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Guest Post: A Brief History Of Silver Manipulation

Tyler Durden's picture




 

Submitted by Sudden Debt

A Brief History of Silver Manipulation

The silver fairy tale of the brothers Hunt
 
In the early 80’s the attempt of the Brothers Hunt, Nelson Bunker and William Herbert Hunt, to fully clamp down the silver market was one of the most spectacular but at  the same time also one of the most unsuccessful financials plans within the then fair world. Despite that the brothers failed in their attempt to clamp the silver market, they have succeeded to make a outright mess of the precious metals market and lose one of the largest fortunes in the world in no time.
 
The expansion of the Hunt Empire
 
Nelson Bunker Hunt and William Herbert Hunt were born in one of the richest American families. Their father Haroldson Lafayette (also known as H.L. or Arizona Slim), had acquired a fortune during the 20s and the 30s in the Texan oil industry. By investing these oil revenues in successful companies, the Hunt family grew into one of the most prosperous families from all over America. When H.L. died in 1974, he left his next of kin therefore an immense capital. H.L. Hunt had 14 children at three different women, 6 with his legal wife, 4 from a bigamist marriage and another 4 at one of his mistresses. Bunker and Herbert were two full-fledged brothers, namely the second and the third son of H.L. Hunt and his first wife Lyda Bunker Hunt. When Bunker and Herbert just started to get a grip on the silver market the 70’s, their capital was estimated around 13 billion dollars. H.I. Hunt’s logical successor and next boss of the Hunt Empire was originally his eldest son Hassie. However, his plans were thwarted when the same Hassie during his twenties had to do to with psychiatric problems and underwent various treatments without success. H.L. therefore had no choice but to name his second son as successor to lead. In the beginning, however, Bunker showed not the gift of his father in order to locate new oil fields. Bunker lost in his early years millions of dollars by error self-rated and fruitless attempts to find new oil fields for the Hunt Empire Carlo. But once Bunker learned how to do it after a few year, he did it immediately with verve and with style. He found an immense Libyan oil field, Sarir Field, which turned out to be one of the largest oil fields in the world. The discovery of this oil field swept into a seesaw the losses which he had piled up in the previous years from the table. In the early 70’s, he and his brother Herbert took over the Empire forever on.
 
Silver times glimmer on the horizon
 
By mid 1970s Hunt developed systematically an obsession for silver. When he went looking for a source of stability in a world that was currently very unstable and subject to inflation was and influences was the fear of international communism, he came out on the magic word silver. He saw not only future in silver but he was also convinced that silver was undervalued and that the silver value could not otherwise than rise. Supported by the opinion of their financial advisors locks he joined the investment group Bache investment house and they put their first steps in the silver world. Middle 1970s the brothers Hunt dominated for almost 10% of the entire silver stock and their increasing impact on the silver market made sure that the silver prices within a few years of $ 2 per ounce increased to more than $ 6 per ounce. They invested not only their entire own capital in silver but they tried also others to convince others to do so. In this way, they found support with a group of Arabian investors who where able to buy huge volumes of silver with their endless supplies of money and propel the price of silver into the skies. The Hunts, backed up by the Arabs, increasingly got more influence in the silver market by which their holding grew out of proportion and which supplied them the means to loan more money and buy more silver and increase the price even more. And the plan seemed to be working! At the end of 1979, after years of price increases, the price for silver was 35$/ounce, a unseen price. Other investors where atracked by these price increases and also started to invest in silver what gave the price a even bigger boost. In the 80’s, the plan of the Hunt brothers seemed to have worked and the market was on his head. In less then a decade they where able to inflate the price from 2$ per ounce in the beginning of the 70’s to 50$ per ounce at the beginning of the 80’s. It even seemed realistic by then that silver would go to $200/$300.
 
Bloody Thursday
 
The end was near. The prices of silver stopped rising and started to go down. They weren’t able to attract enough funds anymore to influence the price and the price started to went down. The price of silver and gold started their seemingly endless drop because investors started to invest their money in bankcertificats for higher interests. Not only the value of the precious metals plummeted but also the fortune of the Hunts went up in smoke. The brother took on massive loans to fund their silver quest and couldn’t repay their debts anymore which they made with brokers like Bache, A.G. Edwards, Merrill Lynch en some others who had to be repaid when the silver market crashed. These brokers started to protect themselves against these drops and made fortunes when the silver went down. The Hunts were confronted by margin calls from their brokers to repay them in the next 5 days or there would be a liquidation.

And when a broker demanded $100 million dollars as payment, the largest margin call until then, and the Hunt couldn’t pay up it was the end for them.

In a last attempt to turn the tide, the Hunt brothers tried fabricate paper obligations backed by their 200 million ounces of silver. But in reality they tried to create a international curreny that would have a silver standard. The plan failed and even pushed down the silver price even more because silver by then was linked with the failure of the Hunts and their unstable situation. The price got to a all time low on march 27 1980, a date still known as Bloody Thursday.
 
Old habits die hard
 
The banks involved in this silver play actually got big thanks to this silver play in the 80’s and learned how to suppress the price of silver whenever it went up. It was just a routine game which they played over and over again. Supply/demand didn’t even matter in this play and the game attacked so many players that every big bank in America went along the game from the mid 80’s until now. This was simply one of the biggest money generator of all time and this game is much bigger then J.P. Morgan.

But like any other casino game : You need to quit while you’re still ahead. For them 2007 should have been a warning light but by then it was already to late to unload their silver derivatives.

