The Hunt Brothers The Hunt Brothers: Poor Little Rich Boys: Silver Spoon to Silver Debacle, How 2 Billionaire Oil Boys From Texas Destroyed the Silver Market
by Kevin Kerr
Whiskey & Gunpowder
New York City, NY
November 19, 2005 Kevin Kerr recounts his personal history in commodities trading, and also tells the story of the Hunt Brothers, who tried and failed to corner the market on silver in the late 1970s.
Greg's note: Below, Whiskey contributor Kevin Kerr offers his personal history in commodities trading. He talks of his time working with Enron, his early days in the cotton pit, and describes some of the shady characters he ran into over the years. Then, you'll get the story on the hunt Brothers, who tried to corner the silver market in the late 70's...please send any opinions on this article to your haggard managing editor here: greg@whiskeyandgunpowder.com
Poor Little Rich Boys: Silver Spoon to Silver Debacle,
How 2 Billionaire Oil Boys From Texas Destroyed the Silver Market "The human weakness for greed is as old as the species itself. But the economic growth and technological innovation that powered the 20th century provided the chaotic backdrop that allowed unseemly business activity to flourish." - Richard Sylla, professor of economics, Stern School of Business, New York University
ONCE UPON A TIME ... As with most fairy tales, this one will start out in the accustomed format, but with a couple of small twists. There is really no happy ending, at least not yet, and it's all true. In the summer of 1989, I was returning from a three-month trip to Europe after attending New York University and the University of Southern California, full of hopes and dreams and, most of all, empty pockets. Let's face it, even a degree in philosophy with honors doesn't open up a clear-cut professional pathway. What was to be next? Law school, real estate, McDonald's? I'm sure that all parents have that dream of their child stepping up to the podium and saying, "I would like to thank the Nobel Foundation." Then there's that other dream where the kid is saying, "Would you like fries with that?" Well, suffice it to say I am not at either end of that spectrum, but the way my career path unfolded wasn't orthodox, and I wouldn't have it any other way. In my almost 18 years in the commodities business, I have seen an incredible amount of changes. I have had quite a career, and it gets more interesting every day. The Hunt Brothers: Living History In my years of trading and acting as an adviser and broker, I have seen markets come and go, brokerage firms come and go and every type of scam known in the industry. The good thing about getting older is the experience and wisdom it provides. For example, I worked in the World Trade Center for years and used to park my car every day on the same level on which the bombs went off in 1993. I worked with Enron when I was a young man as an over-the-counter derivatives broker for a major English derivatives firm. We imagined it would never go out of business...we thought that about Arthur Anderson accounting and Refco too... I actually met Nick Leeson before he was infamous at an International Swap Dealers Association meeting in New York, of which I was a member. We are both the same age, actually; needless to say, he chose one path and I chose another. In case you don't remember, he is the "rouge trader" who supposedly single-handedly brought down Barings Bank, another one nobody thought would ever collapse, not even the queen herself, for she had an account there. According to CNN/MONEY, the past years have seen their share of "financial sordidness." Martha Stewart, to name a popular one. "Martin Frankel, a Connecticut money manager, was arrested in Germany in September [1999] after a four-month international manhunt. Frankel is accused of bilking more than $200 million from insurance companies in five states and using the money to buy mansions, cars, diamonds and gold."
