THREAD: With #silversqueeze trending on Twitter, it appears that this week's market spectacle may well be in the silver market.

A perfect moment for a thread on the Hunt Brothers and their alleged attempt to corner the silver market...
1/ First, let's set the stage.

The Hunt Brothers - Nelson Bunker Hunt, William Herbert Hunt, and Lamar Hunt - were the sons of Texas tycoon H.L. Hunt.

H.L. Hunt had amassed a billion-dollar fortune in the oil industry.

He died in 1974 and left that fortune to his family.
2/ After H.L.'s passing, the Hunt Brothers had taken over the family holdings and successfully managed to expand the Hunt empire.

By the late 1970s, the family's fortune was estimated to be ~$5 billion.

In the financial world, the Hunt name was as good as gold (or silver!).
3/ But the 1970s were a turbulent time in America.

Following the oil crisis of the early 1970s, the U.S. had entered a period of stagflation - a dire macroeconomic condition characterized by high inflation, low growth, and high unemployment.
4/ The Hunt Brothers - particularly Nelson Bunker and William Herbert - believed that the inflationary environment would persist and destroy the value of their family's holdings.

To hedge this risk, they turned to silver.

They began buying the metal at ~$3 per ounce in 1973.
5/ Not a conservative bunch, in the mid-late 1970s, the Hunt Brothers began more aggressively buying physical silver.

But it didn't stop there.

They started buying all of the available silver futures contracts as well.

A primer on futures is below.
6/ Typically, these futures contracts are settled in cash, meaning the buyer (the Hunts) just receives cash for whatever the contract is worth at expiry.

But the Hunts were not typical - they wanted the silver!

So planes were loaded and shuttled silver to vaults in Switzerland.
7/ In addition to using their personal cash fortunes to execute this buying, the Hunt Brothers began aggressively leveraging their position.

They used margin (primer below) to expand their buying power in the market.

Their silver position ballooned.
8/ With the flood of demand from the Hunt Whale, silver prices began to rise.

At this point, it was rumored that this was more than a simple bet on silver as a hedge against paper currency.

The Hunt Brothers were attempting - rather successfully - to corner the silver market.
9/ Cornering a market means an individual or entity acquires enough shares or ownership to manipulate the market price.

The individual backs the market into a corner - the market has nowhere to run.

The cornering party has full control over it.

It seemed like the Hunt's plan.
10/ In addition to their prolific buying, the Hunts brought other investors, some of Saudi origin, into the trade.

As prices climbed, a short squeeze was on.

Silver shorts were forced to cover their positions, further accelerating the price rise.
11/ The price of silver skyrocketed from $6 per ounce in early 1979 to over $49 per ounce in early 1980 (a 700%+ spike!).

The Hunt position was now worth ~$5 billion.

They were believed to control 2/3 of the available market - intentionally or not, they had cornered the market.
12/ With prices at all-time highs, the silver frenzy was in full effect.

The price rise was so dramatic that Tiffany's took out a full-page ad in the @nytimes deriding the Hunt Brothers for their actions and their impact on pushing mom-and-pop silver buyers out of the market.
13/ At this point, the government took notice.

And if there is one thing we learned in the last week, it's that the rules of the game can be changed at any time.

Unfortunately for the Hunt Brothers, the rules of the game were about to change and pull the rug from under them.
14/ In January 1980, Federal regulators stepped in.

In "Silver Rule 7," regulators increased the margin requirements on silver futures, meaning purchasers would need to post additional collateral to support their loans.

The rules had changed - the Hunts were now the hunted.
15/ What followed was a classic, leverage-induced downward spiral.

The price of silver began to fall.

The Hunt Brothers were issued margin calls on their loans.

To meet the margin calls, they had to sell silver.

The selling dropped the price, leading to more margin calls.
16/ On March 27, 1980, when news broke that the Hunt Brothers had been unable to meet a $100+ million margin call, the silver market collapsed 50% to under $11 per ounce.

The government even grew worried about the systemic risk to the system if the Hunt's brokers went under.
17/ Given their other business interests, the Hunt Brothers were able to secure a rescue package of $1.1 billion from a variety of banks in order to meet their obligations.

While they did later declare bankruptcy to protect certain assets, the family fortune generally survived.
18/ Throughout the government and legal proceedings that followed the incident, the Hunt Brothers denied any wrongdoing.

They maintained that their silver purchases were not an attempt to corner the market but a legitimate investment in a hedge against fiat destruction.
19/ So as the world once again turns its gaze to the silver market, I hope the story of the Hunt Brothers provides an interesting historical backdrop for this week's show.

