The rise and fall of the Billionaire Hunt Brothers

In 1982, Texas brothers owned two-thirds of the privately held silver in the entire world. But by 1988, they were bankrupt. This is the wild rise and wild fall of the Hunt brothers.

Oh, and by the way, this video is sponsored by UPDF.

More on them later. The 1970s were a really uncertain time in the United States economy. You had oil shocks, wars, unemployment, inflation, you name it, we had it. By 1980, the inflation rate had hit 13.5%, the highest in decades. In At times like this, it feels like you can't trust money. So investors will go put their money in places that feel like more trustworthy assets, like real estate or precious metals. And before 1975, believe it or not, it had actually been illegal for Americans to buy and own gold as an investment vehicle. So the next best hedge was its cousin, silver. Inflation is a time when governments print too much money, meaning that the money is worth less and less over time because there's just more of it. More supply means prices go down. So things like Bitcoin, silver, gold, and those types of assets tend to be refuges when inflation's happening. While governments can keep printing money, those types of assets have a finite supply. You can't just magically create more of it. Enter the stars of our story, Nelson Bunker Hunt and William Herbert Hunt, two brothers and heirs to a vast oil fortune of a man named H.L. Hunt. And they inherited vast wealth when their father died in 1974. One of the brothers, Bunker, was a fervent anti-communist and also a big believer that runaway inflation would destroy the United States dollar over time. There were two things to me that really impacted this kind of oddball worldview. The first was he inherited his wealth. There's a different attitude that people have when they inherit their wealth versus when they go out and earn it. The second thing was in 1973, he had done an investment project around 8 million acres in Libya, and Muammar Gaddafi had nationalized and taken away his entire investment. This is a man who did not trust governments. An almost religious zeal in this kind of background, bringing them in and mentality. The brothers started to go all in on silver in 1973. They bought an estimated 35 million ounces when prices were around $3 an ounce. And true to their lack of trust, the United States government and the stability of this country, they even hired private jets and used their cowboy friends as armed guards to fly their new hoard of silver to Switzerland for safekeeping. They rallied their friends and the wealthy ones and even some Middle East investors to the cause to start buying up silver as well. After a bit of a pause through mid-decade when oil prices gyrated, by 1979, the Hunts were even more convinced that silver was the place they needed to have their wealth stored. And at that point, inflation was raging. We had wars going on. The Iranian Revolution, which is a big oil-producing country, Soviets had invaded Afghanistan. Inflation was going crazy. I kind of can't blame them for feeling even more convinced than they were before. They weren't the only ones who thought this way. Investors were buying up precious metals. Gold hit $850 an ounce, and investors saw it as a place, well, to protect their wealth. By 1979, the Hunts, with their own money and with a few partners and borrowed money, had bought over 100 million ounces of silver currently and futures contracts to buy it in the future when it was produced. By January 1980, they controlled two-thirds of all of the privately held silver on the earth. But there's a problem. You see, silver isn't just a place to store your wealth. It also has industrial uses. And suddenly jewelers and filmmakers and all the types of folks that used silver as part of their business, well, they were beside themselves. It was suddenly really expensive. And suddenly really hard to get. Jeweler Tiffany Co. even took out a full-page ad saying that hoarders like the Hunts were unconscionable and hurting everyday consumers. This controversy set off a huge mania. Everyday people like you and me were suddenly taking in their silver and jewelry to get it melted down so they could sell it at high prices. People were stealing silver because the price was so high. They could then go turn around and sell it on the market and make a lot of money. This presented a problem for folks like the Hunts. If you've got film producers like Kodak or jewelers like Tiffany Company, well, those people are connected and they're connected to folks like politicians. And suddenly they were calling in and saying that the Hunts were hurting the average consumer and American industry. By 1979, silver had gone from $3 an ounce and doubled all the way to $6 an ounce. By early 1980, silver had exploded to $50 an ounce. In other words, it was up over 700%. In one year alone. Every dollar in price that the silver went up meant the Hunts would make $100 million on— well, on paper. A January 1980 Time magazine piece had marveled that the Hunts had earned between $2 and $4 billion in gains on their 100 million ounces of silver that they own. And the business world watched in awe as suddenly these two brothers from Texas seemed to have cornered the market. On the supply of silver in private hands. But behind the scenes, they were leveraged to the hilt. At one point, the Hunt brothers had $6.5 billion worth of silver controlled, but they had done it all using debt. They were only invested $1 billion of their own money. The Hunt brothers would buy silver and then use that as collateral to go out and buy more silver using debt with money that they had borrowed from other people. As long as the price of silver kept going up, well, they could keep doing this. And that would work, well, until it stopped working. And at that moment was when things started to turn for the Hunt brothers.

