comex silver is deliverable, and it might only take 10-20 million ounces of deliveries to start a panic by industrial users.
I hope the Hunts do makes waves but I’d be surprised if they could get more than $200 million before the dam breaks.
Comment by Canadian Silver Bug — June 13, 2008 @ 5:20 pm
“All it needs is for 20,000 people to buy 10,000 ounces of silver( that’s not many people and not much silver) in Barclay’s ETF and the world supply would be “dried up”……!”
…i’m afraid it wouldn’t dry up, because there is no assurance that all of the ETF silver is physical. The metal can exist in paper-contact form, and in futures form. Essentially there’s nothing to stop the same ounce being sold/lent to several targets via a chain of paper contracts.
To ‘dry up’ the silver market, the ounces would need to be delivered.
Buying silver through ETFs is handing money to banks in order to gain exposure to the price. It has no direct relationship with the supply of silver, and if the bank implodes, the paper assets are liquidated.
Food for thought for anyone considering ETFs as a protection against financial chaos, or for taking part in a supply squeeze.
Comment by dml — June 13, 2008 @ 6:13 pm
Jim Craig said it RIGHT. The regulators would ONLY allow selling AND
NO BUYING of silver contracts in 1980. That’s what killed the Hunt brothers’ grand investment.
The Hunt brothers’ biggest mistake was not being aware that the Ol’ Boys could and would CHANGE the RULES.
Ah…Do the Hunt brothers want to “GET EVEN” with the Good Ol’ Boys?
All they have to do is take the proceeds from the sale of Hunt Petroleum to a SAFE offshore location and proclaim to buy $4 billion worth of SILVER bullion ONLY, to be delivered overseas.
There isn’t enough silver bullion to cover the trade. The NYMEX/COMEX
inventory would be wiped clean and all the shorts on the exchange would
need to declare “force majeure” default.
And who owns all the shorts on the exchange?
Probably the good ol’ boys.
Comment by Stephen I — June 14, 2008 @ 8:23 am
Thanks I hope my friends here in Dubai are reading this blog - somebody could make a killing out of this. I think if you look at Goldman Sachs forward prices for gold you can see which side of the equation they are on, and no doubt silver is the same. Bet against The Street? Usually suicide but not when The Street is in turmoil like now? It is a thought!
Comment by peterjcooper — June 14, 2008 @ 8:30 am
Only allowed selling but not buying????
Er, if someone sells something, there has to be a buyer, right? IIRC, they changed the margin requirements on silver contracts.
Comment by Beercritic — June 16, 2008 @ 4:05 am
This is the only way to do it, already there is someone trying to stop physical delivery at the mint level-follow the recent events at the Perth Mint, now the US Mint is trying to stop physical supply of Eagles, the only reason for this is to stop even retail level silver fans getting hold of any, so it isnt only at the futures trading level something odd is going on.
Comment by Kenneth Lindsay Jones — June 18, 2008 @ 11:17 am
Perth Mint says there is not a shortage of silver, just a backlog in producing bars to meet an upsurge in orders. As the mint is 100% owned by the State of Western Australia and accountable to an elected government I can see no possible scenario in which it will fail to meet its obligations and investors could sue if the mint did not. The supply guarantee is 100% explicit and could not be challenged in a court of law. Mr Hommell is trying to make a point about silver being in a tight market but making false charges against the Perth Mint does not help his case (which is strong enough without such nonsense).
Comment by peterjcooper — June 18, 2008 @ 11:43 am
The HUNTS selling is a very bullish sign. I BELIEVE THEY WILL DEFINITELY TRY TO GET EVEN WITH THE INSTITUTIONS THAT CHANGED THE RULES DURING THE MIDDLE OF THE GAME !!!!!
I can’t wait to hear what silver analyst TED BUTLER has to say about the Hunt sale!!!
Comment by I'M ALL IN ------ JUST LIKE POKER !!!! — June 18, 2008 @ 6:05 pm
THE HUNT SALE RAISES THE STAKES!!!!! WITH ALL THESE AVAILABLE RESOURCES, I BELIEVE THEY WILL NOW TRY TO GET EVEN WITH THE INSTITUTIONS THAT CHANGED THE RULES DURING THE MIDDLE OF THE GAME BACK IN ‘79 - ‘80
I WONDER WHAT AMERICAN SILVER ANALYST TED BUTLER HAS TO SAY ABOUT THIS SALE???
