Friday, April 22, 2011

Hunt Brothers $50 Silver Truth, How They Capped Gold…Yes, GOLD!

It began with a shoot-out at the Circle K Ranch. The 12 best marksmen would ride shotgun as the world’s largest, privately owned stockpile of silver was secretly transferred into secure vaults.

No, this wasn’t a shipment from Nevada’s Comstock Lode to San Francisco in the Wild West of the 1870s. This was the 1970s, and the precious metal was being moved from New York to Switzerland.

Shining silver under a moonlit sky, three unmarked 707s waited at LaGuardia Airport. The Circle K cowboys stood guard, shotguns in hand. 40 million ounces of bullion—amassed by Nelson Bunker and William Herbert Hunt—were loaded in, and the planes took off under cover of darkness to their secret destination…

Millions of people have heard the “official” story of how the larger-than-life Hunt brothers drove the price of silver from under $2 an ounce to over $50 in an attempt to corner the market. At one point, the two colorful Texas oilmen owned the rights to more than half the world’s silver supply. But then it all came crashing down on Silver Thursday, March 27, 1980, when silver fell to under $11 an ounce. Instead of making billions, the richest men in America ended up losing the bulk of their family’s fortune.

The Hunt Brothers—Sacrificial Lambs in Wolf’s Clothing

I’ve been studying the Hunt Brothers, and I have a different take on what really happened. Because of the way they flaunted their wealth, because of ties they had to the Middle East, and because they did invest so heavily in silver, the Hunt brothers were the perfect scapegoats for the anger and frustration most Americans felt towards the lagging economy of the day.

I believe that Bunker and his brother were used by the Federal Reserve, in collusion with COMEX and the Chicago Board of Trade (CBOT), to cap the price of gold—YES, GOLD—and save the U.S. dollar.

Inflation Indignation

The period leading up to silver’s spike was fraught with inflation, stagnant economic growth, and political upheaval. In 1965, President Johnson increased deficit spending to finance his Great Society programs, tax cuts, and an unpopular war in Vietnam.

In 1971, realizing that the U.S. Treasury didn’t have enough gold to redeem all the dollars held by foreign governments and investors, President Nixon pulled the United States off the Bretton Woods monetary system—the last vestiges of a pseudo gold standard. This action effectively created a worldwide fiat currency system that continues to this day.

OPEC-generated oil shortages, along with real food shortages, fueled public fears that the U.S. economy was in crisis. By the late 1970s, inflation had become public enemy number one.

The Hunt for Silver

The Hunt brothers could see the writing on the wall. With their great wealth being steadily eroded by skyrocketing inflation, they needed an asset to which they could safely anchor their massive oil fortune. At first, they thought of gold—history’s safe haven. But in 1973, U.S. citizens were not allowed to own gold, and Bunker Hunt thought the gold market was too easily manipulated for government purposes.1

So the Hunt Brothers turned to silver, and started buying it at about $2 an ounce. Total world silver production was dropping, while industrial silver consumption was exploding. And once government and private silver stocks ran out, the shortfall between supply and demand was certain to drive the price of silver skyward.

By early 1974, the Hunt brothers had purchased futures contracts (agreements to purchase commodities in the future at a pre-determined price) for another fifty-five million ounces of silver. This was on top of the massive hoard of physical silver they already owned.2 In April, Bunker Hunt stopped in New York to visit the COMEX trading floor for the first time. When he walked onto the floor, the normal frenzy of activity came to a screeching halt. Who was this fat Texan in thick plastic glasses and a cheap blue suit? Rumors began floating that the Hunt brothers were attempting to corner the market.

Those who believe that the Hunt brothers were out to corner the silver market point to Bunker and Herbert’s huge appetite for silver futures as proof that they were trying to manipulate prices. I see it a different way.

The Hunt brothers used their positions in silver futures to acquire more of the physical metal. Aware that cash was continually losing value due to inflation, they settled their futures contracts with physical delivery of bullion, instead of cash, as a hedge against the government currency monopoly and global turmoil.

I believe that the Hunt brothers were more concerned about long-term survival and preservation of their family’s wealth than they were with short-term speculative profits. That would merely have added a few more paper dollars to their vast sums of rapidly depreciating currency. Bunker Hunt was well versed in Germany’s disastrous hyperinflation of the early 1920s, and he was genuinely concerned about going broke holding paper assets.