As always, do your research and never take undue risks!
20/ If you enjoyed this, follow me for more educational threads on business, money, finance, and economics. You can find all of my threads in the meta-thread below.
21/ And if you are less Twitter inclined, sign up for my newsletter here, where you can find all of my old threads and receive all of my new threads directly to your inbox.
Update: The @CFTC announces it is “closely monitoring” activity in the silver market in light of recent events...…
Update: Silver down ~9% today. Selling activity accelerating.

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Sahil Bloom

Sahil Bloom Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @SahilBloom

27 Jan
THREAD: The story of the week in finance is how a group of retail traders at @wallstreetbets, with assists from @ElonMusk and @Chamath, took down the establishment short sellers at GameStop.

A thread on the underlying mechanics of the $GME saga...
1/ First, for those unfamiliar with the business, GameStop is a videogame and merchandise retailer.

It has >5,000 stores, primarily in malls, across North America, Europe, and Australia.

The business has struggled to modernize, hurting its financial and stock performance.
2/ For a variety of business reasons, a bull (i.e. optimistic) case regarding its future performance has formed.

It really came to the forefront after RC Ventures, an entity managed by Chewy founder @ryancohen, disclosed a large position and assumed three board seats.
Read 23 tweets
24 Jan
In 1983, a 52-year-old senior executive at Texas Instruments was passed over for the company's top job.

He would go on to found and build the most strategically important company in the world.

Who's up for a story?

1/ Morris Chang was born into a middle-class family on July 10, 1931 in Ningbo, Chekiang, China.

The early years of his life were set against a backdrop of hardship.

Wars and widespread poverty had overwhelmed the country, exposing him to this suffering at a young age.
2/ His father - an official in the local government - encouraged Morris to focus on school.

Fleeing the violence of the ongoing wars, Morris and his mother moved frequently.

His studies became his respite.

In 1948, at the height of the Civil War, they moved to Hong Kong.
Read 22 tweets
18 Jan
THREAD: 5 powerful mental models to help you win in a competitive world.

In investing, business, startups, writing, or life...
First Principles Thinking

“The first basis from which a thing is known.”

Establish foundational truths. Build from there.

In a world of unimaginative, copycat solutions, leveraging first principles thinking is key to achieving non-linear outcomes.
Second-Order Thinking

“And then what?”

Look past the first-order effects of a decision. Deeply examine the second, third, and N-th order effects.

It will lead to asymmetric opportunities and non-linear outcomes.
Read 7 tweets
15 Jan
Dunning-Kruger Effect 101

In a year when the markets have minted many new self-proclaimed geniuses, it is worth remembering the Dunning-Kruger Effect.

But what is the Dunning-Kruger Effect and how does it work?

Here's Dunning-Kruger Effect 101!

👇👇👇 Visualization Credit: @JackButcher @VisualizeValue @Value
1/ First, a few definitions.

The Dunning-Kruger Effect is a cognitive bias in which people with low ability at a given task are prone to overestimate their ability at that task.

Put simply, humans are notoriously incapable of objective evaluation of their competency levels.
2/ The cognitive bias was first identified by psychologists David Dunning and Justin Kruger in a 1999 study.

Their paper, entitled Unskilled and Unaware of It, summarized, "People tend to hold overly favorable views of their abilities in many social and intellectual domains."
Read 17 tweets
6 Jan
Circle of Competence 101

Warren Buffett and Charlie Munger often reference the importance of knowing the boundaries of your circle of competence.

But what is a Circle of Competence and how does it work?

Here's Circle of Competence 101! Image
1/ First, a few definitions.

A Circle of Competence is the set of topic areas that align with a person's expertise.

If the entire world of information were to be expressed in a circle, an individual's Circle of Competence is the small sub-circle that represents their expertise. Photo Credit: @hnshah
2/ The idea surfaced in the 1996 BH annual letter.

"You don’t have to be an expert on every only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital." Image
Read 16 tweets
2 Jan
Robert Smalls was born into slavery but would go on to become a hero of the Civil War, a successful entrepreneur, and a U.S. congressman.

His journey is one you have to read to believe.

Who's up for a story?

1/ Robert Smalls was born on April 5, 1839 in Beaufort, South Carolina.

His mother, Lydia Polite, was a house worker enslaved by a man named Henry McKee.

It is widely believed that McKee was Robert's father, which afforded him preferential treatment in his early years.
2/ While she had worked in the McKee household as an adult, Robert's mother had grown up working in the fields.

Not wanting her son to be blind to the plight of the other slaves, Lydia Polite requested that he be exposed to this work.

This experience was formative for Robert.
Read 18 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!