
How the Hunt Brothers Cornered the Silver Market and Then Lost It All - adventured
https://priceonomics.com/how-the-hunt-brothers-cornered-the-silver-market/
======
nostrademons
“The main factor that has caused corners to fail [throughout history] is that
the manipulator has underestimated how much will be delivered to him if he
succeeds [at] raising the price to artificial levels,”

Money quote. People seem to consistently underestimate how much supply may
come online with an order-of-magnitude increase in price, and simultaneously,
how much demand can come online with an order-of-magnitude reduction in price.
This is the story of shale oil, dark fiber, and most stock market
manipulation, and on the other side, mass production, personal computers,
search advertising, digital music, web content, and cloud computing. It's also
why savvy startup investors advise you to work on getting that order-of-
magnitude improvement in price/performance/ease-of-use, and not worry so much
about how big the market appears to be.

~~~
swyman
Exactly. Taken to its extreme, this is the argument in favor of the seeming
paradox that we'll never run out of oil, despite the Earth having an obviously
finite supply.

~~~
cstejerean
It's not that we'll never run out of oil, but if the price of oil rises to
arbitrarily high levels then alternatives start to make economic sense. Those
alternatives in the short term may be alternate sources of oil that were too
difficult to extract earlier, but alternatives can also be completely
difference sources of energy. And once economies of scale start to apply to
those alternatives then their price starts to reduce, which further increases
demand, etc. Not sure where the long term equilibrium price is for energy and
it may very well be higher than in the era of cheap oil but I also don't think
that it will rise to catastrophically high levels that were predicted by "peak
oil".

~~~
dredmorbius
None of "the alternatives" offer oil's tremendous positive energy (net
current) surplus with a minimum of effort _or_ technological capability.

Colonel Drake punched through 69 feet of Pennsylvania bedrock using 1300 year
old Chinese salt-drilling techniques (and early 19th century cast iron well
casings). Well Number 1, Bahrain, still supplied 35,000 barrels of oil per day
_eighty years_ after it was drilled.

[http://www.geoexpro.com/articles/2012/12/bahrain-80-years-
an...](http://www.geoexpro.com/articles/2012/12/bahrain-80-years-and-still-
producing)

Oil (and coal and gas) absolutely changed the world, and quite simply, _they
're not like other raw materials_. They're not _transformed_ by processing,
they're _consumed_ , they dwarf all other material inputs to the modern
economy other than air and water (both of which are readily available from the
envrionment ... usually). And we're using them at rates of 1,000 to 5,000,000
times faster than they were initially produced.

Energy itself _enables_ complexity (though it's a, um, complex relationship).
Bootstrapping the modern world happened only once, and under what appears to
be a singular mix of conditions ranging from geological to philosophical,
despite humans having walked over the very sources of our modern wealth in the
Middle East, China, Britain, North America, and Australia for many thousands
of years.

If you're curious about what equilibrium energy prices for energy alternatives
-- fungible, storable, on-demand energy that modern civilisation requires --
might be, look to the best alternatives to oil and see what they run.

For biofuels, it's about $300 to $1,000 dollars per barrel. Keep in mind that
the US presently returns slightly over $1,000 in GDP per barrel of oil
consumed. In Europe it's typically higher -- $1,500 to $3,000 (in
Switzerland). In much of the world it's far lower -- China and India are in
the $400 - $500 GDP/bbl range. At $1,000/bbl, they would forego a tremendous
amount of low-return (but vital to their burgeoning populations) economic
activity.

Solar energy gives lower costs, but that's with tremendous fossil inputs to
construction an absolutely enormous capital plant, dwarfing _anything_ we've
built to date. Human's largest current technological artifact mostly involved
pouring hot tar over prepared ground, and _that_ is a challenging expense and
maintenance problem. Consider computer chips spanning tens of thousands of
square kilometers, in wind, rain, dust, and hail.

You might want to think some over just what it is "cost", "value", "price",
and "wealth" mean, represent, interact, and how we got to where we are.
Mainstream economic thought strikes me as strongly lacking in substance here,
evidenced by much of the long debate over the meanings of those terms. Their
current generally accepted values are by no means the only ones proposed,
though the debate now is largely quashed.