 

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Thu, 01/06/2011 - 21:18 | 854645 uno
uno's picture

 

On March 25th at the CFTC Public Hearing on Precious Metals GATA made a dramatic revelation of a whistleblower source, Andrew Maguire, who has first hand evidence of gold and silver market manipulation by JPMorganChase and who has even tipped off the CFTC in advance of manipulative attacks on gold and silver. Just as in the Madoff case the regulator has done nothing to stop such manipulation.

On March 26th while out shopping with his wife, Mr. Maguire’s car was hit by a car careening out of a side road. The driver of the vehicle then tried to escape. When a pedestrian eye-witness attempted to block the driver’s escape he accelerated at him and would have hit him had the pedestrian not jumped out of the way. The car then hit two other cars in escaping. The driver was apprehended by the police after police helicopters were called in and following a high speed chase. 

 

http://spktruth2power.wordpress.com/2010/04/04/andrew-maguire-exposes-systemic-fraud-by-cftc-and-jpmorgan/

 

Thu, 01/06/2011 - 22:32 | 854855 flacon
flacon's picture

Check out this relaxing silver timelapse from August 2010 - January 2011. 

http://www.youtube.com/watch?v=jEavXM1XuTU

 

Fri, 01/07/2011 - 00:38 | 855065 Turd Ferguson
Turd Ferguson's picture

How about a recent history of silver manipulation? See below:

http://tfmetalsreport.blogspot.com/2011/01/this-is-getting-ridiculous.html

 

Fri, 01/07/2011 - 03:45 | 855333 bigelkhorn
bigelkhorn's picture

Alot of people think we are doomed, but there are still great ways to make money. Even while the economy is collapsing around us.

I subscribe to the guy from australia and his FFT economic newsletter at http://www.forecastfortomorrow.com  that guy has called many big events before they have happend, including the stock market crash in 2008 and the current financial collapse of the US. (currently happening) I found him from a friend last year, and he has some important work.

His oil calls are insane, and I have been making good money with them. He is well worth a look, if you want to keep two steps ahead of the sheeple out there.

I am worried about my financial future. Is anyone else nervous out there?

Fri, 01/07/2011 - 06:42 | 855427 theprofromdover
theprofromdover's picture

This is cited every bleeding week, yet never a follow-up.

Where is the outcome, what does Andrew Maquire say happened, and has the driver been charged?

We devalue the effectiveness of this site with replayed rumours.

Either the hit 'n run was premeditated, or it wasn't.

If it was, dig deeper; if it wasn't, stick to Maquire's explosive testimony. That is a big enough story on its own.

 

Fri, 01/07/2011 - 07:10 | 855456 uno
uno's picture

Now you have a task to do, look into it and report back to us, then you can add 'value' to the site. 

The MSM did not cover Andrew Maguire's testimony or what happened shortly after.  The worse thing for the manipulators is to have the story continue to be told.  CNBS, CNN, Fox, WSJ etc ignored it, bringing it up here is a reflection of their part in continuing the Madoff/Enron environment.

If we are going to have a post of silver manipulation, Andrew Maguire's recent story should be included.  I want it for anyone new to zerohedge to know, the easy thing to do is let it go away over time.  

Fri, 01/07/2011 - 12:48 | 856468 david3549tw
david3549tw's picture

very good stuff. fortunately i sold off my slv already. 

Fri, 01/07/2011 - 18:16 | 857679 Imminent Crucible
Imminent Crucible's picture

This story is not only badly written, it's grossly in error.  Are all of ZH's readers children?  Am I the only person that actually remembers the Hunt brothers' debacle?

This piece of rubbish implies that the Hunt brothers got killed because they ran a good scam for too long.  Nothing could be further from the truth.

Here's how it really happened (and there are plenty of historical accounts out there for you to fact-check, as Sudden Dump obviously did not):  The Hunts watched the accelerating inflation that followed Nixon's 1971 default on the Bretton Woods agreement.  They saw the price of gasoline go from 27 cents to over a dollar a gallon (in part due to the Arab oil embargo and other supply disruptions).  They saw home prices double and triple.

They had a family fortune to protect, and determined that, with the U.S. silver reserve gone, that the most reliable way to hedge inflation was to convert as many dollars as possible into silver and other real assets. Eventually they had millions of ounces salted away, and the silver bull market took on a momentum of its own.  It was being called "the poor man's gold".

This grossly misleading account leaves out the two most important events that busted Herbert and Nelson Bunker Hunt.  First, the SEC moved to ban delivery on silver futures contracts.  This was an egregious case of changing the rules in the middle of the game, and it was rumored (and no doubt true) that several clearing members of Comex and members of the SEC were heavily short silver and getting burned alive.

By banning deliveries, the SEC killed Comex as a source for procuring physical silver, and so demand for paper contracts dried up.

At the same time, the accelerating panic over dollar inflation led Carter to put Paul Volcker in charge of the Fed. Carter directed him to do what it took to restore confidence to the currency.  Volcker promptly raised the prime rate from 6% to 16% in five short months. Inflation hit a concrete wall, as did the economy.  With banks offering 16% on certificates of deposit, the return on money finally exceeded the inflation rate for the first time in years.  The rebirth of yield ended the panic demand for gold, and both gold and silver went into freefall.

There's a lesson for us in this. Demand for gold and silver will continue, and the price will keep rising, as long as real yields on "safe" debt instruments like Treasury notes remain near zero or negative.  Bernanke can easily kill the bull markets for precious metals; all he has to do is replicate Volcker's trick by raising the long bond yield to 17%--and watch the economy of the world's largest debtor nation implode as interest rates skyrocket, all borrowing comes to a halt and the cost of federal debt service goes off the charts.

It's not gonna happen.

 

Thu, 01/06/2011 - 21:18 | 854650 Instant Karma
Instant Karma's picture

Interesting story full of typos or errors of grammer. Would like to know exactly how price suppression works. Isn't the usual game to accumulate a position, pump up the price, and then unload (the stock market right about now). 

