The Story of Silver

by William L. Silber

  Bunker adopted his father’s outlook, sharing a xenophobia that targeted communists and Jews. He was not shy about the family’s view of the communist menace: “I consider communism to be socialism with a gun. [My father] saw it as sophisticated slavery.”22 Bunker was less willing to concede he was anti-Jewish, saying only: “They are a little different, like a Chinaman or whatever is different; you do have to say that.”23 His employees may have sidestepped his half-joking instruction to “Never hire a Phi Beta Kappa. They all turn into communists.”24 But that warning did not apply to Jews, who he thought were all smart and could help him. He said, “Never look a gift-Jew in the mouth.”25

  Bunker wanted to prove to H.L. that he was worthy of the Hunt name. The Libyan oil concession, negotiated with King Idris in 1957, was his last chance, but when it needed a cash infusion to continue exploration, Bunker had no money left.26 He had already spent everything he had—perhaps $250 million—on failures.27 Although Bunker was close with his two older sisters, Margaret and Caroline, they were not risk-takers in the Hunt tradition, so he turned to Herbert and Lamar for help. He sold them a 15% interest in the Sarir oil field in exchange for their contribution, which eventually made them even richer than they already were.28 The deal also solidified their familial bond, which they needed after learning about their father’s two other families.

  H.L. Hunt had difficulty keeping his pants zipped, but that was not the biggest factor in his extracurricular activities. According to his biographer Harry Hurt, he had more than enough casual opportunities to satisfy his outsize libido, but he had another agenda. He confided to a business associate that he carried a genius gene and “believed that by fathering children he was doing the world a favor, providing the human race with its future leaders.”29 In addition to his six children with Lyda, H.L. sired another eight by two women, four with Frania Tye, who he met in 1925, and four with Ruth Ray, who he met around 1941, all conceived while he was married to Lyda Bunker.30

  Perhaps H.L. should have received lofty recognition for his accomplishments, a Nobel Peace Prize for creating potential world leaders or an Olympic Gold Medal for avoiding prison for bigamy, but the “second” and “third” families had one very practical impact: they brought Bunker and his siblings, now known as the “first family,” closer together to promote their joint interests, especially in the most valuable trust, the Placid Oil Company. The three families would fight in court for a share of the Hunt fortune, even though Herbert would say, “We do not want one penny more than we really are supposed to have.”31 A member of the second family joked after several years of litigation: “We only see each other at weddings and at trials.”32 Bunker would need Placid Oil to keep afloat after the silver market debacle so he did not think it was so funny.

  A cloud of doubt darkened Bunker’s world on Monday, September 1, 1969, just four months after his celebration at the Claridge. A group of Libyan army officers overthrew King Idris and the press warned, “U.S., British Rights Threatened by Coup.”33 A twenty-seven-year-old Colonel Muammar Qaddafi emerged as leader of the bloodless takeover, promising a new republic with “unity, liberty, and socialism” as its watchwords.34 He expelled the Americans from Wheelus Air Base near Tripoli and forced the British to remove their troops from Tobruk, but he allowed the major oil companies favored by the King to remain.35 Qaddafi realized the Libyans needed the technical expertise of Big Oil, including Mobil, Esso, British Petroleum (BP), Shell, Marathon, Gulf, and Phillips, to continue the revenues from the black gold.

  But the restraint did not last. On Thursday evening, December 7, 1971, the Libyan government announced it was nationalizing British Petroleum’s oil operations in retaliation for Britain’s alleged pro-Iran, anti-Arab activity in a territorial dispute over islands in the Persian Gulf.36 The petroleum minister appointed a compensation committee, composed of Libyans, to determine reimbursement to BP, but it was not expected to recommend payment for oil reserves in the ground. The Libyan government denied “other oil companies were threatened,” explaining that “our action was political and in response to the occupation of the islands.”37

  Bunker began to worry as soon as they said not to worry. On Friday, June 9, 1972, he travelled to Tripoli for consultations with his representatives after the government summoned local officials of the Bunker Hunt Oil Company for a high-level meeting.38 The negotiations dragged on for months and led to Petroleum Minister Ezzeldin Mobruk demanding half of Bunker’s production from the Sarir oil field, which had been operating jointly with Libya’s state-owned Gulf Exploration Company since the expulsion of British Petroleum.39 Oil analysts suggested that instead of going after one of the major U.S. firms in Libya, like Mobil, Esso, or Marathon, the government was “picking out one of the smaller American companies to bargain with and then demanding that the others fall in line.”40 Bunker felt like a guinea pig, richer than any other, but still a guinea pig that biologists use for scientific research. He refused to participate in the experiment.