Comment by I'M ALL IN ------ JUST LIKE POKER !!!! — June 18, 2008 @ 6:09 pm
An honest inflation adjustment for the 1980 high of silver ($50) is actually closer to $500 right now, not $120.
You people need to stop using the “official inflation” data. It is beyond wrong and false. At this point, it is fraud.
Comment by NewTV.com — June 19, 2008 @ 12:13 am
[...] There is another story I must share: the Hunts have sold Hunt Petroleum for $4.2 billion. There is speculation that they may buy silver again, and it would be poetic justice if they did it right this time, with no debt and no leverage. If they did, they could increase their fortune by ten times or more, and grow their wealth to be comparable to Bill Gates and Warren Buffett, or even surpass that. http://arabianmoney.net/2008/06/12/will-the-hunts-buy-silver-again-after-selling-hunt-petroleum/ [...]
Pingback by Australian Copper Bullion » Blog Archive » Silver Shorts Reported (And what to do about it) — June 19, 2008 @ 1:55 pm
In reply to:
#9 Only allowed selling but not buying????
Er, if someone sells something, there has to be a buyer, right? IIRC, they changed the margin requirements on silver contracts.
Comment by Beercritic — June 16, 2008 @ 4:05 am
H.L. Hunt’s Boys and the Circle K Cowboys
Larry LaBorde
http://www.gold-eagle.com/editorials_04/laborde012704.html
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 21st the COMEX announced that it was suspending trading in silver. They would only accept liquidation orders.
HUNT BROS CORNER SILVER MARKET
http://www.wallstraits.com/main/viewarticle.php?id=1298
Finally the regulators and the commodities exchanges took draconian action to forestall disaster. Rules were imposed arbitrarily to prevent further buying of silver by the Hunts or anyone other than legitimate industrial users and shorts who were buying back silver they had previously sold.
Hope this clarifies your question.
Comment by Stephen I — June 19, 2008 @ 2:42 pm
Gold May Rise to $5,000 on Inflation, Schroder Says (Update1)
By Bei Hu
June 19 (Bloomberg) — Gold prices may rise to $5,000 an ounce as investors seek to protect themselves against accelerating inflation, said Schroder Investment Management Ltd., which oversees $277 billion of assets globally.
“You could easily see for the next several years that prices rise not to $1,000 an ounce, but prices rise to $5,000 an ounce or beyond as inflation psychology becomes more and more embedded and people become desperate to have a source of value,” said Christopher Wyke, London-based emerging market debt and commodities product manager at Schroder, which oversees about $10 billion of commodity assets.
Investors are turning to gold for protection as two-thirds of the world’s population cope with inflation rates that are climbing to more than 10 percent, Wyke said. Cash and inflation- linked bonds are poor substitutes as low interest rates, coupled with surging inflation, erode the real value of assets, he said.
Comment by peterjcooper — June 20, 2008 @ 8:07 am
It would be a great saga if the Hunts went into silver again. They must have ‘believed’ in it (which is probably a bad move because it’s emotional) right up to and over the top which was over $50.
Of course the Government and Central Bank destroyed their silver pool and bankrupted the trade. I loved to read Larry LaBorde’s article ‘Bunker Hunt and the Circe K Cowboys’ - a great one to google along with the word ’silver’ - one of the first web articles about this escapade.
I don’t see why someone would not try to corner this tiny market but not in America because they will scupper it by the typical market manipulations that seem to happen in the States every week. It is a mockery of a free market.
Didn’t the Hunts have Arab partners first time around? So maybe this article is correct. Somone in Dubai or Saudi or even China might have the money and the local precious metals bourse to pull off a nice explosive rally in silver, which is still demonetised.
The US Dolalr is a huge mess and maybe the Euro will be with the splits appearing between Germany and the weaker economies.
It’s a fascinating time to be living in, for most of the wrong reasons!
