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Silver Tales
Nice move in silver today. We are now in uncharted waters. I think what
happened long ago with “Bunky” Hunt was just noise. We are at the high.
This was going to happen sooner or later, so no big surprise. I do
wonder, “Why today?”
The inflation numbers were a tad hotter then expected. The news from the
Mid East was unsettling. I heard some guys talking on TV that those
stories are what made silver yank higher. I doubt that.
Gold was up only .7%, silver +3.6%. The currency markets did not move
much and bonds were up 10 ticks. Today just happened to be “silver day”. For sure the background story was all about the upside. Even guys like me have been writing that backward = bullish.
I think today’s move was a big spec (or two) putting real money on the
table getting long (or longer). Keep in mind that silver is not such a
big contract. There are (at least) two-dozen names that have the ammo
and the balls to kick silver up a few notches.
The March and May contracts both traded actively and ended at 31.74. This means there is no cost to roll a position. I clear incentive to get long. For leveraged players the “no carry” trade is a place to go.
I like this result. The market(s) have been way too quiet of late.
A win for the hot money in silver will just create the opportunity to
lean on some other vulnerable market that is set for a nice move. Gold
and crude sure come to mind. Long bonds of all stripes are on the list.
Speaking of crude, look what is being paid for physical delivery down in
the Gulf. The WTI is simply not telling the story of what energy is
costing us. $4 gas is staring us in the face with this crude cost:
Old Story
For about a year or so back around 84 I ran Citybank’s (now C) bullion
vault at 399 Park Avenue. This was just a corporate screw-up. The guy
who had management responsibility for the vault got transferred to Hong
Kong and so there was a hole in the Org Chart. I was running other
profit centers and that was working out so they gave me another.
Fortunately for me there were two guys who ran the vault and did a fine
job at it. There was a lot of money to be made
receiving/storing/shipping bullion.
One of the things I did was take people down to give a tour. It was a
pretty good show. In my mind's eye it was as big as a basketball court.
There were sections that had gold and palladium. Tons of it. But the
staggering thing was the silver. It was piled in 200lb bars up to
ceiling. They moved it with big forklifts. Hard to describe the scope of it.
This was Bunker Hunt's silver. It was a good chunk of the 100mm ounces he bought.
The Hunt story blew up in late 79. Keep in mind that numbers then are
like today except add another zero. Citi was a very big lender to the
Hunts ($115mm). First Chicago was out $70mm. National Bank of Dallas had
syndicated a loan for $450mm. All the banks had a chunk of that swill.
The worst part was the broker loans. Pru Bache had margin loans of
$200mm, Hutton another $100mm and the idiots at Merrill had a $500mm out
on margin.
So this was a systemic problem. (Again, a rounding number today)
Paul Volker had taken over the Fed just a few months before all this
happened. Inflation was raging at the time. It was his intention to shut
that down and he ultimately did. And along the way he killed the Hunts.
He also killed the banks that financed the Hunts. He told the banks to
eat the losses and store the silver until it could be sold without
consequence. Volker played hardball with the likes of Walter Wriston,
and they all backed down. Paul made his “rep” at the expense of the
Hunts.
The run up in silver (and gold) made Volker look bad. The PMs were the
daily signs of his inability to rein in inflation. So he crushed them.
Volker set the stage with this one. It was understood that he was not to
be messed with. Later he crushed the bond market. All that because
inflation got a bit out of hand. Funny how history keeps coming back at you.
So that’s my Bunky story. I’m sure that there are still mountains of
silver under Park Avenue. But all that Hunt silver is long since gone by
now.
One Saturday morning at 4 am back then I get a call.
Are you BK?
Yes.
Do you work for Citybank?
Yes.
Are you the guy responsible for the bullion vault?
Yes.
There has been an accident. The Number 6 southbound local train has
derailed at 53 and Lex. The lead train crashed into the wall. The crash
has set off every alarm in your vault. The noise is deafening. What
should we do?
Call the police!
This is the police!
It took hours for me to figure out how to turn off an alarm system on a Sunday morning. The cops were pissed. Just old stuff...
»
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Wildly entertaining Bruce, but is it a cautionary tale?
Fun story, BK, thanks.
too bad i cant hoard some crude to go with my silver
though i actually know several people with 500 gallon tanks of stabilized gas
gotta remember to buy bolt cutters before the shit hits the fan...
So you know several farmers? Good for you.
What are you going to do with the bolt cutters? You will need a shotgun more to keep people from stealing your gas (like the illegal Mexican laborers in the midwest).
Uh, deisel is the fuel on the farm.
Die Hard 3!
DavidC
"Keep in mind that numbers then are like today except add another zero."
1000% inflation is glossed over. That is the real story, and makes the Hunts look like amateurs.
Cherry-pickin', I know, but the tour should have included the pinstripe-racketeering on every floor. Too bad it was too early for TARP bonuses, your tour dynamic may be different today.
don't be so precise it makes probability theory redundant
###The WTI is simply not telling the story of what energy is costing us.
JUNK FROM ASSHOLE WHO KNOWS ZERO,,,
when did you check oil physical import stats last time ?
I do regularly.. its kind of interesting .. you might know USA is 25% of
oil world consumption and import more then 50% of usage.. so its kind of important..
so here's figures from
http://www.census.gov/foreign-trade/statistics/press-release/index.htm
its physical import, 12 month rolling sum, in 1000 barells, 1st column all
petroleum products, 2d - oil
dec 1999 4,081,179 3,228,092
dec 2010 4,278,477 3,377,701
so physical import/demand increased by 3-5% over 11 years period,
population increased by +-30 mlns( >10%) ,but price increased by factor NNN
do you remember oil price back in 2000yy ? I do..
oil must cost no more then 30$ in USA, cause %25 of population un/underempl and 43+ mln on food stamps don't drive too much and if you think Americans switched into natural gas, check out gas price..
picture is clear down..
so what's the reason for spread? I'd say its speculation and money printing
by FED..