I prefer price suppression, because it naturally leads to an undervalued asset, allowing the patient to prosper. The usual game of pumping up prices (Netflix) lures in the suckers and then takes their knees out when the price collapses.

Thu, 01/06/2011 - 21:37 | 854708 nmewn
nmewn's picture

"Interesting story full of typos or errors of grammer."

In English...Sudden Debt is Belgian I believe.

Thu, 01/06/2011 - 23:19 | 854954 Cognitive Dissonance
Cognitive Dissonance's picture

Sudden Debt is a Belgian waffle who wildly waves his arms all day long while mangling the English language.

I like Belgian waffles.........with butter and Maple syrup. Sudden Debt is alright as well.

Thu, 01/06/2011 - 23:34 | 854985 woolly mammoth
woolly mammoth's picture

Waffle. Now I get it. I thought all this time he was a screaming chunk of meat loaf.

Fri, 01/07/2011 - 00:08 | 855032 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

Sudden Debt is alright!

Fri, 01/07/2011 - 02:58 | 855287 Problem Is
Problem Is's picture

Try honey from a beekeeper, CD... Never store bought...

You will never go back to Leo Canadian Maple on a waffle again ;<}...

Fri, 01/07/2011 - 00:10 | 855035 TheProphet
TheProphet's picture

And the word is spelled "grammar"

Fri, 01/07/2011 - 02:07 | 855210 Al Gorerhythm
Al Gorerhythm's picture

Interesting karmmar.

Fri, 01/07/2011 - 03:17 | 855298 QQQBall
QQQBall's picture

Haha... never fales (fails)

 

 

 

 

Thu, 01/06/2011 - 22:28 | 854842 schoolsout
schoolsout's picture

well, I wasn't going to, but, uh...

 

GRAMMAR

Fri, 01/07/2011 - 02:47 | 855274 strannick
strannick's picture

+10

Thu, 01/06/2011 - 22:36 | 854860 hack3434
hack3434's picture

Speaking of typos...it's grammar not grammer.  

Thu, 01/06/2011 - 23:14 | 854939 Richard Head
Richard Head's picture

You should always pause for a moment when you write something like this, much like you would before hitting "Reply All" in Outlook.

Fri, 01/07/2011 - 03:17 | 855300 Hephasteus
Hephasteus's picture

I love to read things with typos and grammar errors. Because they are more like streams of conciousness than these breast implanted face lifted fancy worded communications we are inundated with.

Fri, 01/07/2011 - 09:07 | 855561 velobabe
velobabe's picture

i love too reed grammer mistakes to. i wasn't going to say anything, surprise, i make a lot of  errors. but i only gave him a good vote. i know he is 7000 miles away from me. in waffle country.

Thu, 01/06/2011 - 21:23 | 854654 Don Birnam
Don Birnam's picture

Arizona Slim...one legal wife, one bigamist marriage, and one mistress. Fourteen chillen' in all. The Head of the Hunt Family was nearly as busy as Rameses. All that procreative effort, and where did it lead ? Nelson and Bill try to corner the silver market with the inherited millions born of dear old dad's blood, sweat and tears...and lose it all.

Thu, 01/06/2011 - 21:40 | 854721 israhole
israhole's picture

Still a far better story than Bernie Madoff's.

Thu, 01/06/2011 - 21:31 | 854681 Real Estate Geek
Real Estate Geek's picture

Anyone else having trouble accessing Turd's site all day? I've been having internet trouble, so maybe it's a localized problem. (I'm in SF.)

Thu, 01/06/2011 - 21:33 | 854701 goldsaver
goldsaver's picture

Nope, just you.

Thu, 01/06/2011 - 21:38 | 854718 Real Estate Geek
Real Estate Geek's picture

Story of my life . . .
Thanks.

Fri, 01/07/2011 - 03:09 | 855294 Problem Is
Problem Is's picture

"Nope, just you."

Don't listen to your wife, ex-wives, girlfriend and ex-girlfriends...

They will tell you it's you until the end of time...

Thu, 01/06/2011 - 23:25 | 854970 lineskis
Thu, 01/06/2011 - 21:37 | 854714 Shameful
Shameful's picture

Interesting back story.

Seemed to me that the real mistake the Hunts made was not ot take delivery. IIRC they kept rolling contracts and left themselves exposed. I'm also leery of using leverage in the metals (particularly silver) just because can see some volatility in what is really a small market overall. But then I'm just a small time wage slave investing my savings.

Nice to see you get something up here Sudden Debt. Can we get something about what you are seeing on the ground in Belgium? As a dumb American I'd like to know what is happening in EU central.

Fri, 01/07/2011 - 00:08 | 855034 woolly mammoth
woolly mammoth's picture

One reoccurring thyme as I read these types of stories seems the bankers knowing what others positions are and profiting by betting against these positions, sometimes even against their own clients. "Maybe" Buffet didn't so much as invest in banks, but was buying protection.  

Fri, 01/07/2011 - 00:14 | 855046 Shameful
Shameful's picture

I simply assume the system is broken and corrupt. The regulators are 'captured' to put it mildly. Casinos are less rigged. At least with physical possession they cannot reach out and smack the underlying asset out of my hands, without their thrall Uncle Sugar anyway.

Having said that I do have some exposure to the miners, but accept that the prices can be played with. It's money I can afford to lose and I'm only in miners who are in production.

As far as fiduciary duty, it's a joke. Who would enforce that? Oh that's right the regulators who are captured. Captured regulators are worse then no regulators. They give the uninformed the illusion of a watch dog, and they serve to attack dog those who could challenge the rulers in the casino.