~~~
bduerst
>None of "the alternatives" offer oil's tremendous positive energy (net
current) surplus with a minimum of effort or technological capability.

It took only 20 years for fracking to go from an experiment to full scale
commercial roll out. It's not an 'alt-fuel', but it is a technological
advancement. I think you're discounting the force of human ingenuity when
faced with massive demand, kind of like the Hunt Brothers.

~~~
dredmorbius
Fracking was deployed as early as 1949, with references to earlier work in
1945:

[https://www.onepetro.org/journal-
paper/SPE-949001-G](https://www.onepetro.org/journal-paper/SPE-949001-G)

[http://sci-hub.bz/http://dx.doi.org/10.2118/949001-G](http://sci-
hub.bz/http://dx.doi.org/10.2118/949001-G)

 _The "Hydrafrac" process, as it is now being used, consists of two steps: (l)
injecting a viscous liquid containing a granular material, such as sand for a
propping agent, under high hydraulic pressure to fracture the formation; (2)
causing the viscous liquid to change from a high to a low viscosity so that it
may be readily displaced from the formation. To date the process has been used
in 32 jobs on 23 wells in 7 fields, resulting in a sustained increase in
production in 11 wells._

The myth that hydrofracking was researched only in the 1990s and brought into
play in the 2010s is a as false as the idea that God created Earth and Man in
His Image 6,000 years ago.

There's also the slightly inconvenient truth that fracked oil is not a
sustainable replacement for conventional oil.

~~~
adventured
Nobody is pretending that the concept of fracking didn't exist prior to the
1990s. That's a straw-man you set up and knocked down on your own. What
changed is the process for fracking was made drastically more economical.
Further, we had no idea exactly where the largest shale oil deposits were in
1950; over 3/4 of the currently known major Texas oil deposits were still
unknown as of that date, to say nothing of the fact that our understanding of
how much shale oil there was in the US, was next to non-existent. Even just 20
years ago our understanding of that was horrible. The Bakken as one example
was only briefly described in 1953, and wasn't taken seriously for decades
because so little was known about the reserves there.

The cost of using fracking to extract a barrel of oil has dropped by over 90%
in 15 years. The cost in 1950 would have been so astronomical as to be silly.
It's like pretending deep ocean drilling would have been viable in 1900, just
because they had theories about how to do it.

~~~
narrowrail
What your comment misses is the significance of the combination of directional
drilling (i.e. horizontal) and hydraulic fracturing. The process of fracturing
shale rock formations in order to acquire crude oil has been refined for
decades. It will only get more refined.

Your speculations about the future seem logical, but they are speculations
nonetheless.

>Nobody is pretending that the concept of fracking didn't exist prior to the
1990s.

I do not think that is a fair statement. I'm a radio jukie (mostly NPR, but
non-profit radio, in general). I certainly get the idea from these sources
that fracing is something new. My father was fracing wells in Saudi Arabia in
the '60s and my grandfather was drilling wells in OK in the 20s, so I have
some background, FWIW.

~~~
ArkyBeagle
there's a reference to using dynamite and a water column in the 1949 movie
"Tulsa". I'd always heard that this was done in the '40s, maybe even in the
30s to "wake up" a dead well.

Is that fracking? It's mostly likely about breaking rock, but it's not
hydraulic fracturing. It's more like what perforating is now. Or something.

------
OliverJones
I was a biophysics grad student at the time of the Hunts' shenanigans. The lab
I worked in used a lot of x-ray film for crystallography and electron
microscopy. At that time x-ray film was basically silver halide stuck to
plastic.