  It did not end well.

  On Monday evening, June 11, 1973, Qaddafi announced in a speech marking the third anniversary of the American evacuation from Wheelus Air Base that Libya was nationalizing Bunker Hunt’s half of the Sarir oil field.41 He began with a jab at the U.S.: “The time has come for us to deal America a strong slap on its cool, arrogant, face.”42 Qaddafi then justified expropriating Hunt’s operation, saying, “The right to nationalize comes under our sovereignty over our land. We can do whatever we want with our oil.”43 In Dallas Bunker released a prepared statement saying that he had “tried to work with the Libyan national oil company and its subsidiaries” but it was “impossible due the unjustified demands.” He added that he “will pursue all available legal remedies” and complained that the Libyan government had “chosen Hunt as an example” because he was in a “vulnerable position following the nationalization of the British Petroleum half of the field.” Bunker had been much more succinct when receiving the phone call in his office, breaking the news. He smashed down the receiver and said, “Fuck.”44

  Bunker’s expletive understated the personal calamity. Qaddafi’s speech on June 11, 1973, demoted him from wealthiest man in the world to an ordinary multimillionaire, restoring his status as a rich man’s son rather than wealthy in his own right. It cut Bunker down from adult to child’s size. Moreover, the fall had come at a particularly bad time for a man worried that the American government was spending its way into bankruptcy and eroding the value of the dollar. The first six months of 1973 witnessed the highest rate of inflation since the Korean War, an increase in consumer prices of 8% per annum, eclipsed later in the decade but a peacetime record back then.45 President Nixon’s Council of Economic Advisers described the inflation problem as “a Hydra-headed monster, growing two new heads each time one was cut off” and warned “if we do not fight inflation effectively it will accelerate.”46 When Nixon responded to the problem with another freeze on prices, a New York Times headline described the new reality, “Controls as a Way of Life,” confirming Bunker’s suspicions that all American presidents were communists, not just Roosevelt, and Soviet-like repression was here to stay.47

  Qaddafi had denied Bunker his oil reserves, which would have more than compensated for overall inflation going forward. Bunker sued for restitution but needed to hedge against the threat of runaway prices. He had no faith in fiat currency and disparaged the Federal Reserve, America’s central bank, saying, “Just about anything you buy, rather than paper, is better. … Any damn fool can run a printing press.”48 Bunker had begun dabbling in silver soon after the 1969 Claridge party so it became his first choice.

  The beginning of 1970 was a bad time to start accumulating silver. The price of the white metal had declined from its peak of $2.50 per ounce in June 1968, when the U.S. Treasury ended the redemption rights of silver certificates, to $1.80 per ounce as the new decade began, and would continue to erode for two years to a low of $1.28, a decline of almost 50% from its previous high.49
Bullion dealer Handy & Harman described “a growing disillusionment on the part of speculators,” but that sentiment did not stop Bunker, who had practiced patience and persistence in investing, from listening to a sales pitch by Alvin Brodsky, a commodities broker for Bache & Company, the second largest U.S. brokerage firm after Merrill Lynch.50 In January 1970 the short and voluble Brodsky flew from New York to Dallas to meet with the celebrity Texan to drum up business.51 It was worth the time and expense. He sat across the table from Bunker in the kitchen of his home, pointed to the dishes, napkins, forks, and knives set for dinner, and asked: “Do you believe you’re going to have to pay more for these things next year?” When Bunker agreed, Brodsky stifled a smile and said, “Well, then, you should consider silver.”52