In an interview with Barron’s financial magazine, Bunker kept quiet about his silver investments. But he made no secret of his distaste for the dollar: ‘‘Just about anything you buy, rather than paper, is better,” he said. “…If you don’t like gold, use silver, or diamonds or copper, but something. Any damn fool can run a printing press.”3

If You’re Losing, Change the Rules

By October 3, 1979, silver hit $17.88 an ounce.4 The two major U.S. exchanges, COMEX and CBOT, started to panic: They held a measly 120 million ounces of silver between them, an amount typically delivered in a busy month.5 With silver prices pushing to new heights as new buyers rushed in, the exchanges became fearful that a default (inability to deliver) was imminent.

The silver rush continued to accelerate, led by the Hunt brothers and their Saudi Arabian business partners. The Commodity Futures Trading Commission (CFTC), the government’s futures watchdog, had become seriously alarmed at the prospects of a shortage on the exchanges, and tried persuading Bunker Hunt to sell some of his silver.

The billionaire resisted, believing that silver was a long-term play with an integral role in the future global economy. The CBOT, backed by the CFTC, finally decided to put a stop to the Hunt brothers’ buying—by changing its rules.

Margin requirements were suddenly raised, and traders could hold no more than 3 million ounces of silver futures; those holding more were placed in forced liquidation. Bunker Hunt cried foul, accusing exchange board members of having a financial interest in the markets—an accusation that would later be proven true.

Then, the U.S. Federal Reserve and its chairman, Paul Volcker, added to the Hunt brothers’ troubles by strongly encouraging banks to stop making loans for speculative activity.

When Silver Sneezed, Gold Caught the Cold

On January 7, 1980, the other major U.S. exchange, COMEX, changed its rules also. Investors were limited to 10 million ounces in futures contracts, and any amount above that had to be liquidated by Friday, February 18.6 On the very next trading day, Monday, January 21, as silver reached a record high of $50 an ounce, the Hunt silver hoard peaked at a mind-boggling $4.5 billion, (that’s $43.5 billion in Shadowstats CPI-adjusted 2011 dolars!)5

On the same day that silver hit $50 and silver futures topped out at $52.50, gold’s price set a new record of $850 and gold futures peaked at $892. COMEX, terrified that it would be forced into default, announced—with the backing of the CFTC—that trading in silver would be limited to liquidation orders only, eliminating any buyers.

With no new buyers, the price of silver could not go up. So this rule was basically the same as saying, “Until this rule is lifted, the price of silver will only go down.” Of course, silver began to plummet, and on that same day so did gold.

Was it just a coincidence that gold and silver peaked at the same time?

Could it be that many large silver traders also held gold?

Wouldn’t the gold traders on the exchanges have known what happened to the silver traders and said to themselves, “Oh my God…if they can do that to silver, then gold is probably next”?

From Billions to Bust

On Silver Thursday, silver dropped from $15.80 to $10.80 an ounce. The stock market also crashed, fueled by rumors that the Hunt brothers would liquidate stocks in order to cover their silver losses. Because most of their silver bullion had been purchased at under $10 an ounce, the Hunts were still ahead of the game on their physical silver. But in the futures market, where their average purchase price was near $35 an ounce, it was a different story.

It became easy for the government to label the Hunt brothers as market manipulators—both in the court of law and in the easily swayed court of public opinion. Bunker Hunt filed for personal bankruptcy and was charged with trying to corner the silver market. He settled with the IRS for $90 million and was fined an additional $10 million by the CFTC.7

Why were the Hunt brothers torn down? Gold and silver are the canaries in the coal mine: Their spiking prices reflected the public’s loss of confidence in fiat currencies—like the U.S. dollar. So, the government and banking establishment had a vested interest in keeping gold and silver prices from exploding.

Do you think it’s possible that the Federal Reserve may have realized they could suppress the price of gold and save the dollar—while making it look like they were really protecting everyone by going after the Hunt brothers?

