He Has a Passion for Silver

It cost him billions and nearly caused a panic

It had to be a Texan, of course. Who else could head a small investment group that loses $1 billion on paper in a single day and still has perhaps $2 billion left after that? A Saudi, maybe, and in fact there were three Saudi Arabian colleagues plus a Brazilian. But their leader, the man who shook the world's commodities markets and almost caused a financial panic last week, is an archetypal Texas wheeler-dealer, Nelson Bunker Hunt.

He does not look the part. A 225-lb. man of 54, Bunker Hunt dresses in inexpensive brown suits, though he bridles when they are called cheap ("I don't know where you can buy cheap clothes," he says). He neither smokes nor drinks, drives himself to work in a 1973 Cadillac, and lists his phone number openly in the Dallas telephone directory. His taste in food is plain. Says one associate: "He is the kind of guy who will order chicken-fried steak and JellO, spill some on his tie, and then go out and buy all the silver in the world."

Not quite. The Hunt group's own figures indicate that last week it owned only two-thirds of all the commercial silver that is not in government or industrial users' hands. But Hunt is surely the biggest commodity speculator in the country. He has been accused in the past of trying to corner the market in soybeans as well as silver. He has also made and lost fortunes in oil, directs the Hunt family's control of one of the nation's largest sugar-beet processors, and owns what may be the world's largest stable of race horses (600). Altogether, his activities would doubtless please his late father, the legendary oil billionaire H.L. Hunt.

H.L. was a one-of-a-kind eccentric, a penny pincher who brought his lunch to work in a brown paper bag, a health faddist who crawled on all fours as a form of exercise, a gambler who sometimes had $50,000 riding on a single afternoon's sports events. Says Bunker of his father: "We never disagreed on anything much.

I was the student, he was the teacher and I never argued much." Bunker says the main lesson that he learned from his father was "in business, you should risk a little with the potential to make a lot, not vice versa."

Bunker, the leader of the six children of H.L.'s first marriage, they feud incessantly with the four children of the second marriage, seems to have inherited some of his father's traits. Like H.L., Bunker is a zealot for far-right causes. He is on the national council of the John Birch Society and is said to have angrily quit the University of Texas after one semester because one of his professors suggested that the Government should control all natural resources. Like H.L., Bunker has a penchant for controversy; he is almost constantly enmeshed in lawsuits. In 1975 Bunker and his brother Herbert were tried in federal court on charges of Bunker's having tapped the phones of their father's business associates. The brothers protested that they had not known wiretapping was illegal and were acquitted, but two private detectives whom they had hired went to jail. Most of all, Bunker shares his father's passion for trading. Says he, speaking of race horses but expressing a philosophy that also governs his business dealings: "It's a thrill to watch one turn into a winner."

Bunker started in the 1950s with an oil-drilling program in Pakistan that yielded nothing but dry holes, more than $11 million worth. Undaunted, he sank $250 million into exploration ventures in the Middle East and North Africa. In 1961 he discovered the Sarir field in Libya, one of the biggest single oil finds ever. But in 1973 Libya nationalized his holdings, depriving Hunt of potential future profits that could have run into the billions. For a while, one biographer believes, he was not even a billionaire.

Hunt then developed a passion for silver. His bland understatement of the reason:

"Silver looked safer than overseas oil concessions, the way things were going. And precious metals were a good hedge against paper money."

There were other factors: world demand for silver, spurred largely by its use in photographic materials, regularly exceeds new production from mines, and Hunt believed silver was greatly undervalued in relation to gold. Bunker and his brother Herbert bought in 1973 an astonishing 35 million oz. in futures contracts. Their buying drove prices up for a while, but when the brothers stopped their purchases, prices fell again. The Hunts lost an estimated $25 million to $50 million on paper. Undeterred, Bunker called for actual delivery of the metal, a rare occurrence in commodity markets, and just kept it.

