Market Curiosity: Exploring Markets And Systems

February 28, 2011

Did the Hunt’s really “corner” silver?? Framed causation and correlation

Filed under: Systems — Tags: , , , , — Jeff Fitzmyers @ 9:15 am

Thanks to sez_me_man for pointing out this interesting article from Jeff Clark:

…I’m skeptical that the reason silver went as high as it did was primarily due to the Hunt brothers’ activity in the market. It’s interesting to note that they bought silver primarily because they mistrusted the government, and because they thought silver was going to be confiscated. Remember … gold ownership was illegal when they first started buying silver in the early ’70s.

Yes, they bought a lot of silver … But if you look at the correlation, you’ll notice the price didn’t necessarily move up when they bought. In fact, when the rumors that they were trying to “corner” the silver market really started going mainstream, which was in the spring of 1974, the silver price dropped solidly for the next two years. One would think that the price would’ve risen, not fallen, if silver was being “cornered.”

Secondly, if you look at price charts, silver moved in lockstep with gold back then. They rose and fell pretty much together. They both peaked on the very same day, January 21, 1980. So unless the gold market was equally spooked by what the Hunt brothers were doing with silver, it seems a stretch to assume they were the primary cause of the rise.

Last, as my editor pointed out, you have to consider that it was the mainstream media that largely promoted this idea the Hunts were “cornering” the market… I’m sure they had some effect, but to suggest they were the main impetus behind silver’s tremendous rise doesn’t seem wholly accurate. And look at the price today … It’s outperforming gold in our current bull market, just as it did in the ’70s, and there’s no Nelson Bunker Hunt around.

I once saw a reporter explain that the day’s rise in gold was because of some report. Turned out the rise was in the morning and the report was released in the afternoon. Hmm…

These types of framed causes can have big consequences. This chart suggests that the polio vaccine was administered as the polio epidemic was near the tail end of burning itself out and caused a rise in cases a few years later. Apparently the reason kids got polio was due to improvements in sanitation so that infants were not exposed. I’m ignorant about the current dynamics.

The pathogen is nothing. The terrain is everything. — Louis Pasteur

Ignorantly messing with a system, even with the best intentions, usually proves foolish.

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