Thu, 01/06/2011 - 21:37 | 854716 goldsaver
goldsaver's picture

Ok, not to demean the guest poster but Tyler, if this is the quality of writing that is acceptable in ZH, how do I get posting privileges?

Wikipedia could have done a better job. And for crying out loud, proof read your stuff before posting man! Don't just count on spell check and call it done. You can not make an intelligent point with dumb writing! Only Yogi Berra could get away with that shit.

Thu, 01/06/2011 - 21:37 | 854719 bob_dabolina
bob_dabolina's picture

Blythe Masters was a woman born of two female sea horses. With no assets and the company of only 1 friendly crab she cornered the copper market.

Thu, 01/06/2011 - 23:19 | 854959 oddjob
oddjob's picture

I heard she was hippocampussy too,also during social moments or in unusual surroundings,she turns bright colors.

Fri, 01/07/2011 - 00:55 | 855088 bob_dabolina
bob_dabolina's picture

I understand you.

My trousers moved.

Fri, 01/07/2011 - 01:56 | 855196 merehuman
merehuman's picture

like her or not, she is warrior pussy. How many women have that much balls? Got to give credit where its due. Obama is good at reading teleprompters

Fri, 01/07/2011 - 02:26 | 855241 JLee2027
JLee2027's picture

You mean the daughter of the devil? She is a destroyer not a warrior to respect.

Fri, 01/07/2011 - 04:01 | 855342 akak
akak's picture

How many women have that much balls?

Aside from Hillary, you mean?

Thu, 01/06/2011 - 21:43 | 854731 gwar5
gwar5's picture

That was interesting. I thought the Hunt episode and the current manipulation was unrelated

Thu, 01/06/2011 - 21:42 | 854736 Careless Whisper
Careless Whisper's picture

just crash the mofo. buy silver.

 

Thu, 01/06/2011 - 21:44 | 854737 Misean
Misean's picture

It sucks being ahead of your time.  Just think if they waited 15 years, they'd have been bailed out.

Thu, 01/06/2011 - 21:55 | 854762 israhole
israhole's picture

You got that right, except that the Hunts are Goyim.  Central banks are not there to bail Goyim out.

Thu, 01/06/2011 - 23:58 | 855022 mikhail kalashnikov
mikhail kalashnikov's picture

+202 trillion

Thu, 01/06/2011 - 21:51 | 854750 Bastiat
Bastiat's picture

There was some silver around in those days--not so much now.  Leverage is suicide in the metals unless you are in the club.  Physical demand is the only thing that will ever stop the Morgue and that day is coming.  All the paper bullshit games in the world can't create supply--only prices and mining can.

Fri, 01/07/2011 - 01:52 | 855194 Tapeworm
Tapeworm's picture

I might be full of it but I recall something about the gombit still holding about twelve billion onzas of plata at that time. US centgoo has nothing now. I caution all on just how high silver is now in purchasing power parity. Silverbugs are tagging along with those that might dump at any time.

Thu, 01/06/2011 - 22:08 | 854757 SwingForce
SwingForce's picture

"The end was near", why did you leave out the part about the CFTC raising margins? And the disallowance of opening new long positions? "The price of silver stopped rising and started to go down". Duh, how could it go UP if the CFTC didn't allow anybody to go long?  I think you left out the best part of the story. Somebody didn't like The Hunts or Bache-Halsey. But that was then, how about now when JPM supposedly has massive positions in both the silver & copper markets? How is this so different that now it is allowed? 

I am very glad to see you contribute, congrats! Does anyone remember Warren Buffet's big silver position of a decade ago? He took a huge position, but made sure it was completely outside of the US markets. What was he worried about? Or trying to circumvent? He lost his ass if I remember correctly.

Thu, 01/06/2011 - 23:39 | 854998 UncleFester
UncleFester's picture

Not to mention double digit interest rates on the $.  Let me see..who was the FR chairman at the time, seems like he resigned from the big O's admin recently, what was his name?

I Fester

Fri, 01/07/2011 - 04:44 | 855362 hpro123
hpro123's picture

SwingForce,

THIS (the CFTC stance and changing the rules of the game to shorts-only) is actually the salient part of the story and the REAL manipulation. AFAIK, there has never been a good account of this ordeal that conclusively shows that the Hunts were more than the original "silver bugs".

 

Thu, 01/06/2011 - 22:01 | 854778 dryam
dryam's picture

OT, anyone know what happened to "The American Dream" video on youtube?  First, the audio was deleted, then the video was deleted.  Seems like someone doesn't want the truth sent out to the masses.

 

http://www.zerohedge.com/article/cartoon-how-american-dream-purchased-cr...

Thu, 01/06/2011 - 22:21 | 854824 gdogus erectus
gdogus erectus's picture

Moved here - don't know why - sure broke a lot of links....

 

http://www.youtube.com/user/theamericandreamfilm

 

 

Thu, 01/06/2011 - 22:05 | 854789 gdogus erectus
gdogus erectus's picture

Wow, that article is crap.  That is the offishul version.  The real version is that the Hunt brothers started buying options on COMEX and asking for PHYSICAL deliver.  Does this sounds familiar to the plan now to bring down JP Morgan.

http://news.silverseek.com/SilverSeek/1291237112.php

The Hunt brothers were forced out of their positions when laws were magically passed to limit long positions.

I'm going from memory here so someone can jump in and correct me if I'm wrong.

