BERAL, INC.
Andrew Racz
Director of Research
300 East 54 Street, Suite 26C
New York, NY 10022
Phone: (212) 319-6949
Fax: (212) 753-1944
E-mail: mlikar@aol.com

The World Needs Bunker Hunt

May 24, 2010

THE WORLD NEEDS
BUNKER HUNT

A not-futuristic story.

The American people and the people of Texas knew about the Hunt family for almost fifty years. In 1979, Bunker Hunt broke through on the world scene with his aggressive accumulation of silver. Financial transactions of Mr. Hunt have shaken up the whole world, and it was difficult for anybody in the world of finance to not take notice of Bunker Hunt.

Bunker Hunt didn't make a particular secret of the fact that he was buying precious metals, and gold as well, because he didn't trust the dollar and feared inflation. He didn't trust Jimmy Carter, and he believed that silver, the hard currency he selected, would retain the buying power of his money.

Silver did go up to $50, and it did happen when the world was afraid of Iran without the Shah, the hostage situation, the high price of oil, of inflation, and to some extent of the American government. In this world, Mr. Hunt believed that his family's vast fortune is not safe in the U.S. dollar, and he was selecting the precious metals where his savings would be safe. Eventually everything collapsed. Gold, silver, commodities, and the financial world. Bunker Hunt believed in gold and silver and that was his miscalculation, as the commodity market was not broad enough.

In 1979 and 1980, the world was much smaller than it is today. There was no Brazil, there was no Russia, there was no China, there was no India. Well, if we add up these countries, we come out with three billion people, approximately half of the seven billion that exist today. However, the three billion--Brazil, Russia, India and China-- today represent the most production of the world, whereas in 1979 they were technically unproductive and did not contribute to the gross national product of the world.

Further, the euro market didn't exist. The steel industry all over the world was heading towards bankruptcy. Aluminum and copper existed but they did not stir up the commodity markets. First there was platinum next to gold, and there were some financial instruments on the commodity markets, but they were negligible. Of course, that was thirty years ago.

It really meant that the volume of money which was in dollars, which Bunker Hunt did not trust, the money could only really go into gold and silver and none of the other commodities could absorb large amounts of cash. Whether you believe me or not, in 1979 by far the most popular commodity was soy beans, and the cocoa, coffee and sugar market in the United States, represented by Beresford in London, was the center of speculation, but the market was practically negligible when it comes to the total dollars in circulation.

In other words, even though Bunker Hunt was buying silver and was successful in raising the value of silver, the amount of money silver could absorb, or even gold could absorb, was small. The other commodities were of negligible power, and therefore at the time a small decline of all these commodities could collapse the market.

This created a tremendous financial loss for the Hunt family, and at the same time the experience that the gold market with the silver market was not strong enough to retain a sufficient amount of monies, namely dollars, to represent competition to the dollar market. At the same time, the damage to the world's financial system created by the collapse of silver and gold in 1980 was meaningful but not comparatively as tragic as other financial collapses which have occurred in the world since then.

Nevertheless, because of Mr. Hunt's imaginative thinking, of diversifying from the dollar, this was the first time the world diversified from its lead currency, and I recommended Bunker Hunt for the Nobel Prize for Economics. When I met him at the Carlyle Hotel in New York and where I brought my twelve-year-old son Gregory, who is now a hedge fund director in New York, the twelve-year-old Gregory asked Mr. Hunt, "How do I become the richest man in the world?" Hunt's answer was simple. "Don't eat as much as I do and learn to write as well as your father does."

This answer was for a child, but basically it represented Mr. Hunt's thinking that the world does need rich people, and being the richest man in the world is not shameful.

Now thirty years later, the world has changed and the world is facing different kinds of challenges. First of all, we have seven billion people on the world, of which almost five billion are working. Secondly, we have a new currency that politicians created, the euro, which in terms of size was getting close to the dollar, and many countries in the last four of five years wanted to use it as the main currency.

The euro was called into being by European politicians based on a currency with weak backing. Not only was there no backing, the currency was formed by twenty different nations, each with twenty different personalities and monetary policies. What it amounts to is that if any of the twenty nations borrows money, and they could each borrow money, it becomes the liability of the twenty. Take an example from Mr. Roosevelt's book with his famous statement, "Suppose my neighbor's house catches fire and I have a long hose which could actually reach my neighbor's house. Do I tell my neighbor, neighbor, this hose cost me $15? No. I tell him, take the hose and give it back to me when you don't need it."

This was Mr. Roosevelt's most famous fireside chat which convinced the American people to support Lend Lease, lease equipment without security, to the British during the war. Now, take Mr. Roosevelt's statement and apply it to the euro market. We have twenty brothers. Each of the brothers basically has his own lifestyle. Each of the brothers can borrow money. However, all twenty are responsible for the borrowing of one.