After scrutinizing the evidence, my conclusion is that the Hunt brothers were sacrificial lambs. The Hunt brothers broke no laws. The CFTC, COMEX and CBOT simply changed the rules in the middle of the game. And the U.S. government, eager to stop the rush to gold and silver that threatened the credibility of its own fiat currency, had no problem looking the other way.

Even Jeffrey M. Christian, Managing Director and founder of CPM Group and one of the world’s foremost authorities on the markets for precious metals, told me in an interview that he believed the Hunt brothers only added between 75¢ and $1.00 to the price of silver.

Silver Linings: What the Hunt Brothers Can Teach Us Today

The Hunt brothers got into trouble because they exposed themselves to a huge amount of risk through their leveraged investments. Leverage makes a bigger impact when you’re losing than it does when you’re winning: It can be as blunt as a bowling ball on the way up, but as sharp as a surgical laser on the way down.

In my view, there’s simply no substitute for physical ownership of your own gold and silver. This is especially important today, as we see the fiat currency system showing severe signs of instability.

Whether the Hunt brothers were victims of their own greed, the greed of board members on the exchanges, a desperate attempt by the Fed to save the dollar, or some combination of these things, it’s clear to me that the fall of silver in 1980 brought gold down with it and bought the dollar some extra time.

We have no way of knowing how high gold and silver would have gone if the government and banking establishment hadn’t gone after the Hunt brothers. We’ll never know if the dollar would have survived. We do know that gold peaked when silver peaked, and we know that gold fell when silver fell.

In the near future, both of these metals may again start taking off into the stratosphere. And this time, the Fed won’t have the Hunt brothers around to stop them.

- Mike Maloney

Overdose : The Next Financial Crisis

Overdose: The Next Financial Crisis a Nice and simple documentary for even the clueless to follow.GET A FARM TO GROW YOUR OWN FOOD. GET GOLD AND SILVER.The big hedge fund guys are loading up on Gold right now. The Global Elite banking families create money out of thin air, charge interest on it and drive countries into debt. Debt caused from money WHICH DOES NOT EXIST! Numbers on a computer screen! the two party system has failed. They need each other, you can't have good without evil. time to pressure the liars for campaign finance reform.In general it was a good documentary but could have used more details and underlining facts like congress voting on the bill without even reading them that caused a lot of the debt problems. Or the cash for clunkers which was really for the metal to pay china with a tangible good vs useless paper money back by nothing.

The whole system is corrupt.These people get jobs working for the states or towns and they think they are privy.They take advantage of taxpayer dollars just as much as those that are on welfare that shouldn't be.Oh and as far as more jobs goes,the DPW usually hires people inside their families first.Like temp / college kids of the rich to mow / care for cemeteries, while they pass up the citizens that really need jobs.

The Coming Bond Market Collapse: 3 Ways to Dodge the Damaget: GLD, SLV, TBT

We're on a collision course with the worst bond market collapse in decades.
The warning signs are as clear as day.
There's still time to dodge the damage - and even to profit - if you know what to look for.
But the time to make your move is now ...
Three Catalysts for a "Total Bond Market Collapse"
U.S. Treasury bond yields have been only moderately strong since December, with the 10-year Treasury yield rising from 3.31% to 3.40%. As a result, bonds have been a pretty unprofitable play for investors. In fact, a 10-year Treasury purchased Jan. 1 has lost 0.76% of its principal, which almost wipes out the roughly 1% in interest the bond has yielded during that same three and a half month stretch.
While that only represents a moderate decline in bond prices, take heed: That gentle slope leads directly to the precipice of a bottomless pit - a total bond market collapse.

There are three key factors that will cause - and even hasten - the coming bond market collapse. These catalysts are easy to spot - indeed, they're in the headlines virtually every day.

I'm talking, of course, about monetary policy, inflation and the federal deficit. Let's take a detailed look at each of these potential bond-market-collapse catalysts:
  • The Monetary Policy Blues: U.S. Federal Reserve Chairman Ben S. Bernanke has kept interest rates virtually at zero (0.00%) for 30 months, with inflation now showing signs of returning. Since November, Bernanke's been buying a full two-thirds of the Treasury's debt issuance. He's not going to raise interest rates anytime soon, which means inflation will accelerate, mostly through commodity prices. And when he stops buying Treasuries, where will that leave the investors?