 

Thu, 01/06/2011 - 23:10 | 854933 oddjob
oddjob's picture

H.L. Hunt's Boys and the Circle K Cowboys

http://www.gold-eagle.com/editorials_04/laborde012704.html

Thu, 01/06/2011 - 23:29 | 854978 Milestones
Milestones's picture

I was involved in the scam of the 70's. Long story short. In Colorado I too asked for physical delivery on 1000 oz (at 2.40 per oz) Boulder D.A. happened to be in the bank when I raised hell about a stop payment on a check. Bottom line a bust came down on the scam because I requested delivery, otherwise there was no fraud involved. About 1972.   Milestones

Fri, 01/07/2011 - 09:15 | 855573 velobabe
velobabe's picture

i think i was in boulder in 1972, milestones. i was with raoul and johnny moringstar, we were throwing pots in the ceramic department. i took a silver jewlry class with raoul. i made a silver belt buckle for my beaded belt. raoul made me a beautiful silver rectangle box. he had inlaid turquoise of an eagle. it is really special. ciao

Fri, 01/07/2011 - 00:09 | 855036 fasTTcar
fasTTcar's picture

Here is the short version of a very long Playboy article from the 1980's that fits the facts.

 

http://www.silverbearcafe.com/private/03.10/hunts.html

 

Thu, 01/06/2011 - 22:23 | 854830 Millivanilli
Millivanilli's picture

Jamie Dimon could rape Katie Couric on air after he slaughtered pedestrians on 5th avenue and the next day the headline would be:  More Arctic air brings snow to England.

 

 

 

Thu, 01/06/2011 - 22:30 | 854847 Gunther
Gunther's picture

The history of the Hunt brothers is incomplete to put it mildly.
To stop the rise in the price of silver the exchange banned buying of silver - only selling was permitted.
Moreover, the Hunt's got the IRS on theitr throat and Paul Volcker increased interest rates to over 15%.
A deal was made that they had to sell their hoard of physical over some time to pay taxes.
That stopped any rally in the price well below the old high.

The low in 1980 for silver was over 10$ in London fix, hardly an all-time-low.  
Sorry, I do not have my regular computer where i could point out sources for the statements.

Thu, 01/06/2011 - 22:41 | 854871 AUD
AUD's picture

Can somebody actually explain how this supposed price suppression actually works?

To just say JP Morgan is naked short paper silver or gold means nothing since somebody is taking the opposite position. Somebody is voluntarily 'buying' paper silver from JP Morgan & if an arbritage between paper & physical is taking place it works both ways, somebody is still 'selling' physical for paper.

Thu, 01/06/2011 - 23:05 | 854922 watchingdogma
watchingdogma's picture

Sure - I'll take a stab.  First - they have access to the offers and bids - so they can see what's required to make a raid.  Once they decide to make the raid, they hit every bid with paper (naked short silver) - take all of the bids until the price is low enough for the weak hands to start shaking in their boots and start selling as well.  Then, when they have the weak longs selling, they cover the shorts they initially created, plus hopefully a lot more in the money shorts.  Then they buy some longs.  Then they stop hitting the bids, and the price starts to rise again.  The weak longs buy back (or stop selling) so they now have longs under the weak longs - until they decide to do it again.

Actually - it's pretty simple if you can use unlimited resources to hit the bid (or the offer the other way around) - that's why there are suppose to be position limits or valid hedging.

Fri, 01/07/2011 - 01:46 | 855172 AUD
AUD's picture

To cover their short position JPM must take a long position, what makes you think that anyone will 'sell' their long position to JPM after a big drop in price?

Ok, futures is done on margin & longs may be forced out of their positions on big drops in price but it serves them right for playing & losing the game, no one forced them to go long against JPM in the first place. Seems to me they are speculators.

No, I still don't see this price suppression thing as reality. If the 'longs' were valid hedgers it means they would be able to buy physical at a cheaper price anyhow, thus their need to purchase physical at some point in the future is hedged against price movements.

And nothing I read on this supposed suppresion explains the arbitrage between physical & paper. For the futures markets to operate either no one is demanding delivery of physical, which makes the whole market just a speculative bubble & who gives a shit if 'longs' lose out? or, someone is actually 'selling' (really loaning) physical for paper & rolling over their loan in perpetuity so who gives a shit if they lose out? It's their own stupid fault if they lose.

Fri, 01/07/2011 - 01:10 | 855126 famousamos
famousamos's picture

Mostly naked shorting for raids, but long term they create artificial supply of silver with the creation of unbacked SLV paper. Paper silver suppresses physical silver since there is at least 100:1 ratio, which is great as long as you were/are buying physical silver and holding. Everything is fine until people want delivery of the alleged physical backing their paper. Historic rice suppression has been established as fact. The 8am-10am take downs are fact, may be a big one tomorrow.

Lehman didn't have any silver in it's silver in it's vaults when it went BK even though they were charging storage fees - so there is a precedence.

Fri, 01/07/2011 - 01:11 | 855131 famousamos
famousamos's picture

"rice" suppression bitchez!

Thu, 01/06/2011 - 23:34 | 854972 Mercury
Mercury's picture

I'll tell you who was taking physical delivery back then for sure: silver thieves.  $40, $50 was a lot of money back then. 

I know of one well-to-do suburban enclave where 100+ family silverware collections got knocked off big time.  Some fancy boutique got their Rolodex swiped one day and that became the hit list - bam, bam, bam.  Not a lot of high tech domestic security among the country club set back then.  The crooks had a van with some sort of (electric?) melting furnace in the back so the evidence could be converted into bricks before anyone even knew what happened.

Something to think about if the price keeps ramping and you have any of the good stuff laying around.

Thu, 01/06/2011 - 23:40 | 854997 eftian
Fri, 01/07/2011 - 00:06 | 855029 mt paul
mt paul's picture

bunky was asked

" just how much silver do you own "

his response was 

" only the lord and me knows , and he ain't talking "

i sold at 42 $

just because ... 