The difference between the euro and President Roosevelt is very basic. The euro has nothing but the good faith and the savings of the twenty people, but how much good faith and unity is there? President Roosevelt in early 1941, when he delivered his famous speech about his neighbor's house, did have the tremendous industrial might of the United States behind it. Roosevelt could create Lend Lease to support the British, which he never got back, because America was strong and the dollar was strong. In the year 2010, the euro behaves, like President Roosevelt, to each and every one of the these twenty members to go on living, borrow money, spend money. But when they fail, there is nobody to rely on except the euro concept which is very questionable now. It is not the United States and we do not have President Franklin D. Roosevelt.

In the year 2010, the commodity markets, the financial instrument markets, were probably at least 30 times, if not a hundred times, bigger than the markets of Bunker Hunt in 1979. The Hunts' commodity world in 1979 was gold and the dollar, with limited amount of absorption capability. Thirty years later, the commodity markets expanded. They became international. Currently, they operate in the world of the Internet, servicing seven billion people, and therefore everything is interrelated. The currency market of the world, which in the year 2010 does include the euro on a substantial level, cover each commodity, cover real estate. Everything the euro can reach permits which twenty member nations can reach, and all these instruments are the depository non-secure instruments of the world.

The euro which was created fifteen years ago was supposed to stand as a super currency. It is the source of credit or Lufthansa, Via Venetto, Romania, Greece, and Spain. The tragic thing is that they all borrow against the hypothetical currency of twenty nations, and when this currency starts to disintegrate like the gold and silver market of the Hunts in '79, it has the power of reaching every commodity, every piece of real estate, every bank, every bank deposit, every bank loan, not only in the euro but in the whole world. Twenty nations reach every other nation in the world.

In 1979, Mr. Hunt wanted to save his family's money by putting it in silver. It failed. Mr. Hunt stated that he believed in silver and not in the dollar. For a while, he was right, but his basic intellectual concept was right. If you don't believe in one currency, you go to another.

Bunker Hunt is still alive. He lives in Dallas, Texas. His family flourishes and since I had the honor of meeting some of the relatives, is a hard-working American family. The issue is where to diversify from the euro. If we diversify into the dollar, it upsets the currency market. The idea occurred to me that if we create--and we can do it--not only gold-backed loans but silver-backed loans and commodity-backed loans, they would offer an alternative or a rescue against the euro. In fact, nothing else would.

We have the dollar, we have gold-backed currencies, we have commodity-backed currencies, and we have what is left of the euro. We can even create some basket of currencies. The concept is that the world is heavily invested in the euro, and they have to have an outlet to diversify away from the euro, whether it's the dollar or gold-backed instruments, but diversification is a must.

Thirty years ago I wrote a lot about Mr. Hunt and silver.

In 1979, I thought that maybe with silver the dream of Bunker Hunt will happen. In the year 2010, I am in good enough health to hope that my vision and my hard work in silver will realize the silver dream. I invited my friend from Cambridge, a former British cabinet mister, to be the deputy chairman of the board, a man who knows a great deal about the euro, about the Orient, about Mongolia, about China.

Who is missing here? Frankly, it is Bunker Hunt, who initiated the silver dream. After thirty years, I'm sure he would modify his theory about diversifying in hard currency. If he does, I am sure he would again select silver. One thing is sure. In 1979, Mr. Hunt gave a very healthy insight into the instability of our currency markets. He paid a very heavy price for being right.

In the year 2010, I am on behalf of my colleagues and friends inviting Mr. Hunt to again realize his old dream. I am sending him a message which I hope to deliver in person. The world needs Bunker Hunt.

Disclaimer

Information contained herein is based on data obtained from recognized statistical services, issuers reports or communications or other sources believed to be reliable. However, such information has not been verified by us and we do not make any representation to its accuracy or completeness. Any statement non-factual in nature constitutes only current opinions which are subject to change. BERAL INC. or their officers, directors, analysts or employees may have positions in the securities or commodities referred to herein, and may as principal or agent buy and sell such securities or commodities. An employee, analyst, officer or a director of BERAL INC. may serve as a director for companies mentioned in this report. Neither the information nor any comment expressed shall constitute an offer to sell or a solicitation of an offer to buy any securities or commodities mentioned herein. There may be instances when fundamental, technical and competitive opinions may not be in concert. This firm may from time to time perform investment banking or other services for or which investment banking or other businesses from any company mentioned in this report.

 

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Andrew Racz. 300 East 54 Street, Suite 26C, New York, NY 10022
Phone: (212) 319-6949 Fax: (212) 753-1944. E-mail: mlikar@aol.com

Copyright © 2011 Andrew Racz. All Rights Reserved.

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