November 23, 2016
Chapter 27 in the exclusive series for Dynamic Commodities- becoming a commodities trader
After I was in the department for six months or so, the chief silver trader John Mihale announced one morning that he quit. Mihale ran the mega profitable silver business in 1979 and 1980, when the price ran up to $50 per ounce as Nelson and Bunker Hunt took a massive long position in silver.
The Hunt brothers began buying silver futures in the mid-1970s. As the price of silver appreciated, they used the profits to add to their long position. The leveraged, growing long position used profits to pay for margin on more and more contracts resulting in an unstable pyramid position. By the time silver moved to its all-time high of $50 per ounce, the Hunts controlled around 200 million ounces of silver or $10 billion worth of the metal. In 1980, $10 billion was not just a lot of money. It was an incomprehensible sum.
Precious metals tend to be harbingers of inflation when prices rise. The U.S. government became concerned about the Hunt’s attempt to corner the silver market.
Ray Nessim was a governor of the New York Commodities Exchange, the futures market that housed the major and most active the silver futures contract. Silver cascaded lower when the board of governors voted for a liquidation only rule in silver. They did this because the banks and government regulators became concerned that the silver market was out of control and would impact the overall economy. The liquidation only rule meant that the Hunts could no longer buy silver futures. They could only sell. Like a game of musical chairs, the liquidation only rule was an end to the music. Nelson and Bunker Hunt were the only ones left without a chair. The price of silver fell like a stone.
Since Ray Nessim was one of the decision-making governors of the exchange, Philipp Brother’s traders positioned accordingly. As a result, they made a mint. The Hunt Brothers made a large oil fortune into a smaller one. However, John Mihale made most of the department’s money buying old silver coins and scrap metal. Then, refining it into bars and delivering it to the exchange against short positions. On the way up, the margins for this arbitrage and refining business became so wide that the profits were astronomical. In 1980, Ray Nessim’s department made over $100 million in profits. It was Mihale that made the bulk of those profits.
Furthermore, John Mihale received a massive bonus for his amazing performance and profits. However, he had a difficult relationship with Nessim, who was a demanding boss. The morning that he quit, he simply announced to the entire department that he was going fishing and would not return.
I had worked in the telex department with Peter Neumann in summers. Peter was a Philipp Brothers lehrling, a few years my senior. His first assignment after graduating college was the precious metals traffic department handling silver. After the untimely departure of his boss, Nessim promoted Mihale’s assistant, Jimmy DiPiazza. Jimmy selected Peter to be his assistant. Peter Neumann, a friend and colleague, moved over the high wall from traffic into trading. I thought to myself, Wow, Peter hit the big time! It got me thinking a lot about my future.
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- 1.Dynamic Commodities Exclusive: Why I Became a Commodities Trader
- 2.We Are Family- My Indoctrination in the World of Commodities
- 3.Early Career Lesson Number 1- Never Assume Anything
- 4.Early Career Lesson Number 2- Patience is a Virtue
- 5.Early Career Lesson Number 3- Details Matter
- 6.Hired Full Time in July 1981- The Company Changes on August 4
- 7.Phibro-Salomon: A Win-Win Deal
- 8.Summer of 1982- Another Chance
- 9.Fall 1982- Thanksgiving, the Waiting Ends
- 10.Learning the Logistical Ropes under Mildred
- 11.Nepotism Puts Me at the Bottom of the Class
- 12.Keeping My Head Down and Working Hard- Firings Intensify
- 13.The Tragedy of Corporate House Cleaning- The Hans Gunzenhauser Story
- 14.Mildred’s Final Day
- 15.A traffic desk of my very own
- 16.The First Business Trip
- 17.Son of the Traffic Chief
- 18.Another Round- Caught in the Crosshairs
- 20.Technology- An Ex-Salomon Partner Scores Big
- 21.A Precious Opportunity
- 22.The Interview- Going for the Gold
- 23.Overwhelming Hours
- 24.Learning the Precious Ropes
- 25.A Different Kind of Traffic
- 26.Computerization Takes Too Long
- 27.Fishing Sends My Friend to the Big Leagues
- 28.Looking To Stand Out
- 29.The MBA Jumps Ahead
- 30.Two-Ton Tony: A Golden Tale
- 31.Salomon Brothers On The Scene
- 32.Fear and Loathing of Salomon- A New Era
- 33.A Wild Atmosphere in the 80’s
- 34.The Shocker- Changes Continue
- 35.Every Lehrling’s Dream- Becoming a Trader
- 36.The Gold Business
- 37.The Silver Business: Silver Trading at Philipp Bros.
- 38.Platinum Group Metals and Coin Trading
- 39.Options- Philipp Brothers Moves into the Future
- 40.Day One As a Junior Options Trader
- 41.The King of Wall Street
- 42.Sid Gold, My Trading Mentor
- 43.Intradepartmental War
- 44.Christopher Wilson: Building The Bullion Business
- 45.Ralph Mizrahi
- 46.Mel Schnell- What a Name!
- 47.Life as a Market-Maker
- 48.Copper Options- The Introduction to The Wrath of Manfred
- 49.A Week in London
- 50.Permission to Travel
- 51.The LME Dinner
- 54.Australian Precious Metals
- 55.South America
- 56.Manny Weiss
- 57.Bonus Day with Manfred
- 58.The Downfall of John Gruen
- 59.Chris Linen
- 60.Flying Solo- A Trip to Sweden
- 61.A Big Hit in Silver
- 62.Drinks with Dali
- 63.Jimmy DiPiazza
- 64.The Marketing Desk
- 65.Cutbacks Hit Home
- 66.Futures Trading
- 68.Ralph Quits
- 69.Rising Profile in A Troubled Company
- 70.A Fateful Trip To Toronto
- 71.It All Happens So Fast
- 73.One Week To Move
- 74.Off To London
- 75.Chris Frith
- 77.The London Bullion Market
- 78.24 St. Edmund’s Terrace NW8
- 80.Profits Build
- 81.Grinham Quits
- 82.Martin Lambert
- 83.Was It A Fluke?
- 84.Eastern Europe
- 85.The Sydney Futures Exchange
- 86.Nickel Nightmare
- 87.Taiwan with Chris Linen
- 88.Palladium Goes Sour