Fri, 01/07/2011 - 00:50 | 855085 cadejludwig
cadejludwig's picture

Buy the fucking METAL!!!

http://www.xtranormal.com/watch/8221023

Fri, 01/07/2011 - 01:10 | 855128 chindit13
chindit13's picture

If I remember correctly, what happened was that the exchange changed the rules allowing "liquidation only" of existing positions.  Back then the power on the exchange rested in the hands of the big bullion house, most of whom were part of the small group (five for gold, three for silver) setting the London AM and PM fixes (interesting choice of word).  As I recall it, one of the firms being hurt the most by silver's meteoric rise, analogous to today's JPM, was Mocatta Metals, run by Henry Jarecki.  It was rumored back then that it was Jarecki who demanded the rule changes.  The Hunts had leveraged their position, much through Bache.  Many of the Saudis were not leveraged, but the capricious rule changes spooked them, so even if the likes of Abdullah al Suleiman, Ghaith Pharoan, Mohammed Aboud al Amoudi, Akram al Ojjeh, Kamal Adham, and the al Rajhi Family still had the cash to play, they bailed.

Then again, perhaps I don't remember correctly.

Fri, 01/07/2011 - 01:43 | 855180 deepsouthdoug
deepsouthdoug's picture

I'm pretty sure that was one of the steps - maybe the first one.  The other step, which came out on a different date was to limit the number of contracts a party could hold. 

Fri, 01/07/2011 - 04:10 | 855349 Boxed Merlot
Boxed Merlot's picture

If I remember correctly...

 

There was also the matter of their Sunshine Mining Company in Coeur d'Alene, Idaho.  At the time they were one of the largest producers and were expanding into gold exploration and production when the fiat producers had to circle the wagons and take this upstart down. 

Their aim to actually provide a competing "money" in terms of tangible assets could not be tolerated.  I still have 1980 era Ag rounds with "freedom", "liberty" and other threatening slogans stamped on them.  It's no wonder the rules had to change and they were forced "to shut her down".

That's the way I remember it.

 

 

Fri, 01/07/2011 - 01:10 | 855129 bob_dabolina
bob_dabolina's picture

I had sex with Blythe Masters last night

He is good in bed.

Fri, 01/07/2011 - 01:20 | 855148 Hephasteus
Hephasteus's picture

Did he shit on your chest and call it a mortgage backed security or a commodity derivative product?

Fri, 01/07/2011 - 05:18 | 855384 bob_dabolina
bob_dabolina's picture

Naw...

It was on my ass...he shat a silver coin on my ass.

However, it was wrapped nicely in copper foil.

Fri, 01/07/2011 - 02:03 | 855209 merehuman
merehuman's picture

Blythe had a sexchange?

Fri, 01/07/2011 - 03:41 | 855324 eigenvalue
eigenvalue's picture

Blythe Masters is SHE not HE

Fri, 01/07/2011 - 05:22 | 855387 bob_dabolina
bob_dabolina's picture

Well he (she) fucks like a man.

Is it men or women that have a penis? Or is Blythe that one exception, ya know, that penis that also happes to be a vagina. It's a JPM thing.

Fri, 01/07/2011 - 01:44 | 855163 deepsouthdoug
deepsouthdoug's picture

This is a lame explanation.  The Hunt's and some of their buddies were also very long into silver futures.   The CFTC changed the rules of the game and limited the number of contracts one trader could hold. 

I remember reading in the WSJ that all the big name brokerage houses were pleading with Volcker to change the rules or they were going to be wiped out.  I foolishly thought the government wouldn’t do anything to change the rules. 

I know this because I too was long silver futures contracts.  I thought I was one day away from retirement.  WRONG!

I was lucky - the liquidation wasn't too bad.  Margin calls are excellent ways to learn about leverage ;-)

 

Fri, 01/07/2011 - 02:11 | 855219 The Third Man
The Third Man's picture

http://www.silvermonthly.com/182/bunker-hunts-attraction-silver-history-cornering-silver-market/

 

 

Bunker Hunt’s Attraction to Silver: A History of Cornering the Silver Market J.D. Seagraves |

The 1983 Hollywood comedy, Trading Places, offered many laymen their first glimpse at the hustle-and-bustle world of commodities trading. The film features a pair of imperious billionaire brothers, the Dukes, who attempt to add to their fortune by illegally manipulating the price of orange juice in the futures market.

The protagonists, played by Dan Akroyd and Eddie Murphy, foil the brothers’ plot and leave the Dukes disgraced and penniless. But although the movie was a work of fiction, the Duke characters were in fact based on a pair of real-life brothers—Bunker and Herbert Hunt—and their story is truly stranger than fiction.

H.L. Hunt and Heirs

He Hunt Brothers’ story begins with their father, H.L. Hunt, who, when he died in 1974, was the richest man in America. But despite his sons’ affinity for the precious metal, H.L. Hunt was not born with a silver spoon in his mouth. To the contrary, H.L. left home at sixteen and worked as a dishwasher, a mule-team driver, a logger, a farmhand, and a construction worker, before finally finding his true calling—poker.

By age thirty-six, poker had made H.L. Hunt a small fortune, which he rolled into his next investment—Florida real estate. After profiting from that boom, Hunt took the proceeds and began drilling for oil. This is how he became the world’s richest man—always taking bigger and bolder risks, and routinely coming out on top — at least in his business life. On the personal front, H.L. had a little more than he could handle.

He had one wife in Texas and another in Florida—at the same time, and separate families in both states. When his first wife died, he took a third wife with whom he had already had four children. All in all, he had fifteen sons and daughters, many of who went on to become moguls in their own right. Bunker and Herbert were chief among them.