Last year Bunker and his syndicate began buying silver again, this time on a truly gargantuan scale. They were soon imitated by other speculators shaken by international crises and distrustful of paper money. It was this that sent the price of silver from $6 per oz. in early 1979 to $50 per oz. in January of this year. Chairman Walter Hoving of Tiffany & Co., the famous jewelry store, was incensed. Tiffany ran an ad in the New York Times last week asserting: "We think it is unconscionable for anyone to hoard several billion, yes billion, dollars worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver from baby spoons to tea sets, as well as photographic film and other products."

Just what the Hunts were up to, no one in the outside world yet knows. Bunker is garrulous about race horses but extremely secretive about business, and there are no published figures on his activities since public investors do not participate in them. Bunker once told reporters that "I am not a speculator. I am not a market squeezer. I am just an investor and holder in silver."

The prevailing theory is that Hunt was trying to corner the market. A corner is created when a speculator buys up virtually all the supply of a commodity or stock that is available for sale, and contracts to buy yet more. Other speculators who have contracted to sell the commodity to him but do not have any to deliver must either buy anything they can find at whatever outrageous prices may be asked or else settle in cash with the cornering speculator on any terms he may specify. Corners have often been attempted but seldom work, partly because the soaring price creates new supplies. The most famous corner was the one that Jay Gould and Jim Fisk achieved in the New York gold market in 1869 by bribing President Grant's Assistant Treasurer, Daniel Butterfield, to limit the supply of gold. Grant himself intervened to break the corner.

If a corner was Hunt's goal, it did not work. In January, commodity exchanges placed sharp restrictions on the speculative purchases of silver contracts on margin. That dried up the frenzied demand. At the same time, thousands of people tempted by the high prices began hauling family silver out of closets to be sold and melted down. Even thieves got into the game, and burglaries of household silver increased throughout the U.S. In late January the price broke, then spiraled down and down.

What happened next is still unclear, mostly because it is not known how much Hunt may have borrowed to buy his silver and how badly the borrowing may have strained even his resources. But last week stories spread that he was selling silver in Europe, and traders interpreted that as a signal that he was running out of cash. Then Bunker, Herbert and their associates offered to sell billions of dollars worth of bonds in Europe to be backed by a "substantial portion" of the estimated 200 million oz. of silver they hold. These bonds would pay a low rate of interest (estimated at 8%). One theory, advanced by Metals Dealer Andrew Racz, is that they were trying to raise money at low cost to invest in higher yielding (15%) U.S. Treasury bills, or even, as James Sinclair, another bullion broker, thinks, to buy more silver. But the prevailing belief was that Hunt, locked into a silver position that he could not sell out at any price he would accept, was in effect trying to turn his silver hoard into cash without actually selling it.

The climax came on Thursday, when the Bache Group, which owns one of the nation's largest brokerage houses and is in turn 5.6% owned by the Hunt family, announced that it had issued a $100 million margin call on the Hunts and that they could not, or would not, put up this additional cash to protect their position. Wild rumors flew that Bache was about to go under. Stock and commodity prices went into a nosedive. Bache asked the Government's Commodity Futures Trading Commission to close to close the silver market. The commission refused. "Despite the seriousness of the situation," said Chairman James Stone, "certain lines need to be drawn. The primary job of the CFTC in the silver markets is to protect small customers and commercial users. We are not here to afford protection to large speculators or the shareholders of the firms that seek their business."

In fact, Bache appears to have enough capital to meet any demands on it, and by week's end markets had rebounded sharply. The Securities and Exchange Commission began an investigation, presumably to determine whether Hunt had manipulated the market. Bunker, closemouthed as ever, was said to be in Saudi Arabia, conferring with his colleagues, and Wall Streeters were trying to figure out his position.

The mathematics are awesome: if Hunt's group really does own 200 million oz. of silver, its value would have fallen from $10 billion at the $50 January price to around $3 billion early Thursday, and then dropped another $1 billion that day alone. But even at the late Thursday price of a bit more than $10, it would still have been worth more than $2 billion, assuming they could sell the metal without pushing the market even lower. Says one blas Dallas commodities broker: "From my standpoint, this is no surprise. The Hunts have made or lost $1 billion on more than one occasion."

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