  The simple argument appealed to Bunker, and Alvin Brodsky reaped the benefits. He would become a major player in the silver ring on the Commodity Exchange, a force to be reckoned with on Comex thanks to the Hunt connection, but at the outset Bunker bought only a few hundred thousand ounces of the white metal, the equivalent of pocket money, perhaps just to see what a stack of bullion bars looked like. Nelson Bunker Hunt had too much oil and too many other diversions to make silver a high priority in the early 1970s. He owned large tracts of land, including 10,000 acres in Mississippi for a new town projected to house 125,000 people, and 2,000 square miles of virgin property in Australia’s Northern Territory just for show.53 The Wall Street Journal reported Bunker’s boast that he “will become the largest American landholder in Australia.”54 Bunker enhanced his horseracing colors by buying the French stables at Chantilly owned by the late Jean Stern, which led the press to comment: “Nelson Bunker Hunt will take over … as Europe’s ‘Mr. Racing.’ He has built up an enormous horse empire.”55 And in early 1973 he joined a consortium of fifteen men led by George Steinbrenner in buying the most famous American baseball franchise, the New York Yankees.56

  None of these investments made much money for Bunker, but they put him on world display, especially his ownership of a horse named Dahlia. The three-year-old filly had a royal pedigree and won the King George VI and Queen Elizabeth Stakes at the Ascot racecourse on Saturday, July 28, 1973, the richest race in English history at the time.57 Dahlia received $208,000 for winning the prestigious competition, a nice prize, but not even worth a footnote to the loss Bunker incurred when Qaddafi nationalized his share in the Sarir oil field a month earlier. Bunker needed to replace his Libyan oil investment and to protect his remaining Texas-size fortune from government misbehavior, both foreign and domestic, and that is why he began buying silver in bulk on the Commodity Exchange in late 1973.

  FIGuRE 15. Queen Elizabeth presents Bunker Hunt with the winner’s trophy.

  Comex had come a long way since President Johnson suspended U.S. Treasury sales of silver at $1.293 per ounce in July 1967. In the first full year after the price ceiling was removed trading on the Commodity Exchange set a record of 4.8 billion ounces.58 By 1973 trading volume more than doubled to 12 billion ounces, making it a full-service cafeteria worthy of Bunker Hunt’s appetite.59 The Commodity Exchange now dominated the silver market the way the New York Stock Exchange ruled stocks.60 Handy & Harman had been quoting silver prices in the United States since the 1890s, publishing daily quotations, described as “the lowest price at which offers can be obtained by Handy & Harman for silver in commercial bar form.”61 By the end of 1973 Handy & Harman had switched the basis of its quotes to “prices obtainable for futures contracts on the New York Commodity Exchange,” explaining that nowadays “commercial users base their daily offers of silver for prompt delivery on prevailing quotations for futures on Comex.”62

  The Commodity Exchange became the main source of price discovery for the white metal even though the big commercial users like the camera giant Eastman Kodak rarely took delivery of silver on the Exchange.63 Comex, like every other futures exchange, sponsored trading in a standardized product to promote wide participation among investors, speculators, and industry so that the resulting price reflected a broad consensus among many buyers and sellers. The silver contract called for delivery of 99.9% pure silver at a Comex approved warehouse, but the Rochester-based photo company wanted the white metal delivered to its doorstep and perhaps with even fewer impurities than the “three-nines fine” standard. Kodak, like other commercial users, bought a futures contract on Comex as a first step in the production process, to hedge against a future price increase in the raw material. Kodak used the standardized contract because open competition among many potential buyers and sellers on the Comex floor determined the price. But as soon as Kodak took delivery of silver in Rochester from its favorite supplier, perhaps Henry Jarecki’s Mocatta Metals Corporation, which had become one of the largest bullion dealers in the United States, Kodak sold its futures contract.64 If the white metal had become more expensive and they had to pay more to Mocatta, Kodak would also have an offsetting gain in value on the purchase and sale of its futures contract.