And "the former chairman and CEO of Keefe, Bruyette & Woods Inc., James McDermott Jr., was arrested and charged with insider trading. Federal authorities allege that he passed inside investment tips to a porn actress with whom he had a relationship." The list of scandals goes on and on. However, I have also been fortunate to work next to legendary traders who never cheated or stole anything and still made a fortune; I choose to emulate them. I will never forget the first week I was on the floor and an old-timer on the cotton exchange told me, "Son, you can make a lot of money here, but there are no shortcuts, remember that. Be true to yourself." And I always have. So as I said, I was very fortunate to work with some very famous, and some much more modest, but equally talented, individuals. [ Quick Greg's note: Speaking of cotton, just this year, Kevin's shoveled in some massive cotton gains in Resource Trader Alert. Gains like 135%, 96%, 154% and 89%. Not too bad from the boring white fluffy stuff...of course, cotton aint the only commodity he plays. So please look here for your chance at these stellar trades. http://www.agora-inc.com/reports/RTA/ERTAFB30/ ] I am working feverishly on my new book, The Maniac Trader's Guide. It's an amazing experience to actually have lived history. It truly is like a fairy tale. Only a few years before my arrival at the Commodities Exchange Center, one of the greatest scandals of our time happened on that very floor. The Hunt Brothers: Last Bastion of Pure Capitalism on Earth As I walked into the old Commodities Exchange Center, located on the fifth floor of the old 4 World Trade Center, on an early morning in late summer 1989, little did I know my life would change forever. All I was thinking about was my new $22,000-a-year job and having money to buy food. A few months earlier, my good friend and fraternity brother Tim helped me land a job with his twin brother, David, on the Cotton Exchange. Tim's other brother, Thomas, was also a member of the New York Cotton Exchange and started working on the floor right out of high school. He began his career on the COMEX, where gold and silver were traded. Back then, the COMEX was the most expensive seat on the trading floor, and also the most prestigious. Back in the day, the trading badges were green, cotton was orange and the rarely seen gold-colored badge meant you could trade on any market on the floor, from coffee to cotton and from crude oil to orange juice. The NYMEX was still fairly new and not as coveted, and NYMEX badges were yellow. Anyway, I made my way up to the fifth floor of the World Trade Center. I was dressed in a suit and tie, and it was pretty much the first and last time, at least on the trading floor. As I got my temporary security badge, I peered out onto the vast trading floor. It was completely dark and silent. But it wouldn't remain that way for long. I had arrived around 6 a.m., before the exchange came to life. So I walked around the floor in relative darkness, looking at the glowing of all the old terminals, watching the old clackboards on the walls as some of them changed with the night markets. And the distinctive sound of all of the time stamps on the floor snapping at once with a big "thwump" at the half-hour mark. The floor was carpeted and without a scrap of paper on it - not so much as a paperclip. The ceilings soared three stories in the air, and the trading pits were raised above the floor. I knew the minute I walked around the old exchange I was home. The Hunt Brothers: Trial by Fire Once the lights came up and the bells rang, I learned very quickly to take my tie and coat off and put on a trading jacket instead. After all, we were preparing for battle each day. I was instantly initiated into some type of insane fraternity like no other I had seen before. The pace was frenetic: pens and pencils being thrown; screaming and more screaming; and paper, paper everywhere. Now not only was there paper on the floor, but I couldn't see the floor anymore. Back in the old days, we didn't have all these newfangled high-tech computers and hand-held devices, no! ~~~~~~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~~ Hurry up - Only 7 Days Left to Triple Your Money in Six Weeks or Less... Just give me 4 minutes a week. And I'll guarantee I can show you how to triple your money over the next 6 months...plus pump up your total trading gains by up to $2.5 million over the next 3 years... Even if I have to give you all my best trading secrets and picks absolutely FREE! http://www.agora-inc.com/reports/RTA/ERTAFB30/ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ We used paper and trading cards. Looking back on it now, people on the floor can't even imagine what it was like. At the end of all of this chaos, the bells rang again, and I was so mentally and physically exhausted that I couldn't see straight. But even so, I loved it. And thus, your Maniac Trader was born. In the days and weeks that followed, I learned many things, but what I value most were the stories I remember hearing from people who had been down there for 25-plus years before I arrived. One of their favorite stories was the one I will share with you now. Sign Up for Whiskey & Gunpowder