Our wizard lab tech cooked up a nice little electrolytic gizmo, involving a
screen made of thin copper wire and a battery, and dropped one in each fixer
bath we used to fix the x-ray film. The copper wire became coated with
metallic silver.

The lab made thousands of dollars at the peak of the Hunt-induced silver
bubble by selling that recovered silver. That was good, because the cost of
film went completely nuts, and we were able to keep from blowing through our
budget.

~~~
musesum
Hey, I was in that business, too! I walked around to all the photo labs and
offered to take their used developer off their hands. Was still in high school
at the time.

Meanwhile, my Dad bought $1000 worth of quarters. Then he had us sort out all
the quarters that were dated 1964 and before into a separate pile, as those
quarters were 100% silver. After that, we sold the all silver quarters by
weight. Forgot what the price was, but was worth the time.

~~~
theandrewbailey
Not 100%, but 90%.
[https://en.wikipedia.org/wiki/Quarter_(United_States_coin)#S...](https://en.wikipedia.org/wiki/Quarter_\(United_States_coin\)#Silver_series)

I will occasionally see some pre-64 quarters and dimes, and I often notice
them because they sound slightly different (on account of metal
content/weight) than post-64 ones.

~~~
musesum
Cool! I stand corrected.

------
hansjorg
NPR's Planet Money had an interesting episode a while back about the
successful cornering of the US onion market in 1955-56.

As a result, onion futures trading was banned, and still is today in the US.

[http://www.npr.org/sections/money/2015/10/14/448718171/episo...](http://www.npr.org/sections/money/2015/10/14/448718171/episode-657-the-
tale-of-the-onion-king)

~~~
sevenless
Oddly, the same code prohibits dealing onion futures and movie ticket
receipts:

> 7 U.S. Code § 13–1 - Violations, prohibition against dealings in motion
> picture box office receipts or onion futures; punishment

> No contract for the sale of motion picture box office receipts (or any
> index, measure, value, or data related to such receipts) or onions for
> future delivery shall be made on or subject to the rules of any board of
> trade in the United States.

[https://www.law.cornell.edu/uscode/text/7/13-1](https://www.law.cornell.edu/uscode/text/7/13-1)

~~~
21
There was some talk a few years ago about trading futures on movie box-office
returns, meaning betting if a future movie will be successful at box-office or
not. This supposedly would have allowed movie studios to hedge in case of a
potential dud.

But it was forbidden for some reason.

This might be related to that.

~~~
speeder
There is a movie I believe, about scammers trying to use futures market to
have illegal profits by betting on failure of their theatrical piece, and then
making a piece thqt praises Hitler, hoping it would bomb really hard.

~~~
arethuza
That'll be "The Producers":

[https://en.wikipedia.org/wiki/The_Producers_(1968_film)](https://en.wikipedia.org/wiki/The_Producers_\(1968_film\))

------
nstj
Did you know that Warren Buffett also got in on this same silver trade in
1997?

> Our second non-traditional commitment is in silver. Last year, we purchased
> 111.2 million ounces. Marked to market, that position produced a pre-tax
> gain of $97.4 million for us in 1997. In a way, this is a return to the past
> for me: Thirty years ago, I bought silver because I anticipated its
> demonetization by the U.S. Government. Ever since, I have followed the
> metal's fundamentals but not owned it. In recent years, bullion inventories
> have fallen materially, and last summer Charlie and I concluded that a
> higher price would be needed to establish equilibrium between supply and
> demand. Inflation expectations, it should be noted, play no part in our
> calculation of silver's value. [0]

[0]:
[http://www.berkshirehathaway.com/letters/1997.html](http://www.berkshirehathaway.com/letters/1997.html)

------
Finnucane
I remember this clearly. Or at least, I remember going to the camera store for
darkroom supplies, and being faced with almost weekly price changes. Of
course, I don't recall the prices going down again very much after the market
collapsed.