  Bunker Hunt used Comex to buy silver for the same reason as Kodak—it was the premier market for trading the white metal— but his objective was simply to make money. He chose silver because it would protect against inflation and could not be confiscated like his Libyan oil, at least if he stored it where no one could find it. After the Qaddafi disaster he trusted only himself and his brothers, but with Lamar chasing Super Bowls with his Kansas City Chiefs football team Bunker joined with Herbert to pursue silver. The Hunt brothers often invested together, sometimes through their jointly owned Placid Oil Company and sometimes because circumstances forced it, such as when Herbert and Lamar came to Bunker’s rescue in the Sarir oil field exploration. But just as often they remained separate, such as Bunker’s race horses and investment in the New York Yankees, and Lamar’s lone pursuit of a football franchise.

  In March 1959 the twenty-seven-year-old Lamar had asked Bunker to call Bud Adams, son of a Texas oilman, about meeting with Lamar for dinner to discuss the formation of a new football league after the established National Football League rebuffed Lamar’s effort to buy a franchise.65 Adams agreed to the dinner and then asked Bunker what it was about. Bunker said, “I don’t tell Lamar my business. And he doesn’t tell me his business.”66 A week after Lamar and Bud Adams announced the formation of the new American Football League, Bunker walked a few steps from his office to his brother’s and said, “Hey Lamar, I’d like to invest in your team.” Lamar said, “Oh, thank you. But I prefer to go this one alone.” Bunker shrugged his shoulders and said, “Okay.”67

  Lamar wore his usual friendly smile while losing more than a million dollars a year at the beginning, leading a Dallas sportswriter to quip, “At that rate he can only afford to lose for the next 100 years,” but by 1973 he had become a successful celebrity in the sports world.68 Bunker’s youngest brother had engineered the merger between the National and American Football Leagues, invented the name Super Bowl, and won the Tiffany-crafted silver trophy with his Kansas City Chiefs in January 1970. He had also orchestrated the formation of the World Championship Tennis tour in 1968, so Bunker and Herbert moved ahead on their own with silver.

  Bunker and Herbert had offices next door to each other in their downtown Dallas headquarters in the First National Bank Building and lived a few blocks apart, although their work schedules differed considerably. Herbert, three years younger than Bunker, typically arrived in the office soon after dawn and left before dinner, while his brother tumbled in around lunchtime and stayed late. According to Herbert, who was as unassuming as Bunker was flamboyant, they complemented each other in other ways: “Bunker is very farsighted, very perceptive. … He prefers to conceive something and then step back. I get more involved in the details.”69 Herbert liked precision, including maintaining order in his full mop of wavy black hair and adhering to his early-morning jog to remain trim, while Bunker let nature take its course. Herbert elaborated, “He doesn’t make hotel reservations and he just shows up at the airport and waits in line to fly st
andby.” Herbert knew that Bunker rarely read anything beyond the racing forms, so he bought Jerome F. Smith’s Silver Profits in the Seventies.70 It became their blueprint.

  Jerome Smith was one of many financial newsletter writers touring the country and giving seminars on how to avoid monetary ruin in an inflationary world, but his eighty-eight-page booklet gave a sophisticated analysis of the white metal as a compelling investment. He began with a tease: “If you have the patience to study this report and follow its logic, and if you have some money to invest—it could make you rich. If you are already rich, it can, at least, provide you a means to keep what you have.”71 Smith then drew a detailed demand and supply picture of silver similar to the 1965 report by the U.S. Treasury that had convinced LBJ to abandon silver as a monetary metal. The landscape remained the same, a growing commercial demand for the white metal, especially in making photographic film because silver is “one hundred times better than the second best light-sensitive substance,” and in electronics, where “silver conducts electricity more efficiently than any other metal.”72 Despite the U.S. Treasury’s withdrawal from the demand side of the silver market, completed on December 31, 1970, when the 40% silver half-dollar was replaced by a lowly copper-nickel alloy, total world demand for the white metal exceeded new mine production by more than 100 million ounces a year.73

  The excess demand for silver drove up prices and attracted aboveground supplies to the market from speculator inventories, hoarders in China and India, and coin-melting arbitrageurs like Henry Jarecki. These so-called secondary sources filled the gap between consumption and production, but Smith argued that prices had never fully escaped the drag from years of government intervention and manipulation.74 He invoked the legendary 16 to 1 ratio of William Jennings Bryan to conclude that, with gold selling at $100 an ounce at the end of September 1973, silver should have been $6.25 and not $2.70.75