Watch: Hunt Brothers vs. Silver Thursday, The Ultimate Silver Short Squeeze!

 

Video Transcript:

In 1979 and 1980, a group of three brothers attempted to corner the silver market. 

Over the course of one year, they single-handedly caused gold to skyrocket from $6 per ounce to almost $50. 

But their plan backfired in a spectacular way. 

By March of 1980, the brothers owed billions to banks, silver prices fell to the floor, and even the government feared that their actions may cause a financial collapse on Wall Street. 

This is the story of the Hunt Brothers, the three men behind silver’s darkest day – Silver Thursday. 

Today, the Hunts are one of the richest families in America. Their influence is massive, and some estimates put the family’s total net worth at over $24 BILLION dollars. 

Clark Hunt is currently the owner of the Kansas City Chiefs, a post he inherited from his father, Lamar Hunt. Lamer is another beast entirely. We’ll get to him later…

But first, to really understand the Hunt brothers, we need to explore the family’s history. 

It all starts with H.L. Hunt, an oil tycoon who amassed his fortune after acquiring the deed to the East Texas Oil Field. Estimates put his assets in 1957 at $400-700 million. 

This was the beginning of the Hunt family fortune, but our story really starts with his sons: Nelson, William, and Lamar Hunt. 

H.L. died in 1974, and his children were slated to take control of the family’s unprecedented wealth, which was largely concentrated in the oil industry. 

Over the next few years, the family’s riches continued to grow.

But by 1979, the Hunt brothers hatched a plan to expand the reach of their family, a scheme that nobody saw coming and which would eventually bring the entire stock market to the brink of disaster… 

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Now back to the story! 

Silver has always been an essential part of the American identity. In fact, it was public outrage over the end of silver-backed currency that helped to get William Jennings Bryan nominated for President at the turn of the 18th century. 

In the 1970s, many investors believed that the value of silver was being artificially deflated. 

Sound familiar? 

Fearing economic collapse amid the troubling stagflation that characterized this era of American history, some wealthy investors bet big on precious metals like silver – but didn’t see the returns they expected. 

The Hunt brothers also fell into this camp. 

What do you do when the price of an investment doesn’t go up as much as you want it to? 

You corner the market, of course! Well, not really, since that takes an ungodly amount of money to pull off. For the billionaire Hunt brothers, though, that was exactly what they planned to do…

Beginning in 1979, the Hunt Brothers started to amass an unprecedented amount of silver bullion coins, bars, and futures contracts. 

Prices for silver were low in 1979, and the metal traded at a measly $6 per ounce in January of that year. For the Hunt Brothers, this spelled opportunity. 

The Hunt Brothers didn’t just buy physical silver as they built the most prolific silver stack in human history. After running out of liquid assets to the tune of hundreds of millions of dollars, they refused to stop. The Hunt Brothers turned their attention to silver futures. 

Here’s a simple crash course on what it means to buy futures. 

If you buy a silver future today, you’re agreeing to pay today’s price for silver that will be delivered at a set date in the future. 

For example, imagine that silver is trading for $20 per ounce. But you think that it will be worth much more in one year’s time. In fact, you think silver’s price will double to $40 next year. You agree to buy a single ounce of silver for today’s price, but you want it to be delivered in a year from now. 

If you’re right and silver goes to $40 next year, the exchange is forced to give you one ounce of silver. But remember – you paid today’s price, twenty dollars, for your silver. You’ve profited $20! 

But what happens if you’re wrong? You’ve paid $20 for one ounce of silver. But imagine that one year later, silver crashes to $10 per ounce. You lose $10 when the contract expires and you take delivery, because the price of silver has gone down. 

Imagine this process – but on a MASSIVE scale. The Hunt brothers weren’t buying one ounce of silver – they were buying millions of troy ounces. 

They felt confident enough to go way past “all in” on their investment. Why wouldn’t they? They had already been able to send silver into the stratosphere by hoarding so much of it. By doubling – or quintupling – down on their strategy, they stood to make billions. 

What could go wrong? 

In the end, the Hunt Brothers were able to use a combination of physical silver and silver futures to build a silver portfolio that would make any stacker’s mouth water – their holdings totaled around $4.5 BILLION dollars. 

This was unprecedented. It caused nationwide shortages of silver so severe that even Tiffany’s – yes, the jewelry store – put an ad in the New York Times to condemn the brothers for their attempts to corner the market. 

Everything seemingly went according to plan. By January of 1980, silver was trading at a jaw-dropping $49.95 per troy ounce. The Hunt Brothers made billions of dollars, settled their futures contracts, and rode off into the sunset as three of the richest men in human history. 

Except… that’s not exactly how things panned out. 

You see, the Hunt Brothers had one fatal flaw in their plan, one that would eventually take them down – and threaten the entire U.S. economy… 

We explained that the Hunt brothers couldn’t afford to buy all of the silver that made up their historic hoard. 

To pad their stack, they also put hundreds of millions of dollars into silver futures contracts. To them, this was a safe bet. Only they knew just how much of a monopoly they were holding of the world’s silver supply, after all. 

Investment tycoons had been doing this for centuries. Buy up all of a product, wait for demand to cause a price spike, and then sell. Easy as that! 

There was only one problem: they didn’t have enough cash to buy the futures contracts outright. 

