did buffett corner the silver market pre 97?

  1. 5,382 Posts.
    G'day
    Another silver article, this one from David Morgan. I was interested in Buffetts holdings and the goings on with supply.
    cheers
    Rod

    http://www.investmentrarities.com/bestofdm02-04-03.htm

    BEST OF DAVID MORGAN Archives









    BEST OF DAVID MORGAN

    February 4, 2003

    Does Honest Money influence Mr. Warren Buffett?

    Mr. Warren Buffett's father was an advocate of Honest Money. Representative Howard Buffett, father of Wall Street legend Warren Buffett, was too far ahead of his time, so few listened to the concerns and even fewer appreciated his wisdom when he addressed a group of businessmen on May 4, 1948.

    Quote..
    "Today Congress is constantly besieged by [special interest] groups seeking benefits from the public treasury. Congressmen find it difficult to persuade themselves not to give in to pressure groups. With no bad immediate consequence it becomes expedient to accede to a spending demand. The Treasury is seemingly inexhaustible. Besides the unorganized taxpayers back home may not notice this particular expenditure - and so it goes."

    "Because [a politician's] continuance in office depends upon pleasing a majority of the pressure groups," there is a natural propensity for over-spending. Rep. Buffett recognized this reckless tendency to be a political fact of life, with predictable and discouraging results if left uncontrolled. "From 1930-1946 your government went into the red every year and the debt steadily mounted. Various plans have been proposed to reverse this spiral of debt."

    Mr. Buffett Actually Cornered the Silver Market before 1997

    Mr. Buffet has liked silver for a very long time and this "purchase" was known among a very few precious metals followers.

    When Warren Buffett was associated with Solomon Brothers, the #1 trader nearly cornered the silver market by paying 20 cents more per ounce than anyone else. There were several expiring options that were out of the money. Everyone thought that these were expiring worthless, until the holder (Solomon Brothers/Buffett) decided to exercise the options at the strike price they held.

    The next step was to simply take delivery of their silver. It should be that simple, especially in a free market. That of course is one of the BIG LIES about the silver market; it is not exactly a free market.

    The dealers and Wall Street firms that held most of this silver ran to the U.S. Government and asked for relief from delivering what Solomon and bought and PAID for. Since there was not enough silver available, the rumor was that the government asked to meet with Mr. Buffett in private. Buffett backed down and the government made sure that Solomon did not lose any money. The government was willing to settle this embarrassing situation and pretend that the free market in silver still exists, when in fact is does not.

    Buffett goes for the Silver Again

    Warren Buffett's most recent silver purchase started in the summer of 1997 and continued for several months. The lowest price on the COMEX during that time frame was around $4.40. The market recognized this in February of 1998 and silver advanced to over $6.50 an ounce. Mr. Buffett took delivery of about 90 million ounces of silver and gave the dealers more time to deliver the rest.

    It is my strong opinion that Mr. Buffett leased out the remaining 40 million ounces.

    Why do I make this assertion? Because, I have studied the annual report of Berkshire Hathaway which states the following:

    "Line item 53. Miscellaneous items. 400,000,000$"

    Now it was widely reported that Mr. Buffett bought 129 Million ounces. However, unless you were really alert you might have missed the fact that only 90 million ounces were delivered.

    So silver at $4.40 (spot price at the time of the annual report) times 90 Million ounces is about equal to the $400 million dollars reported in the annual report. I think Mr. Buffett leased out the 40 million ounces and wouldn't it be nice if Mr. Buffett asked for his silver to be returned in the middle of 2003, just about the time I see this market beginning a major move to the upside.

    Another question we must ask is would Mr. Buffett lease out any of his silver? The first question, is self evident, to be nice to the "dealers" and knowing that Mr. Buffett once was asked to "cool it" in the silver market, why not be very accommodating this time around. He most likely let the dealers off the hook by leasing part of his holdings.

    Secondly, Mr. Buffett does not like investments which are static and do not throw off any type of return such as a dividend. This would be added incentive for part of the silver to be leased. Mr. Buffett would earn a return on investment and the "money" would be working to produce income. Finally, by putting some of the silver at risk, it provides a method to relieve pressure that might come in the future.

    Let us suppose that at the end of 2003, the silver market is very tight. Some in the financial community might recall that Mr. Buffett bought all that silver. It would be extremely beneficial if Berkshire Hathaway made the public statement that some silver had been leased and was not being returned. This might go a long way in relieving any political pressure that might appear.

    My point is Warren Buffett knows as much as anyone about sound money and the potential for silver. He also is aware of the problem that dealers might some day have obtaining the rest of his silver purchase. So we know Buffett has loved silver for a long time, when he did make his purchases he moved the silver outside the jurisdiction of the U.S. for a very good reason. If there is any type of U.S. action taken in the silver market, Berkshire Hathaway's silver is safely stored in London, outside U.S. jurisdiction.

    What this means to us is we need to be certain of our core holdings. We need to take delivery of most or all of the silver we hold as a core position. If you have some amount of silver that you trade or speculate with fine, which is not what I am addressing here. Do you need to go as far as moving it outside the jurisdiction of the U.S.? I doubt it, but it does cause one to think.

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