Comment by Dave B. — June 21, 2008 @ 7:04 pm
The billion dollar question:
The hunts currently have $4.2 billion dollars in U.S. currency. Do you think they will invest it in a 10 year CD with the bank of america?
I think they are probably aware of inflation, so they definitely will invest it. (shiney buttons perhaps, or vintage tophats maybe)
Wm. Wrigley Jr. Co., the Chicago company behind such famous chewing gum brands as Doublemint, Big Red, Juicy Fruit and Orbit, Was recently sold for $23 Billion Dollars in CASH.
If I had that kind of money laying around, I would hopefully be able to afford some intelligent investment advice.
The trend is very obvious, and it is leading away from the U.S. dollar. The silver market is extremely tight, and very appealing.
The elections are not far away, and change is in the air. I believe from common sense and a few quick glances at a 5-year silver chart, silver will surge up nearing the end of 08 and/or the beginning of 09.
Comment by Jesse — June 26, 2008 @ 1:01 pm
Not sure if anyone here is aware of it or not, but Nelson and Bunker (the brothers that tried to corner the silver market) have no stake in Hunt Petroleum and thus will get no money out of this sale. They are a different branch in the family tree.
Comment by dallascpa — July 1, 2008 @ 9:21 pm
When a trader buys silver to make money he usually uses his market skill to get in and get out the market to take advatage of the market movements. The Hunt family was simply buying up the whoe market, like we say that no snake could possible eat up an elephant so their failure was not because the chnge of the rule on the exchange floor as much as they were lacking in their brain–no exchange in this world would allowed a single client to put all the exchange members into poor house. If they really thought through this time I think they should operate differently–buying and selling and not try to coner the market which could end the game for everybody and that is definately not allowed. Best commodity trader from Merrill, Lynch, Pierce, Fenner, smith and Bean Co,
Comment by Good Old Jeff — July 11, 2008 @ 7:22 am
If there are commodity traders as old as myself then you should remember Mr. Simplot and the Potato market. He simply corner the market and exchange (New York Merchantile) simply delisted potatos (spuds) from their trading list and Mr. Simplot end up with no arket to place his trades! Well, we all hope this would not happen to the silver market, but we just have to know there are people who enjoy to corner a market just because it is there.
Comment by Good Old Jeff — July 11, 2008 @ 7:43 am
Nowadays everybody is talking about sub-prime loans. Well,in 1960’s there is a guy by the name of DeAngelos he owned the Allied Salad Oil Company. He puts water in those American Express Storage Company’s tanks and with their warehouse receipts to borrow money to trade soybean futures. those receipts were worthless when the oil turned out to be just water. I think we should attribute the investion of sub-prime loan to him 40 some years ago!
Comment by Good Old Jeff — July 12, 2008 @ 1:39 am
30 years is a long time for technology. Today everybody uses digital camera which uses no film that made of silver. On the other hand adter you own all the silver in the world to whom do you sell your silver to? Sell to Warren? You are lucky to get 2 Billiom dollards back this tome around. If it not a jock when we say:”A fool and his money soon apart.” A fool can have 4 milliom dollards or 4 Billiom dollars it hardly matters–to make money in the market it is the selling price that matterss, anyone think just buying up all the silver in signt would make money must be a fool indeed! To keep all the slver in the warehouse wil cost a fortune as well, and that is why gold made more sense in this case.
Comment by Good Old Jeff — July 14, 2008 @ 7:04 am
All the comments are from the general public so as a result they have no idea os what realy had happened behind the doors.
1. Speculators such as the hunts, their justification for their trades is to provide the liquidity of the market. From examine their trades they bought at high and only to limit liquidities.
2. They are not in the game to make money as much as to buy up all the chips in a casino–the exchange is operating similar to a casio with no more chips anywhere to be found the casio will go out of business–the Hunts were doing exactly in this manner and therefore they end up as “public enemy No.1″ The prevent the Exchange to stop function entirely that was why the rules were changed, and they will be changed again if anyone if foolish enough try to do it again.
If the Hunts were smart enough to purchase a seat on the exchange and distribute their orders around the floor, buying low and selling at hight (quitely) then there will be no change of rules and their profits–sky is the limit.
Comment by Insider Talk — July 21, 2008 @ 7:23 pm