  • The Inflation Conflagration: Inflation had been running at near zero because of the recession, but in the last six months the producer price index (PPI) has risen at an annual rate of 10%. That will feed into the consumer price index (CPI) over the next few months. At some point, bond buyers will realize inflation is back and panic. After all, even though inflation never got above 14% in the 1970s and 1980s, long-term bond yields got to 15%. For bond yieldsto move that high from here, bond prices would have to fall an awfully long way.

  • The Federal-Deficit Follies: The real cost of the $787 billion "stimulus" of 2009 is the $1.6 trillion deficit we are now struggling with. The United States has never run a deficit of anywhere near this magnitude, and it's becoming obvious that trillion-dollar-plus deficits are here until at least 2013. That's another reason for the bond markets to panic - and is another reason to fear a bond market collapse.

Worse Than the 70s

Combine those three factors, and you're looking at the potential for a truly epic bond market collapse, worse than anything that we saw in the 1970s. After all, if bond yields rise 0.25% when the Fed is buying 70% of the bonds and keeping interest rates artificially low, those yields will experience a stratospheric zoom after June 30, when Bernanke's "QE2" bond-purchase program comes to an end.

If you ask me to bet, I would say the bond market disaster will start in the third quarter - even CPI inflation figures are likely to be looking pretty creepy by then. Before then, you will probably see a continuing creep upwards in bond yields, perhaps reaching 4% on 10-year Treasuries by early June.

How to protect yourself? Well, obviously gold and silver are part of the solution, at least until the Fed starts fighting inflation properly, which I don't expect to happen before next year.

The other solution is to bet on the bond market collapse itself. To do that, I'd recommend a look at the ProShares UltraShort Barclays 20+ Year Treasury Exchange Traded Fund (TBT), which aims to rise by twice the amount that long-term Treasuries decline. Like all leveraged inverse funds, this accumulates tracking error if you hold it too long. However, I don't think we'll have to hold it for more than a few months this time, so the tracking error should be modest.

People have been predicting a sharp rise in bond yields for two years now, and they have been wrong. However, I think those predictions of a bond market collapse are likely to come true within the next few months, and when they do, they'll come true with a bang.

Investors are looking at a bond market collapse, and it could start in the third quarter. But don't wait until then to adopt defensive investments. Start positioning yourself now.

The U.S. Federal Reserve's loose monetary policy and the inability of our elected representatives in Congress to rein in the U.S. debt load have undermined both the U.S. dollar and the nation's economic recovery.

There is no safe place to hide, but owning gold and other precious metals such as silver could go a long way toward preserving your wealth - at least until the Fed starts fighting inflation properly, which I don't expect to happen before next year.

In fact, I would recommend you have at least 15% to 20% of your portfolio in gold and silver, the traditional inflation hedges.

Of course, the short story is that both metals have exchange-traded funds that track their price fluctuations - namely the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV).

The other solution is to bet on the bond market collapse itself. To do that, I'd recommend a look at the ProShares UltraShort Barclays 20+ Year Treasury Exchange Traded Fund (TBT), which aims to rise by twice the amount that long-term Treasuries decline. Like all leveraged "inverse" funds, this accumulates tracking error if you hold it too long. However, I don't think we'll have to hold it for more than a few months this time, so the tracking error should be modest.

The Coming Collapse of the Middle Class

McAlvany Weekly Commentary

Reserve Currency Of The World – But For How long?

-U.S. debt gets thumbs down from S&P Rating service. New revelation?
-B.R.I.C.S. say goodbye to Dollar transactions amongst themselves.
-How British dethroned themselves to the Dollar half a century ago, and how that relates to the Dollar being dethroned by itself today.

The 10 "Doomsday Trends" Set To Destroy America

Feeling like the daily dose of objective "truth" from Tim Geithner's latest media circuit has got you down? Fear not: here is MarketWatch's Paul Farrell summarizing the 10 ways in which the very system is destroying America, to lift your spirits up. To wit: "Doomsday Capitalism? Capitalism is killing America? Yes, that’s the message in my tenth book. “Doomsday Capitalism, 10 Self-Destructive Trends.” But you’ll never see it in print. No one, even book publishers want to read this truth: Capitalism is destroying America. Why? Super-Rich Capitalists get rich off these macro trends. They want happy talk. Back in 2007 Vanguard founder Jack Bogle called my warnings “prescient.” But that didn’t stop the meltdown. Next time financial historians warn of a bigger meltdown; a total collapse has been the destiny of every nation for eight centuries. This time, capitalism is the saboteur." Cheerful stuff.