To get around this obstacle, they bought their futures on margin. 

Yep – another investment term. 

Buying on margin means borrowing money from your broker to purchase a stock. By trading on margin, investors can afford to buy quite a few more stocks than they could purchase using their own money. 

When you win while placing a margin trade, you win BIG, since you’re actually placing a bet much larger than you’d be able to without margin trading. 

But when you lose on margin, you’re losing far more money than you could otherwise have afforded to lose. Using margin trades, investors can go far into the negative – something that can’t happen when you buy stocks with your own money. 

The Hunt Brothers didn’t worry too much about this when they bought up hundreds of millions of dollars in silver futures contracts. After all, they were the ones in control of the market’s supply of silver – what could go wrong? 

Before we get into the downfall of the Hunt Brothers, make sure you take some time to show some love with a comment or subscription. We can only keep putting out these history videos with your help! 

The downfall of the Hunt Brothers began on January 7, 1980 – just a year and a half after they had hatched their plan. 

COMEX, a company still operating today, was the major exchange that dealt in silver futures during the Hunts’ plot to corner the silver market. 

COMEX wanted to throw a wrench in the Hunt Brothers’ plan, so they adopted a new rule named “Silver Rule 7.” This rule limited the amount of silver that investors could buy on margin.

The market response was swift. In just four days, the price of silver plummeted by over fifty percent. 

This was a huge problem for the Hunt family – for a couple of reasons. 

First, they had bought much of their silver on margin. Remember what we said about margin trading earlier? When you lose on margin, you lose big. 

This wouldn’t have been such a big issue if the Hunt Brothers had made all of their silver futures investments while prices were as low as $6 per ounce. The only problem? They’d been buying silver all throughout the year, continuing to build their stack – even as prices rose. 

The adoption of Silver Rule 7 barred the Hunt Brothers from continuing to corner the market, so prices fell rapidly. 

When you invest on margin and lose, exchanges will issue something called a “margin call.” In simple terms, a margin call is a demand for collateral payment in order to ensure that the losing investor can afford to cover their losses. 

And for the Hunt brothers, the margin call was unprecedented – they were asked to pay a whopping $100,000,000 in order to keep from defaulting and losing all of their silver investments. 

The Hunt brothers faced a catastrophic loss of $1.7 billion if they failed to pay the amount and meet the margin call. 

But it wasn’t just the Hunt family whose fortune was at stake… 

Defaulting on a margin bet of this size wouldn’t just be a problem for the Hunt Brothers. The consequences of their failed plot to corner the silver market caused shockwaves and panic throughout almost every American market – but especially the silver sector. 

Investment banker J. Paul Getty once said: 

“If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank problem.” 

Getty’s wisdom rang especially true on Silver Thursday because the banks had a real problem on their hands. 

If the Hunt Brothers weren’t able to pay their margin call and retreat from their bad silver investments, they would lose almost everything. 

But the banks would go down with them. Government officials began to panic along with the market as silver prices continued to plummet in March of 1980. If the banks and brokers who helped loan the Hunts money for their investments were left out to dry, they might collapse. 

The impact of such an event would reverberate throughout the U.S. economy, triggering disaster in nearly every investment sector. 

Remember: the U.S. government was ultra concerned about its economy at this point in American history. Stagflation was running rampant; things were becoming more expensive, and wages weren’t increasing. 

Let’s take stock of where we are at this point in the story. 

The Hunt Brothers hatched a scheme to corner the silver market by betting heavily on silver futures. 

Exchanges restricted their access to buying margin futures for silver, causing prices to fall rapidly. 

Then, they couldn’t pay the margin call, and the most powerful people in the world feared that their failed plot would cause an economic collapse in the United States. 

You might already have a guess about how this story ends – what happens when a bank is too big to fail? 

Part Five: Hunt Brothers Bailed Out

It gets bailed out, of course! 

A group of different United States banks banded together to loan the Hunt Brothers a total of $1.1 billion in credit so that they could pay to buy out of their silver futures contracts. 

The brothers still lost millions in the ordeal. And silver itself experienced some of its biggest losses in history in the two years that followed Silver Thursday. 

One London silver exchange in 1982 quoted silver at a price of $4.90 per ounce, which is a 1000% loss compared to the all-time high the Hunt Brothers engineered in early 1980. 

The brothers net worth fell by around $4 billion dollars leading up to 1988, when they lost a trial and were forced to part with $134 million to pay a mining company that suffered from their failed plot to inflate silver’s price.

Although they declared bankruptcy in a Texas court later that year, the Hunt family would eventually rebound to become, once again, one of the richest families in America. 

Part Six: Conclusion

The story of the Hunt Brothers lives in infamy.

This powerful group of three men attempted to make billions of dollars by fabricating a silver shortage. And they almost got away with it, too. 

But ultimately, the fatal flaw in their plan was exposed when exchanges began to respond to their risky moves with new regulations on buying silver on margin. 

Although the family eventually regained what they’d lost – and more – their efforts brought the U.S. stock market to the brink of collapse – and their story is a cautionary tale for investors who think they can game the market. 

What do you think of the Hunt Brothers? Were they greedy thieves who tried to make silver impossible to buy? Or were they smart businessmen who were shot down when the exchanges changed the rules mid-game?