~~~
noonespecial
Me too. That visceral feeling of how much it cost to press that shutter
release and instinctive balance of the dread of missing the moment and
spending the money...

Even now, every time I empty an sd card, pick 5 images and trash 100, I feel
as rich as a sultan. Some parts of the future really rock.

~~~
Finnucane
Fortunately, as a working adult, it is easier to indulge myself in such things
now more than it was a student with no money. Hell, I've even got the
Hasselblad I wanted then!

------
coldcode
Just because people are rich doesn't make them geniuses. But it takes a
special kind of "genius" to turn $16B in $10M.

~~~
thaumasiotes
The kind of genius who builds a huge leveraged position in something and is
then legally compelled to sell over 95% of it within one month?

I wonder what that sort of fire sale would do to the value of your holdings?

~~~
maxander
Well, yes, the kind of genius that would be apparently blindsided by financial
regulation while he goes about causing massive disruptions in a crucial
market.

Really, the whole story sounds like some guys from Texas got rich and started
playing with finance without having lost the "hide everything under the
mattress" mentality.

------
ams6110
Two brothers trying to corner the market on a commodity only to have it blow
up in their face? Sounds like it must have inspired the movie _Trading
Places_.

------
canada_dry
"it is impossible to prove definitively that market manipulation was in their
hearts. Maybe, as the Hunts always claimed, they just really believed in the
enduring value of silver."

Sigh.. yah right. Just like they really believed in the enduring value of soya
beans.

------
a_small_island
I can't believe how many typos there were in this article, do editors exist
anymore?

~~~
mysterypie
I didn't notice. I ran the article through spellcheck and the only typo that
came up was "Jello-O" (which should have been Jell-O). What else was wrong?

~~~
justinator
How about,

    
    
       “I don’t know really know anything,” said Bunker, 
       offering a synopsis of his horse trading strategy that 
        could have just as easily applied to his entire career
        as an investor. “I am just trying to win a few races.”
    

Should be, "I don't really know anything," [0]
[http://www.nytimes.com/2014/10/22/business/nelson-bunker-
hun...](http://www.nytimes.com/2014/10/22/business/nelson-bunker-hunt-texas-
tycoon-dies-at-88.html?_r=0)

~~~
FullyFunctional
I assumed that the quotes were intended to point to a verbatim quote. I still
think that's the most likely case.

------
ourmandave
Did this make surviving silver coins more valuable for their rarity?

I remember my dad sold his collection for the metal value back then.

~~~
WalterBright
Collect coins if you enjoy it, but for an investment they are terrible.

------
cloudjacker
It is only a matter of time before someone attempts this without using too
much leverage and credit to make the purchases.

The regulators and industries only tool is raising margin requirements (how
big your down payment is), as well as position size limits per account

~~~
cm2187
Cornering the market is outright illegal.

~~~
taprun
How is cornering the market outright illegal? And in which jurisdiction?

There are plenty of examples where one company has a strongly dominant share.
Diamonds are an obvious example, search engines are another.

~~~
pjc50
Commodity trading in the major markets (US, EU) has rules against cornering
and other forms of obvious market manipulation. Obviously that only applies to
_" commodities"_, whereas it's accepted that manufactured goods have a limited
number of suppliers regulated by patent. The entire market for pharmaceuticals
is "cornered" in that sense.

~~~
DannyBee
Yeah, i mean, it's not like silly things related to market manipulation in
commodities happened for many years before anything was done about it:

[https://www.bloomberg.com/view/articles/2014-11-20/the-
goldm...](https://www.bloomberg.com/view/articles/2014-11-20/the-goldman-
sachs-aluminum-conspiracy-was-pretty-silly)

etc

------
tomcam
This happened when I was a kid, and I took note of the wild swings commodities
market could take. I like silver, so when it went down to five dollars in the
late 1990s, I bought a couple of thousand ounces.starting at that level, it
becomes logistically a little interesting to store it.

