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Quote of the Day

 

“Come at once to the Federal Reserve Board!”

-Order given to James Stone, then Chairman of the CFTC, by Federal Reserve Chair Paul Volker in order to discuss the news that the Hunt Brothers owe more than $100 million, potentially causing brokerage failures and a financial crisis.

March 27th – This Day in History

 

March 27th, 1980 – The Hunt brother’s attempted cornering of the silver market fails spectacularly as the price of silver falls 33% in one day, from $16.25 to $10.85 per ounce, topping off a decline of more than 50% in just 4 days. March 27th is now commonly known as “Silver Thursday”.

Starting in mid 1979 Nelson Hunt and William Hunt (Then some of the richest men in the world) teamed up with a coalition of wealthy arab shieks to attempt to corner the silver market and create a private, silver backed currency to rival the U.S. Dollar. (Remember – this was taking place as inflation in the U.S. was running rampant, inflation was around 17%!) The price of silver would rise from $6 per ounce to more than $48 as they eventually accumulated more than 200 million ounces of silver, equivalent to half the world’s deliverable supply at the time.

But they failed to realize the implications of the price of silver rising so fast. People rushed to sell any silver they owned, from jewelry to coins, flooding the market with supply. At the same time, India’s government abolished a ban on silver exports, leading to additional silver supply. On top of that, exchanges changed rules for investing in commodities on margin.

The Hunt brothers had borrowed heavily in their attempt, and when prices of silver dropped due to excess supply, they were given a margin call from their broker for $100 million. In order to come up with the money the Hunt brothers were force to sell not only their silver, but also stock investments and government bonds, sending the prices of nearly everything down. (The S&P 500 closed down only 0.50% to 98.22, but had declined nearly 20% in the past month. This day would also mark a long term bottom in the stock market – in fact March 27th 1980 would be the last day the S&P 500 ever closed under 100.)

The Hunt brothers ended up with losses of nearly $4 billion.

Sources: Eyewitness to Wall Street, Devil Take the Hindmost



Best March 27th in Dow Jones Industrial Average History:

2001 – Up 2.68% or 260 points.

Worst March 27th in Dow Jones Industrial Average History:

1931 – Down 2.42%, or 4.4 points.

 

Picture/Chart of the Day

Front Page of the New York Times the day after “Silver Thursday”

hunt_silver_collapse_nyt

Long term chart of silver prices – clearly showing the inflation and bursting of the 1980 silver bubble.

silver_chart

 

 

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