1st is easy to stop.. hike margin reqs on exchanges and stop funny paper oil trading.. ONLY PHYSICAL DELIVERY CONTRACTS.. please..
2d is impossible.. 2 trln $ budget deficit is not joke..
alx
I don't have my standard links on hand to refute this argument... but why don't you post this over at theoildrum.com You will learn much, grasshopper.
@Alex: Disrepectful, but largely accurate.
its 100% accurate upto the decimals after commas..
alx
it could be safely argued that unless you're actually weighing and counting those barrels as they come in/out, the decimal places 'they' give you are not likely worth the ink they're printed with.
gold, silver, oil, rice, stocks, bonds/treasuries ... it's financial whack-a-mole.
how many tokens do we have left?
No its not all the same, at all, despite the homey tale of nostalgic ennui. Unless by 'all the same', you meant a corrupt CFTC?
1. In 1980, we had huge silver surpluses. Now there's probably a billion ounces total.
2. Despite his muted threats to raise rates on 60 minutes; that inflation could be halted in 15 minutes, Bernanke isnt Volker, and 2011 definately isnt 1980, is it? He's not going to raise rates on a 14 trillion dollar debt, is he?
You dont happen to have any pictures of all that silver you could post for us by any chance, do you?? No? Pity....
Enough of the revisionist history, Bruce!
Bunky Hunt was not screwed by Volker!
He was screwed by Jarecki, Mocatta Metals, and the other bullion brokers who were short, in collusion with the Nymex board which changed the rules and said that large specs with long positions could no longer add to them or take delivery, but could only sell.
It is a warning to all of us that paper is paper and the futures markets are designed to make money for the commercial shorts. When they start to lose the rules change.
Bunky's offense? Wrong temple!!
Sorry, but that is the truth!
+1
jeez man you sure you want to be bullish on silver....china shanghai down close to 2%.
commodities are locked in a bull market death run. and the ETF market...F**** once the HFT's will kill it...
As far as the timing on the silver move, I wonder if it has to do with the COT reporting period? The numbers from today's trades won't come out for a week?
Thanks, Bruce.
I especially liked the part when the Fed chairman had balls.
Zimbabwe Ben has huge brass ones! It takes stones to go on TV and say "I don't accept you premise" when asked about both the housing bubble and commodity prices. It takes stones to run a 100% wrong prediction record. Come on would you go on worldwide TV over and over again and tell open, blatant lies? It takes balls to be the faceman for the engine of poverty and destruction that will pillage the globe. Attila the Hun had balls right?
Now maybe he doesn't have the balls to be taken alive (nor would his masters allow that), but come on they guy is going to be a lot more famous then Volker well ever be.
OK ok, I'll accept your premise.
I don't normally associate completely ignoring your job description (and reality) with courage, but you make a very strong case.
" I don't accept your premise.." is synonymous with "I reject your reality and insert my own..." hompum with large doses of Valium help with reality rejection, no balls, stupidity.
Is it possible that silver is/has been ramping more than gold because what is being priced in is the consensus that during a crisis you have a better chance of actually receiving delivery of physical silver than physical gold?
Is the ratio of aggregate paper and derivitive claims to gold vs. the actual amount of available physical gold coins and bullion greater than that same ratio for silver?
I think its the opposite. I think the real world available supply of silver is tighter v paper contracts , which would explain yestredays move and the backwardation.
There might be more silver in the ground than gold but we havent invested in more productive ways to get it out.
Im waiting for JPM to securitize known reserves.....
back in the day, bankers were respected.
Volker was feared. Maybe better that way......
Do you fear the Fed Brucie?
Seems you like that relationship, and having strong regulators, authority figures zzzzzZ
Much easier to defeat the Hunt elephant than the army ants of worldwide retail.
depends on how many of the ants are running trailing stops on their e-trades (oh, around 8% - i won't get greedy here) vs the ones who are buying the metal to give to their grand-kids...
great article mr krasting. tnx.
Very few funds and other whales are diversifying into gold. Publicly they remain silent on PMs.they must get their instructions from the Fed through CNBC coded messages. Whenever they do it will explode.
The Chinese are onto it already. The funds and hedgies must know they can't wait much longer.
PMs are the front line on the banker wars and their debt economy.
Key phrase! This blow up will be bigger and take down a lot more people.
Comex -- look out.
""Key phrase! This blow up will be bigger and take down a lot more people."'
...Why "War is merely the continuation of politics by other means."....
http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/02/why-war-is-merely-continuation-of.html
U.S.A Building Islam to Create War?....
http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/02/usa-building-islam-to-create-war.html
Was USA debt greater than GDP in 1984?
If history doesn't repeat itself but rather it rhymes, consider this to be the ultimate [ReMix]
I worked in 399 park for about 3 yrs. Who knew I was sitting on top of all that shiny stuff.
I worked in 399 park for about 3 yrs. Who knew I was sitting on top of all that shiny stuff.
So did I. I wish I'd know. I'd have gone down and taken a peek as i was a Citi guy at the time.
"The run up in silver (and gold) made Volker look bad. The PMs were the daily signs of his inability to rein in inflation. So he crushed them...Funny how history keeps coming back at you"
and now?
good ol tale.
silver surfin late night with bk.
nize.