From Failure to Extreme Wealth

Nelson Bunker Hunt (who went by “Bunker”) was born in 1926, the second-eldest son of H.L. and his first wife, Lyda. Their eldest son, Hassie, had a mental condition that ultimately led to a full-frontal lobotomy, but prior to that, Hassie had struck out on his own in the oil business, amassing a considerable fortune before his twenty-fifth birthday.

With Hassie incapacitated, Bunker was the heir apparent to his father’s fortune. He owned and operated Penrod Drilling Company with his brothers William Herbert (who, like his brother Nelson Bunker, also went by his middle name) and Lamar, and Placid Oil Company with five of his siblings. But Bunker would gain the most notoriety—and wealth—for his individual efforts in business.

Initially, Bunker’s own ventures were not very successful. He lost $11 million drilling in dry holes in Pakistan, and after leasing two tracts in Libya, he eventually had to sell a 50% stake in one of them in order to meet cash-flow demands. By twist of fate, that tract held the largest oilfield yet discovered in Africa, and in 1961, Bunker surpassed his own father to become the richest man in the world (excluding monarchs and despots).

Bunker’s Attraction to Silver

In what is widely characterized as one of the most draconian acts in the history of the United States government, President Franklin Delano Roosevelt signed Executive Order 6102, “The Gold

Confiscation Act,” on April 5, 1933. For the next forty-one years, it was illegal for U.S. citizens to “hoard” gold. With gold, the traditional store of wealth, out of the question, Bunker Hunt decided to hold his oil profits in silver.

The early 1970s were a prosperous time for Bunker. His Libyan oil leases were producing $30 million a year, even as oil was priced at just $3 per barrel. But nevertheless, Bunker did not like what he saw when he surveyed the global economic landscape. Years of post-New Deal Keynesianism was starting to catch up with the U.S., and inflation was gaining steam. The war in Vietnam was unpopular, and people were rioting in the streets.

Confidence in the federal government was at an all-time low, and the Middle East—where Bunker held so much of his wealth—was extremely volatile.

Silver was just $1.50 an ounce when Bunker and his brother Herbert began buying it in 1970. Over the course of the next three years, the brothers purchased approximately 200,000 ounces of the precious metal, and saw it double in price to $3 per ounce.

Then in 1973, Moammar al-Qaddafi nationalized Bunker’s oil fields and demanded a 51% royalty. Understandably, Bunker was furious. He was incensed that the State Department didn’t do more to defend his property, and he was also angry at the major U.S. oil companies for not taking a tougher stand against Qaddafi.

He blamed his long-time rivals, the Rockefellers, whom he considered to be pseudo-socialists, for the loss of his Libyan oil filed, and Bunker firmly believed that the U.S. was on the road to serfdom. As a hedge against what he saw as the inevitable, Bunker ramped up his silver buying.

Silver Mania: 1974 to 1980

By 1974, Bunker and Herbert had accumulated futures contracts for approximately fifty-five million ounces of silver—8% of the global supply at that time. But rather than selling the contracts to turn a profit, as most commodity traders do, the Hunt brothers had every intention of taking delivery of their silver—and they didn’t intend to keep it in the U.S. either.

The conservative Hunts, who were members of the John Birch Society, believed another government confiscation was on the horizon, and since the feds had already taken gold, silver would be next. Thus, Bunker and Herbert chartered three 707 jets from Texas to Chicago and New York—in the dead of night—and loaded them with forty million ounces of silver to be whisked away to Switzerland for safe keeping. The remaining fifteen million ounces stayed in the U.S., but the Hunts would assume no greater risk.

By that spring, silver doubled again to $6 per ounce. Rumors abounded that the brothers were attempting to corner the market, thus sending prices higher. The Hunts met with the Shah of Iran and the King of Saudi Arabia, and although the Shah snubbed them and the King was eventually assassinated, the Hunts eventually began working with a Saudi sheik who was thought to represent his nation’s royal family. By 1976, the brothers had accumulated another twenty million ounces of silver, and by ’79, the price had risen to $8 an ounce.

By this time, there was a legitimate silver shortage. Over forty-three million ounces were purchased through the COMEX and the CBOT, with delivery scheduled to take place that coming fall. This caused the price to double yet again, this time from $8 to $16 an ounce in just two months. The COMEX and CBOT attempted to place new restrictions on the ownership of silver, but the Hunts bought even more, and soon the price had reached an astonishing $34.45 per ounce!

The price of silver continued to climb. On January 17, 1980, it hit $50 an ounce. At that time, the Hunts held $4.5 billion in silver—a $3.5 billion gain on their $1 billion investment. The various limitations and rules changes imposed by the commodities markets had no effect but to push the price of silver higher, until finally the COMEX announced that it was suspending the trading of silver and henceforth would only accept liquidation orders.

Of even greater significance, Paul Volker had been installed as the Chairman of the Federal Reserve, and Volker was determined to get runaway inflation under control. The Chairman abruptly raised interest rates, thus soaking up the excess liquidity which had helped fuel the silver boom. The price of an ounce quickly dropped to $39, and by March 14, it was down to just $21.

Nevertheless, the Hunts could have made billions if they had known when to get out of the market. But alas, as the price of silver fell to $21, the brothers had future contracts obligating them to buy at upwards of $50 per ounce. On March 25, 1980, the Hunts couldn’t make their $135 million margin call, and Bunker phoned his brother Herbert with three ominous words: “Shut it down.”

Is Silver Manipulation Happening Again?

