Tuesday, March 31, 2015

Shootout at the Circle K Ranch

This is one of 1122 articles in my book Now and Then Again, The Way We Were and the Way We Are, second edition. The book is available from Amazon for $20.95 print and $9.95 Kindle and also as an ebook from Apple, Kobo, and Scribd for $9.95. It's fixed format so it's better with a tablet, laptop, or computer. There are more articles from the book on another blog here. And there is a book preview website.

Shootout at the Circle K Ranch

In early 1974 a shooting contest was held at the Circle K Ranch in Kaufman, Texas, 35 miles southeast of Dallas. The ranch belonged to the Hunt family, oil billionaires.  Cowboys competed to be among the dozen to ride shotgun on three 707's bound for Zurich, Switzerland loaded with 40 million ounces of silver, almost 1400 tons.

The silver was owned by Nelson Bunker Hunt and his brother Herbert. They were sons of H.L. Hunt, who fathered 15 children in three families. H.L. Hunt had made his fortune in oil and was one of the richest men in America.

The Hunt brothers had inherited the apocalyptic world view and John Birch Society politics* of their father. Nelson believed that the world-wide Communist conspiracy, abetted by the Eastern Liberal Establishment and the Rockefellers, threatened the world as he knew it and his fortune.

In 1973, his very lucrative oil field in Libya was nationalized by Moammar Gaddafi, who imposed a 51% royalty on the other oil companies, but let them keep their wells. Hunt blamed the State Department, the CIA, and the  Rockefellers. This was also the period of high inflation and Hunt began looking for an investment that would preserve his wealth. He became obsessed with silver.

In 1973, the Hunt brothers started buying silver and by early 1974 they owned 55 million ounces, about 8% of the world supply. Silver went from $2-3 in 1973 to over $6 by the spring of 1974.They would have to pay a 5% tax to bring it back to Texas, and they feared govermment confiscation, so they decided to stash it in Switzerland.

Three chartered 707 jets flew from Dallas and landed at LaGuardia in the middle of the night. Armored trucks drove the silver from the New York Commodity Exhange warehouse in Manhattan and it was loaded into the planes  watched by the cowboys armed with shotguns. But there had been a miscalculation when the planes and cowboys were hired. There was only room on the planes for 40 million ounces; they were 4 cowboys and one airplane short. The other 15 million ounces had to stay in warehouses in New Jersey and Chicago.

When the planes arrived in Zurich, armored trucks took the silver to 5 different warehouses. It had cost a fortune to move the silver and would cost $3 million a year to store it in Switzerland and the U.S. But the Hunt brothers were just getting started.

In 1979 the Hunts bought 43 million ounces of silver contracts to be delivered in the fall with two Saudi partners. In the fall of 1979, silver doubled in price from $8 to $16 in just two months. Then others started buying large amounts of silver.

The Chicago Board of Trade, one of the exchanges the Hunts used to buy silver, changed the rules by increasing the margin, the deposit required to buy a 5000 ounce silver contract for future delivery, and limited the number of contracts anyone could hold, requiring the selling of the excess by February, 1980. The New York Comex followed suit in January, 1980. But the Hunts bought even more silver futures contracts in London and the price of silver touched $50 on Jan. 17th, 1980.

On Jan. 21, the Comex limited trading to liquidation orders only and the next day silver fell to $34. In February, the Hunts took delivery of 26 million ounces of silver, bringing their holdings (with their Arab partners) to 155 million ounces.

In January and February alone, 22 million ounces of scrap silver came on the market as people lined up to sell their silver. ($50 in 1980 would have looked like $133 today.) Interest rates rose as the Fed fought inflation of over 14%. The prime rate was 18.5% in March and hit 20% by April. By March 14, silver had fallen to $21.

As the price of silver fell, The Hunt's contracts were worth less and they had to come up with more margin, deposit money, to keep the 60 million ounces they had agreed to buy at a higher price. On March 25, the Hunts got a margin call for $135 million. They couldn't make it and their broker sold off $100 million worth of their silver futures.

On March 27 — Silver Thursday — silver opened at $15.80 and closed at $10.80.  The Hunts were into the silver they had already bought for around $10, but they were well underwater in their futures contracts averaging $35. They owed $1.5 billion.

Fed Chairman Paul Volcker approved a bailout in which banks loaned the brothers $1.1 billion with $8 billion in collateral pledged. In 1988, a $135 million judgement related to his attempt to corner the silver market forced Nelson to file for personal bankruptcy.

Nelson is still around in 2011 at 85: "We are pleased to announce that Nelson Bunker Hunt of Texas will again serve as a member of the Council of The John Birch Society.  Update: Nelson Bunker Hunt died October 21, 2014 at 88.

Copyright © Joseph Mirsky 2020

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