Sunday, February 19, 2012

Warren Buffet and the Great Silver Market Corner of 1998 (BRK.B)

Following up on the post below, ""Warren Buffett: Baptist and Bootlegger" (BRK.B)" here's Streetwise Professor.

Saint? Warren Ain’t
I have long been nauseated by the hagiography surrounding Warren Buffett.  The veneration of St. Warren has reached a peak of late, as he is Obama’s go to guru, providing protection against accusations that the president is anti-business, and giving cover to Obama’s plans to jack up taxes on the wealthy.  After all, if a man richer than God is on your side, how can you possibly be a class warrior?

My cynicism about the saintly Buffett dates from almost exactly 14 years ago. There is substantial evidence that in February, 1998, Buffett cornered the silver market.

I repeat: there is substantial evidence that Warren Buffett cornered the silver market.  Cornered, as in manipulated.

Yes, Saint Warren was almost certainly a manipulator.

The story in a broad outline. Beginning on 25 July, 1997, Buffett began to accumulate large quantities of silver via Phibro, a subsidiary of Salomon Brothers, an investment bank in which Buffett had a big stake, and which he had saved from extinction when Salomon traders cornered the Two Year Treasury note market in 1991.  He eventually acquired nearly 130 million ounces of silver.

He stood for big deliveries in February, 1998.  The market went nuts.  All of the inidicia of a corner were present.  Nearby prices skyrocketed relative to prices for delivery in the spring.  The following chart depicts the spread between the March, 1998 COMEX silver price, and the prices for May and July.

Note that the spread blows out when Buffett stood for delivery, during the first week of February, with the March-July spread going from -.2 cents/oz on 1/29/98 to 20 cents/oz on 2/5/98.  The March 98 price went up a dizzying $1.25/oz (about 20 percent) during that week....MORE
I know, Streetwise Prof twice in two days, what can I say?
He's been on a roll. And off the Gazprom stories.
While I need a Gazprom fix every day I'm not so sure that's the first thing gentle reader thinks of when they roll out of bed.