Silver closed at $21.62 per ounce on Wednesday, March 26, 1980. But the following day—the infamous “Silver Thursday”—saw the value of the precious metal decline by more than 50%, closing at just $10.80. The Hunts had assets of $1.5 billion but liabilities of $2.5 billion—making them the greatest debtors in the history of finance (excluding governments, of course). Ultimately, they had to be bailed out by their despised enemies, the New York banking establishment, who issued them $1.1 billion in credit to make good on their obligations.

In 1988, Nelson Bunker Hunt filed personal bankruptcy and was convicted of illegally attempting to corner the market in silver. But don’t shed a tear for Bunker—the trusts set up for him by his father are currently valued at more than $200 million. Bunker exited bankruptcy in 1989, and had satisfied a $90 million debt to the IRS by 2006. Even more so than his commodities-market exploits, he is best known as a owner-breeder of thoroughbred racehorses, for which he has won numerous awards.

The message of the Hunt brothers story is a lack of financial education can be the downfall of any silver investor—even billionaires. In many investors opinion, it is much preferable for investors to hold silver as bullion or, alternatively, through the indirect ownership of silver mutual funds. Although, individual financial education is required for success in any market.

Although it is unlikely that a pair of wealthy brothers could corner the market in silver today, the short ratio of silver is quite high, and upwards of 90% of these short contracts are held by just four traders.

Precious metals are typically held as a hedge against government mismanagement of fiat currency, but the silver market seems poised for yet another dramatic swing.

 

Fri, 01/07/2011 - 03:38 | 855321 eigenvalue
eigenvalue's picture

I don't think the silver shorts will be lucky again like in 1980. Raising interest rate means suicide to the US. Just like Rome, it survived numerous attacks by the barbarians but in 410 it fell.

Fri, 01/07/2011 - 03:40 | 855322 sodbuster
sodbuster's picture

The Fed Reserve was fully involved in putting the Hunts out of business.

Fri, 01/07/2011 - 02:54 | 855282 bob_dabolina
bob_dabolina's picture

Shorting silver has never felt so good.

Fri, 01/07/2011 - 04:41 | 855360 chinaguy
chinaguy's picture

Silver getting hit in HK tonight

Fri, 01/07/2011 - 04:59 | 855374 eigenvalue
eigenvalue's picture

People are cautious before tonight's NFP data.

Fri, 01/07/2011 - 04:58 | 855373 bob_dabolina
bob_dabolina's picture

WTF just happned?

I just had 75 cell phone calls...

I got nothin...

 

Fri, 01/07/2011 - 05:00 | 855376 eigenvalue
eigenvalue's picture

hookers?;)

Fri, 01/07/2011 - 05:05 | 855379 bob_dabolina
bob_dabolina's picture

I wish lol...

I'm hearing something about a European default.

Fri, 01/07/2011 - 05:12 | 855382 eigenvalue
eigenvalue's picture

You mean even hookers are talking about European default these days? Wow...;)

Fri, 01/07/2011 - 05:25 | 855380 bob_dabolina
bob_dabolina's picture

.

Fri, 01/07/2011 - 05:29 | 855391 bob_dabolina
bob_dabolina's picture

Good time to buy silver...I would buy some if my dealer wasn't asleep.

Mother fuckers need to answer their phones.

Fri, 01/07/2011 - 07:28 | 855471 ciscokid
ciscokid's picture

I can sense a note of warning in this article.

Can we have topped on the silver prices? 

Fri, 01/07/2011 - 09:16 | 855554 fiftybagger
fiftybagger's picture

There was a whole lot of government shenanigans going on behind the scenes helping to bankrupt them.  Remember when Buffet bought those 110 million ounces and took delivery in London?  Remember when he sold them?  Remember when he said he wasn't going to talk about it again?  The Hunts made a number of mistakes.  But they were also up against the most corrupt cabal in history, who wouldn't think twice about napalming a retirement home or orphanage if they thought they could profit from it.

You say they were worth a collective 13 billion?  The price of silver was 2 to 5 bucks from 1972 through 1977.  They could have easily accumulated a few billion ounces before they put the price up on themselves.  Then they could have borrowed small amount against it and continue to acquire more.  They truly stumbled upon a genius of an idea, but their execution was terribly flawed.  They also underestimated the pure evil they were up against.  As Jesse Livermore once said, it is hard to hedge against guys who change the rules when they lose.

Think about this.  We would be far better off as a nation if the Hunts would have succeeded.  As it stands now, the US Mint has to buy silver from overseas to mint the Eagle, as demand for the coins has outstripped the entire yearly mine output.  We should have listened to the Hunts, they were right...

 

http://www.mrci.com/pdf/si.pdf

http://www.youtube.com/user/BrotherJohnF?feature=mhum

 

Fri, 01/07/2011 - 10:15 | 855820 RacerX
RacerX's picture

"As Jesse Livermore once said, it is hard to hedge against guys who change the rules when they lose."

+1: Quote of the week.

Fri, 01/07/2011 - 09:14 | 855574 RexZeedog
RexZeedog's picture

I was in college back during the Hunt Silver Bubble. The rise was so steep, that I was able to buy retail (coin shop) and sell retail (same coin shop) and make over 50% in 90 days. It was sweep. FYI: The bubble burst because margin requirments were changed and the Hunt's couldn't meet margin calls. At the time, there were some news reports that some CME board members were short silvr and changed the requriments to bust Hunt and save their asses

Fri, 01/07/2011 - 09:25 | 855588 RexZeedog
RexZeedog's picture

sweet

Sat, 01/08/2011 - 13:45 | 858778 fiftybagger
fiftybagger's picture

The Hunt Brothers Remembered - Office Series Part 6

http://www.youtube.com/watch?v=Xj4yIYuhW80

Do NOT follow this link or you will be banned from the site!