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The Hunt Brothers: Silver Spoons and Blood Brothers
One of my favorite stories from the old-timers on the floor was the story of the Hunt Brothers' Silver Market Debacle. I will share with you the history of these events as told to me back then by COMEX (the former Gold Exchange) members, traders and old-timers in my first weeks of working on the floor. In the late 1970s, two Texas oil barons with no shortage of money or guts moved to corner the world's silver market. William Herbert Hunt and Nelson Bunker Hunt had been accumulating silver for years, and the only way they could make their scheme work was to partner with some wealthy Arabs. At first, their timing seemed brilliant. The Hunt Brothers had hit a gusher, so to speak, when the price jumped in 1973 from $1.95 per oz. to $5 in 1979. During that critical six-year period, the Hunt Brothers had amassed the equivalent of approximately half the world's deliverable cache. They also managed to help drive the price even further to above $54 per oz. By March 1980, just when the Hunt Brothers were sitting pretty, the Federal Reserve pulled the rug out from under them by changing important COMEX trading rules. Suddenly, silver plunged 50% on March 27, 1980 -- a day that will live forever in the hearts of us traders. The high-flying Hunt Brothers had crashed big time. They became one of the biggest bankruptcies in U.S. history. And as if ending up the poor house wasn't sufficient punishment, they went down the road a piece to the big house after their conviction of conspiring to manipulate the market. While it certainly was the end of the Hunt Boys, that wasn't necessarily the case for silver. The Hunt Brothers: The Rip van Winkle of Precious Metals After the Hunt debacle, silver fell into a deep sleep -- falling to about $3.50 in the 1990s. It took a long snooze in that price range, with the exception of a brief spike to the $7.50 range in 1998 when Warren Buffet started accumulating it. During those years, probably the only thing more boring than trading silver was watching water boil. Then something curious started to happen... After bottoming out in November 2001 at $4.06, silver woke up -- soaring 63% to the $6.60 range. The rise was particularly interesting when compared to gold, which itself has risen 80% from the depths of February 2001. The difference was that gold is a world currency, and silver is not. Gold's price is influenced by currency markets, while silver's is driven strictly by supply and demand. As a result, there are three primary markets for silver: - The ornamental market serves jewelry and silverware.
- An investor segment concerns silver bars and coins.
- And the industrial part includes photographic film and paper, computer components, brazing alloys, pharmaceuticals and alternative energy applications.
What works in your favor is that few people know that the industrial sector is the biggest for silver, while the investor segment is the smallest. The biggest dilemma - and opportunity - for speculators is that silver is getting to be very hard to find. The fact of the matter is U.S. government supplies are long gone and they now need to purchase silver just to meet demand for coin and bars. Central banks sold out most of their supply of silver as prices languished. Some ultra-wealthy investors such as Warren Buffett, George Soros (through Apex Silver) and Bill Gates (through Pan American Silver) have taken on significant silver positions. I hardly think that any of these well-known investors might be the next Hunt brothers, but more likely these masters of wealth see a profitable trade in having major positions in silver where others don't. The Hunt Brothers: The End The moral of the story: Silver has been undervalued for far too long and now seems to be having a rebirth for smart investors who only know the story of the Hunt brothers as something that happened a long time ago. Just like a fairy tale. The happy ending may be for those investors who are buying silver at these levels; they just may end up living happily ever after, after all. Greg's final note: Silver's a cheap, viable and appreciating hedge against the low-rent money whorings of the Fed. No doubt about that. But - you can also take some sweet gains from silver options. Especially if guys like Buffett keep buying hundreds of millions of ounces...especially if supply continues to falter in the face of rising demand. We could see some big moves - upward and corrective - in silver's future. Of course, options players drool over a market with these types of moves...
And readers of Kevin Kerr's Resource Trader Alert have done fantastically with silver options. His readers have had the opportunity to take some massive gains from silver options...gains like 76% in two months, 285% in one hundred and two days, 41% in forty eight days, 52% in twenty three days, 59% in twenty one days, and a scrumptious 100% in just five days... Kevin's offering a large discount on his outstanding commodity options service until midnight next Monday, the 28th of November. So please take a look at this special report if you have any desire to make inordinate amounts of dough: http://www.agora-inc.com/reports/RTA/ERTAFB30/ | 
