14786 EXTENSIONS OF REMARKS June 13, 1980 EXTENSIONS OF REMARKS HUNT FOR A SCAPEGOAT seemed to run for cover in nearly all com­ of the physical silver he so prizes, Jarecki modities. was able to reduce his open short position The stock market suffered a sharp selloff on the Comex <thereby easing the pressure HON. LARRY McDONALD as it became clear that Bache was in trou­ of margin calls, which came daily as the OF GEORGIA ble. A number of other brokerage firms also price skyrocketed). IN THE HOUSE OF REPRESENTATIVES were affected. Rumor had it that two large A bullion dealer prefers to go to bed at commodities funds had been forced to liqui­ night perfectly hedged: whatever physical Friday, June 13, 1980 date. inventory he's got is covered by a short sale • Mr. McDONALD. Mr. Speaker, most The languishing bond market suddenly in the futures market. If the price (and, looked attractive to investors again. hence, the value of his real holdings) sud­ of the media in recent weeks has dealt In Washington, two regulatory agencies­ denly drops, he can recoup the loss via prof­ with Mr. Bunker Hunt and the down­ the Securities & Exchange Commission and its on his short sale. If prices rise, they com­ ward spiral in the price of silver in a the Commodity Futures Trading Commis­ pensate for the loss in his short position on very superficial and inaccurate sion-quickly got into the act: the SEC sus­ the boards. It's widely thought that Mo­ manner. One of the few balanced pended trading in Bache securities, the catta wasn't fully hedged as silver's price stories written appeared in Barron's CFTC said everything was all right, that soared. But even if it had been, it was daily for March 31, 1980. I commend it to there was no need to shut down the silver getting margin calls to maintain its short the attention of my colleagues in market <as Bache, improbably, had suggest­ position. ed). A Senate committee voted to hold hear­ Such margin calls are met by bank loans­ order to balance out the record. The ings. story follows: a virtual risk-free transaction, fully collater­ Nelson Bunker Hunt is not precisely a alized, for the dealer is merely protecting HuNT FOR A ScAPEGOAT colorful man: he is an overweight, down-to­ his inventory. However, the daily calls (By Richard A. Donnelly) earth Texan whose taste in clothing would began to strain both the resources and pa­ They punched a hole in Nelson Bunker not excite the envy glands of the likes of tience of several major lending institutions. Hunt's balloon last week. As it plunged to John White. Hunt neither smokes nor Never confirmed, but never denied, holders earth, so did his reputation as the Daddy drinks alcohol, but does, somehow, manage of short positions on the Commodity Ex­ Warbucks of commodities. He's been to get foot stuck in mouth on occasion, as change of New York were told that loan caught, and by people who had been waiting when he allowed that Chinese and Jews are money for margin was going to be as scarce for him for years-waiting for the day when different from the rest of us. He is a politi­ as silver bears. the market, that abstraction of forces, cal conservative, a theological fundamental­ In January, the board of governors of New would affirm the ancient axiom that no one ist. He was drawn to commodities specula­ York's Comex reached a momentous deci­ tion early enough to begin snapping up sion: for the first time in its history, it im­ man can control it for long. silver when it changed hands below $4 an Hunt, whose oil-based fortune expanded posed limits on the number of contracts an ·in the past decade to include sugar, real ounce. individual trader could hold. Prices had estate and pizza parlors, has a penchant for He also took delivery of it, much to the soared in a matter of weeks to $35 an ounce, speculation. It's showed up in his race annoyance of the establishment crowd in spurred in part by rumors of a possible horses; it surfaced in soybean futures a few silver, who were used to an occasional emer­ squeeze, as Hunt, along with some Arab years ago, when he and most of his family gency when a user might need to take away friends, owning fistfuls of contracts, and, were found to have exceeded the position some of the refined metal that had been with huge profits, were going to take deliv­ limits set for speculators. Pure excess of en­ stored away in one of the exchange-desig­ ery. But the effective date of the new limit nated bank vaults. Somehow, it was