10 Doomsday trends America can’t survive

Capitalism has become a religion for the Super Rich, with many such “saviors.” Heresies must be denied, such as this one: Doomsday Capitalism is destroying America from within. Here are highlights, with links to a few of the earlier hundred columns on topic. Ten macro trends building to a perfect storm, a critical mass, a flash point:

1. Doomsday Capitalism: Death of the American dream, spirit, soul

After our bankrupt Wall Street was resurrected in 2008 — thanks to their Trojan Horse, an ex-Goldman CEO inside the Treasury conning trillions from a clueless Congress — it became obvious that capitalism is killing America’s soul. Nobody trusts government. And no matter who’s elected, wealth, Wall Street and the Super Rich rule America; total collapse is coming.

Why? Sen. Bernie Sanders, the independent from Vermont, said it best: “There is a war going on in this country … the war waged by the wealthiest people in America on the disappearing and shrinking middle class of our country. The nation’s billionaires are on the warpath. They want more, more, more. Their greed has no end and they are apparently unconcerned for the future of this country if it gets in the way of their accumulation of power and wealth.”

2. Doomsday Democracy: ‘Mutant Capitalism’ killing ‘We the People’

Stop kidding yourself, democracy is dead: “All men are created equal” is a quaint political fiction. The public has no real say in a nation where wealth buys votes, a naive public is easily manipulated and elected officials have a price.

In “The Battle for Soul of Capitalism,” Bogle warned us the “Invisible Hand” no longer serves “We the People” nor the public welfare. Today, Wall Street and the insatiable Super Rich 1% rule America. And they are obsessed with restoring the same unregulated free-market Reaganomics that loves gambling in the same speculative $580 trillion derivatives casino that triggered the 2008 meltdown.

3. Doomsday Conspiracy: Wall Street takeover, the new ‘Invisible Hand’

The Super Rich have always had some hand in America’s destiny, operating from the shadows. Today, this conspiracy of Wall Street, Corporate CEOs, politicians and Forbes 400 billionaires operates openly, with absolute power and an arrogance that is corrupting the nation’s soul, their souls, your soul. This conspiracy has no moral compass , yet ironically, is legal.

Why? Wealth can easily buy favorable laws, making even the most unethical, selfish, corrupt behavior legal by fiat. And their high-priced lobbyists all over Washington, Congress, government regulatory agencies and the Fed all have the power to grab the rewards of capitalism for the Super Rich, while transferring the liabilities to the other, clueless 99% of America’s taxpayers

4. Doomsday Politics: Monopoly of Super-Rich Anarchists rules America

Forget buzzwords like oligopoly, plutocracy, socialism. Today Washington is a pure anarchy, a gameplayed by tens of thousands of high-priced lobbyists squeezing the best deals out of America’s budget, solely for their clients’ interests, never the general public. Our economy is a monopoly of Super-Rich Anarchists. They know the only votes that count are in Congress. And they’re for sale.

Lobbyists are “brokers.” Today there are 261,000 lobbyists brokering special interests, all fighting for the maximum possible slice of a $1.5 trillion federal budget pie — special regulations, exemptions, loans, tax loopholes, earmarks, access, agency appointments, defense contracts, you name it — endless gambits that further consolidate the power and wealth at the top for Super-Rich Donors

5. Doomsday Economics: Growth is a numbers game for politicians

The principle of grow or die, once a given in economics and politics, is being challenged by new“growth and die” research, while a bizarre numbers racket is used by economists as propaganda to hide the truth, manipulating investors, consumers, voters, the public.

All economists tend to be biased, work for banks, politicians, corporate CEOs, think tanks and the Fed, all with political agendas. They’re more speech writers, supporting partisan slogans like “drill baby drill,” ignoring long-term consequences. For example, global population will increase 50% by 2050, yet old-school economists keep pretending natural resources are infinite.