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Commodities markets are regulated by boards of trade, right? There's one called COMEX and there's another one called the Chicago Board of Trade. And basically they want to keep a fluid, happy market going of buyers and sellers of any given commodity, whether it's orange juice or in this case silver. And they saw that the Hunt brothers were on the verge of cornering the market, meaning that they would have control of so much of the supply that the market would stop functioning appropriately. So on January 7th, 1980, COMEX hit the brakes. They basically changed the rules on the Hunt brothers. And they adopted a new rule that basically capped the limit of the number of contracts that somebody could own at 3 million ounces. For Hunt, this meant no more monster positions and importantly, no more ability for them to borrow more money to buy more silver. On January 24th, the Chicago Board of Trade did something similar. They effectively froze all new silver futures contracts, meaning the Hunt brothers could only live out basically the contracts they'd done so far. All this effectively killed the momentum in the silver market. Well, it had been going up like crazy. Effectively, they wanted to slow things down and prick the bubble before it burst. These trade entities and the government saw this as a necessary intervention. The world needed silver, after all. And the Hunts were absolutely livid. They felt like they'd been told the rules, they were playing the game, and it was like you or I went into casino and right in the middle of dealing the next hand of blackjack, the casino decided to change the rules on us in their favor. The government's intervention in all this stuff, it absolutely worked. And silver prices started to slide. And suddenly the Hunts owed billions of dollars on their positions in silver and the collateral they had used to borrow that money. Silver. Well, the prices of it and the value of it, they were starting to slide as well. The Hunts were suddenly facing millions of dollars a day in interest payments. And more importantly, the people that had loaned them money on all that silver that they owed, well, they were starting to make margin calls on these guys. But instead of cutting their losses, the Hunt brothers leaned in even more. They kept borrowing more and more money to keep trying to prop up the value of their silver that they had by buying more. So they even went as far as to put up a number of prized assets as collateral, stuff outside of their silver holdings like oil fields. But it couldn't go on forever. By March, silver futures were down to the mid-$30 an ounce. Then on March 25th, one of the Hunt's leading brokers, the Bosch Group, asked for $100 million in cash as additional collateral to back up the loans they had made to the Hunt brothers. But the Hunts had no more cash left. They'd been putting every single dollar they had and every single asset they had to back up their positions in silver. And they offered what the only thing they had left to Bosch, which was, well, silver. And the Bosch Group said, no thanks. With the price going down, that's not good collateral for these loans. With the price in freefall and the value of their collateral going down, well, basically it was game over for the Hunts. All of the Hunts' brokers, including Bosch, started dumping silver holdings onto the market, pushing the price even further down and putting the Hunts in even more trouble. March 27th, 1980 was the infamous Silver Thursday when the market panicked and the price went down by over 50% in one day alone. Futures had been at $50 an ounce just 2 months prior. Now they were down just below $10 an ounce. And the Hunt brothers, once like infamous Smaug from The Lord of the Rings, sitting on their mountain of silver in their cave. Well, now they were sitting on a mountain of despair. There you are. The thief in the shadows. Having run up and tried to corner the silver market with a mountain of debt. Well, they are now sitting on $6 billion in losses in today's money. But you're like, cool. Well, these two nepo babies had managed to take daddy's money and run up a whole bunch of debt and they had lost it all. Well, they got what they deserved. But suddenly when people started to look underneath the hood at what had been going on with the Hunts' fortune and their gambling on silver futures, Well, it turns out they owed a bunch of money to almost everybody on Wall Street. The Fed suddenly feared that a panic like the 2008 Great Recession, where the entire economy just basically grinds to a halt as almost every firm goes under because of these bad loans— they feared that happening here back in 1980. And these two brothers, in their ability to create single-handedly the first and greatest financial panic that threatened to bring down the entire system since 1929 in the Great Depression, had managed to almost bring down the entire financial system in the United States. The government, fearing the worst, and the Federal Reserve, fearing that the end was potentially near, basically encouraged a consortium of banks to step in and bail out the Hunt brothers. So in April of 1980, a consortium of lenders stepped up to give the Hunt brothers a $1.1 billion lifeline to basically keep themselves and more importantly, all these firms on Wall Street that were doing trading solve it. The hope was that there would be an orderly unwind of this mess that the Hunt brothers had created and not a massive crash. Well, turned out that plan worked. But an appropriate casualty of this whole thing was that these two Hunt brothers, they were ruined. Over the coming decade, they would be picked apart by lawsuits and eventually end up in trouble where they lost everything. In 1988, the two brothers, Bunker Hunt and William, Well, they declared personal bankruptcy. The two brothers, perhaps worth over $5 billion each at their peak, were now down to less than a few million each in their bank accounts. They had lost well over 99% of the wealth they had inherited. Regulators hit the two brothers with fines of $10 million or more each and banned them from commodity trading for life. And in perhaps the final indignity, in some of their final trials and lawsuits in New York City, The two brothers famously were unable to afford a limousine and had to ride the subway to court like you and me. The mighty had fallen really hard in this case. The lesson of the story for me is macro investors and people that invest in stocks and that sort of thing. They have a line they use that says, don't fight the Fed. In other words, if the Fed wants to tighten stuff, basically that means the economy is going to slow down and potentially shrink. If the Fed wants to grow it faster, they're going to loosen monetary supply. And they're going to make it happen. And your job as an entrepreneur is to pay attention to what the government is trying to make happen in the economy. And for, say, the 2010s, we had a big situation where the government was trying to push a lot of industries like solar and green tech and programming and all that kind of stuff. And now it's a different world. We're trying to reshore and reindustrialize a lot of America, and that's where things are headed. It's your job as an entrepreneur to watch what's going on in the broader market and pay attention to what the world's trying to tell you to do, in this case the US government, and go with the flow rather than try to fight it. You see exactly what happened to the Hunt brothers when they got too extended and pushed too hard and they fought the Fed themselves. It turns out the entire United States government can keep fighting and have more power for longer than you can stay solvent. And that's definitely the case for the Hunt brothers. All right, that's it for this one. Let me know what you think about the Hunt brothers. I actually really love that the government did the right thing and these guys didn't end up getting away scot-free. The things they did. Let me know what you think in the comments below. I try to read them all. Catch you next time.