always was Feb. 18, and silver continued to climb. thusiasm. He's been in silver off and on for replaced, and gentlemen pitted against gen­ many years. In the past 12 months or so, THE FINAL BLOW along with some Arab sidekicks, he probably tlemen bet their money on a future price for can claim the credit for never-before-seen metal to be delivered in a distant month. He By mid-January, silver had reached $47 an who was wrong paid up, and the winner highs in the white metal. Thes~. in turn, ounce and the buying pressure continued. drove the prices of photographic film, pocketed the difference. Neither party seri­ On Jan. 21, with silver near $49 an ounce, dental fillings, silverware and jewelry com­ ously thought of delivering, or accepting, the board of governors of the Comex de­ pletely out of sight. Not to mention, in a the metal itself. creed liquidation only of existing contracts somewhat less visible area, the cost of doing JARECKI'S WARNING <meaning that no new players could enter business in electronics and electrical semi­ Hunt upset that tidy universe back in the market) and raised margins by $20,000 a conductors. 1973-74, when he stood for delivery of 43 contract. For holders of more than 250 lots, Only two months ago, silver reached a million ounces. Irritated sellers had to bid this meant a deposit of $60,000 per contract. high of $49 an ounce, up from early Decem­ up prices to get the physical bullion; metals The combination of impending position ber's $19, which, in turn, was three times dealers were put to work to replenish the limits <which meant disclosing clients), the the year ago's $6 an ounce. Hunt, who along stores. Amused sophisticates, such as Dr. freeze on new business and the prohibitive with his brother Herbert had been acquir­ Henry Jarecki, Yale-educated psychiatrist and costly margins finally did in the ing silver since 1973, clearly was in the driv­ who had turned from his practice to bullion market. er's seat. With his many thousands of con­ dealing, warned that Hunt some day would On Jan. 23, the nearby silver contract, on tracts, his already substantial physical hold­ have to sell. And when he did, he would which there are no limits, plunged a record­ ings and his expressed desire to take even bring prices down on top of him. shattering $10 an ounce. The board of gov­ more off the market, he was a powerful That was several years ago, but Hunt dog­ ernors of the Comex had succeeded in presence. Last Tuesday night, a strange gedly continued to buy silver. Jarecki prob­ breaking the back of the bull move in silver. thing happened: he received a margin call ably dresses better than Hunt, is an amus­ Except for two brief rallies, it began its de­ that he couldn't meet. ing raconteur who can handle himself on scent to the low 30s, where, it was widely It wasn't the first one, and it was for only the Today show. He has continental roots, thought, it would be supported by the Hunt $100 million, and it came from Bache, of an affiliation with the London based Mo­ family and the Arabs. which he's been 5.6% owner since December catta-Goldsmidt, and may have been the But the lack of new buyers, persistent and a favored customer long before that. first to introduce computerized arbitraging. profit-taking that began to feed on itself, But that telephone call signalled the end of The usual adjective, whenever his name is sent prices lower each day. The holders of a hair-raising era in the life of silver and in mentioned: brilliant. long positions watched as their paper prof­ commodities in general. The dust has not Late last year, the story goes, Nelson its began to vanish and brokers began to call yet cleared, but the ramifications at the end Bunker Hunt, self-styled country boy, for additional margin. With money getting of the week were many. nearly took Henry Jarecki to the cleaners. tight and interest rates soaring, raising new The silver market completely retraced a In the end, and for a motive he dearly margin deposits in a declining market was bull move that began a year ago; that, in prizes, namely, profits, Hunt let Jarecki off distasteful. Some speculators opted to take turn, may signal the emergence of defla­ the hook by agreeing to buy $400 million advantage of high interest rates in a rela­ tion-or, at least, disinflation-across-the­ worth of silver coins, thus allowing Mocatta tively safe haven, such as T-bills or Eurodol­ board. On Thursday, speculative money to meet its cash needs.