The Hunts, unable to sell silver lest they trigger a panic, borrowed even more. But if the holder of the long position just so happens to be sitting on all the readily available supply of the commodity under contract, the short seller faces an unenviable choice: In the following years, the brothers were dragged before Congressional hearings, got into a legal spat with their lenders, and were sued by a Peruvian mineral marketing company, which had suffered big losses in the crash. But unlike most investors, when their profitable futures contracts expired, they took delivery. Sitting at the top of the family tree was H.
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In my eyes they did so without regard of others. Yet this was at a significant risk to them, because they were buying both the futures and physicals. So was their attempted corner unjust? After all, they were trading within the market rules of the time. But they got greedy and used any resources to extend their reach. Once the gig was up, and it was known that the Hunts were heavily leveraged through their structured business alliances, the bankers joined forces with the commodities exchange, the Comex, and the Federal Reserve to change the rules.
Since every loser on a futures contract must be matched by a winner, Bunker Hunt was convinced that the bankers and regulators involved with ending the corner profited greatly. But whatever the truth there, the Hunts would have been much more successful had they taken their profit sooner, before the price they demanded reached levels that affected industry and the average consumer.
At that point authorities get involved to correct the distortion. Because the silver market is much smaller than the gold market, the corner is a temptation that is almost irresistible to a big player. Even if cornering the silver market is not the intent.
In the late s renewed buying of physical silver ensued. BRK , which accumulated nearly million ounces from to early The market price rose sharply as this news broke, however it did not make the kind of price moves that would shock the public as the Hunts corner had. Though the quantity purchased was large, silver production had increased since and the price had not reacted to the same extent.
Additionally, the economic reality at that time was of a booming US economy, where people felt less need of silver as a safe haven investment. In general, market participants were surprised by the price moves in silver. It did not break any records; it just broke other investor's trades. One of these investment managers was Martin Armstrong of Princeton Economics International , who apparently had been selling short the silver market. His business became unraveled by the constant buying and rising price that he did not foresee.
At the request of investigators the large participants were asked to reveal their intentions. It became clear that no crime was committed unless buying silver was made illegal. But unfortunately for Mr.
Armstrong he had opened a can of worms. Armstrong was convicted for fraud and imprisoned for many years. He is currently a free man, and claims his innocence and that bigger fish who should have been prosecuted were left unscathed. Did Berkshire Hathaway manipulate the silver market, or were they just investors looking for a long term stake in this hard asset? The point is that silver is more at risk of volatility, and attempted corners or squeezes, than its big brother gold.
The principal reason is the volume of money ordinarily in the market place. Latest data from the London bullion market, where Warren Buffett took delivery of physical silver bars for Berkshire Hathaway's late s' investment, says gold trading outdoes silver trading more than 9-fold by Dollar value on average. In the US Comex futures market, where the Hunt brothers got burnt having leveraged their position with borrowed money, the value of open interest — the amount of outstanding contracts — ended February 3 times greater in gold than in silver.
Liquidity is a reference to this actual market size. The more people or businesses putting more money through a market, the easier and faster it is to buy and sell larger volumes without affecting the market price. Because the silver market is so small there are participants that will take the risk that they can make a big win in this game by taking a rather large stake whether by selling it short or buying the metal. Some win and some lose and some are big enough to cause the move.
Not only that, but if someone tries to corner a market, which is what you are suggesting, the exchanges can move in and stop the ruse. They did this a bunch of years ago to an Italian commodities trading firm, I think it was in the soybean market, The firm had bid up the price of beans with some huge purchases, all speculative. The CBOT then lowered maximum position limits and made the company liquidate a good chunk of their holdings. They also can raise margin requirements to stop someone from cornering a market, I think that's what the Comex did in to get the Bass Brothers out of their corner of the Silver market.
Now when companies start raising their prices and rents because your products are earning more, I am not sure what you can do about that. There are some ways top prevent it, but it depends on several variables and on you're being able to see what's coming before they do.
I would imagine that before prices rise sharply and you see that coming you could buy some supplies early and extend your lease at current terms. Regarding landlords, I guess if prices rose significantly and he wants to raise your rent, as a last resort you could hire a couple of Italians from New Jersey to pay him a visit, as in the following video:.
You know, a day or two ago, giolukas asked me why I respond at times in a nasty way, and here is a good example of why. You sit there in your farmhouse happy as a bird in a manure patch on a cold night, singing your little head off about who is qualified to give you advice, not realizing that a cat is nearby.
First of all, I do not give advice - I express my opinions on what I see happening in the industry and I don't ask anyone to listen or follow what I write. That is completely up to you.
Secondly, you think you know your business but in reality you know only half of it. What you don't know is the dangerous part, the financial side, because that's the side that will destroy you. When corn trades below three dollars and maybe as low as two during the next two years, and you're still giving away half a dollar to your middle man who buys your product, and your expenses are the same if not higher than they are now, what the heck are you gonna do? You have no plan other than to think it won't happen, but like the way the baseball always comes to the worst fielder in Little League even when you try to hide him in rightfield, the worst of all possibilities always happens at least once to every business.
And the ones that survive that near death experience were the ones who planned for it and took precautions to limit its damage. Now you may be one of the lucky ones who has a wealthy wife or a big inheritance or a trust fund, but that's not the case for most small farmers. Most are struggling to make ends meet and when corn takes that dive into waters uncharted for over a decade, they will be in serious jeopardy of seeing everything they worked for their entire adult lives washed away under a mountain of expenses and not enough revenue.
I try to warn you about what's coming and you make fun of me. Fine, we'll see how much you laugh when you sign the bankruptcy papers and the Sheriff starts auctioning off everything you own to repay some bank in New York. And when that time comes, when you see them hauling off everything you own and changing the locks on the front door to your house, then, yes then, you finally will realize that you should have paid as much attention to the issues I have raised here as you paid to writing foolish rejoinders to what I warned you about.
So go ahead, have your fun You know, when times are tough, like now when prices are falling and production costs are rising, if you can just keep your head above water by doing the things that can help reverse that death march, then you're doing fine.
You'll be in position to make a great profit once the trend reverses. The critical point is to survive the bad times when the rest of your competitors are crumbling, because then you'll have less competition and a lot more opportunities when times get good again. You'll do all right, because you have an open mind and you're honest to yourself. And you're not afraid to try something new when you think there's a chance it will help your business.
That's what makes a survivor, and survival is half of what it takes to keep a business successful.