6. Doomsday Psychology: The broken promises of behavioral science

Back in 2002 behavioral science offered investors hope: Psychologist Daniel Kahneman won the 2002 Nobel Prize in Economics, exposing Wall Street’s myth of the “rational investor.” Their promise: We’ll help you understand your brain, make better decisions. You’ll be “less irrational,” control your brain, be a successful investor.

Wrong. That will never happen. Why? Because your brain will always be irrational. Worse, Wall Street quants are always light-years ahead of our home-school brain rewiring; they know you’re vulnerable, easy to manipulate. They also hire the top neuroscientists for their casinos. No wonder the house always wins.

7. Doomsday Technology: Innovation, derivative casinos, the singularity

Sophisticated new technologies, mathematical algorithms and neuroscience all guarantee Wall Street insiders huge margins gambling in their derivative casinos, leveraging deposits from Main Street’s “dumb money.” Today Wall Street is even more obsessed, grabbing for high-risk profits in a tough “new normal” of high volatility, increasing risks, lower returns.

Average investors are no match for Wall Street’s high-frequency traders who easily win by huge margins on this rigged playing field. Still, naive Main Street investors keep betting despite warnings that the more you trade the less you earn.

8. Doomsday Warfare: Pentagon math: population + commodities = wars

The Pentagon predicts that by 2020 “warfare will define human life” as global population explodes 50% to 10 billion in 2050. Powerful commercial, political and ideological forces drive globalization. Emerging nations compete for scarce resources. This is “the mother of all national security issues,” warns the Pentagon.

“Unrest would then create massive droughts, turning farmland into dust bowls and forests to ashes. Rather than causing gradual, centuries-spanning change, they may be pushing the climate to a tipping point. By 2020 there is little doubt that something drastic is happening. As the planet’s carrying capacity shrinks an ancient pattern reemerges: the eruption of desperate, all-out wars over food, water and energy supplies and warfare defining human life.”

9. Doomsday History: This time really is different — the final meltdown

Bubble/bust cycles have been well documented for eight centuries. But the lessons of history are never learned. Euphoria blinds us in boom times. We deny risk. Bubbles blow. Meltdowns happen. We will always recover.

Wrong. Many now challenge that naive assumption. Financial historian Niall Ferguson comments in his“Rise and Fall of the American Empire:” “Collapse may come much more suddenly than many historians imagine. Fiscal deficits and military overstretch suggests that the United States may be the next empire on the precipice. Many nations in history, at the very peak of their power, affluence and glory, see leaders arise, run amok with imperial visions and sabotage themselves, their people and their nation.”

10. Doomsday Investing: Survival strategies in the post-capitalism era

Former Morgan Stanley guru and hedge fund manager Barton Biggs, offers his Super-Rich Investors a doomsday strategy in his “Wealth, War and Wisdom.” He warns of “the possibility of a breakdown of the civilized infrastructure.” No hippie radical, he says “think Swiss Family Robinson, your safe haven must be self-sufficient, capable of growing food, well-stocked with seed, fertilizer, canned food, wine, medicine, clothes. And be ready to fire a few rounds over the approaching brigands’ heads, to persuade them there are easier farms to pillage.”

But will that work for Main Street investors in the next meltdown/depression? Read our 12 tips and six worst-case scenario rules for average investors preparing for the doomsday scenario.

Farrell's conclusion: eat the rich... more or less

Has America passed the point of no return?

Can’t we deflect the trajectory? Yes, but America would need a fundamental shift in how our leaders think, says Jared Diamond in “Collapse: How Societies Choose to Fail or Succeed.” We need leaders with “the courage to practice long-term thinking and make bold, courageous, anticipatory decisions at a time when problems have become perceptible [like in 2011] but before they reach crisis proportions.”

Bottom line: Underneath America’s endless political drama lie deep wounds that are widening the gap between the Super Rich and the other 99% of America, wider today than before the 1929 Crash. And now as then, we know the Super Rich don’t really care about the needs of the rest of America — witness their agenda in states like Wisconsin and Michigan, and the GOP’s new “Path to Prosperity” budget, a rush to restore failed Reaganomics policies.