There are several people who have lost over $1 billion in the markets, with two people, Bruno Iksil and Howie Hubler alleged to have lost $9 billion, but I know of only one person who managed to lose over $1 billion twice.  The winner of this award is Nelson Bunker Hunt who lost his first billion in oil and his second billion in silver. And in each case, it wasn’t just one billion dollars that he lost, but several billion. And in both cases, Hunt blamed the government, rightfully so, for the losses he incurred. Nelson Bunker Hunt was the son of oil wildcatter H.L. Hunt, who was a gambler in life and in oil.  H.L. Hunt was a math prodigy who allegedly succeeded in turning $100 into $100,000 gambling in New Orleans in the early 1900s.  With this money, he purchased oil properties in Arkansas to try his luck at bigger stakes.  Hunt’s strategy was to drill in already known areas, buying leases wherever a new discovery was made, and drilling until he struck oil. In November 1930, Hunt heard about a large oil strike in Texas made by Columbus “Dad” Joiner, H.L. negotiated the purchase of Dad’s properties for $1,340,000, paying Joiner only $30,000 down and the rest to be paid out of future revenues.  Hunt also guaranteed Joiner legal protection against his many fraudulent transactions. Hunt succeeded and made one of the biggest oil strikes in the history of Texas.  By 1936, Hunt was able to incorporate the Hunt Oil Co. worth $20 million and use his profits to move on to more drilling. H.L. Hunt soon became one of the richest men in the world, and was the inspiration for J.R. Ewing’s character in the TV series Dallas. H.L. Hunt was as prodigious in producing children as he was in making money.  He had fifteen children through three women, one of whom he paid off to avoid a bigamy lawsuit. Appropriately enough, one of his sons, Nelson Bunker Hunt was born in El Dorado, Arkansas.  His son, Lamar founded the American Football League and owned the Kansas City Chiefs.  Nelson Bunker and William Herbert went into the oil business.  H.L. Hunt owned Placid Oil and Penrod Drilling and Hunt left control of these companies to his sons. Once in control, they started drilling outside of the United States to strike it big as their dad had.  

Losing the First Billion

Nelson Bunker Hunt wanted to make his millions on his own, not just inherit the money from his dad, and went looking for oil outside of the United States.  Hunt first drilled for oil in Pakistan which failed to deliver. Then he went to Libya where Nelson Bunker Hunt found the huge Sarir oil field in 1961 that made him a billionaire and one of the richest men in the world virtually overnight.  Nelson signed an agreement to produce oil with King Idris, but on September 1, 1969 Nelson Bunker discovered that his fortune was at the mercy of government politics. While King Idris was on sick leave in Turkey, Muammar Gadaffi led a coup in Libya that overthrew King Idris. Gadaffi nationalized Nelson’s 50% ownership in the Sarir oil field on June 11, 1973 without providing compensation to Hunt.  Nelson Bunker Hunt lost his first billions as a result of government intervention. Overnight, Hunt went from being one of the richest billionaires in the world to being a mere millionaire. Who doesn’t want to be a millionaire? A billionaire. Gadaffi’s seizure of Hunt’s assets deepened his distrust of government and the paper money it created.  From then on, Hunt would put his money in hard assets, such as silver, which couldn’t be stolen from him by government fiat. Or so he thought. Nelson had three loves, horses, silver and Jesus. Nelson had a stable of over 500 horses and his thoroughbreds won almost every major race in the world. H.L. Hunt was a member of the First Baptist Church in Dallas and supported conservative causes all of his life.  Nelson Bunker Hunt followed in his dad’s footsteps, was a member of the John Birch Society and believed that the apocalypse would soon occur and that paper money would become worthless. Nelson was the chairman of the Texas Bible Society, the head of Campus Crusade for Christ International and funded the film Jesus which has allegedly been seen by three billion people worldwide. Nelson learned from his Libyan losses that governments could not be trusted.  Since he no longer trusted paper money, Hunt decided to pour his money into silver.  Trading in gold was forbidden by the U.S. government after the United States went off the gold standard in 1933, and it was only in 1974 that trading in gold in the United States was allowed once again. Nelson Hunt purchased 40 million ounces of silver in 1973 and flew his hoard to Switzerland for safekeeping. 15 million ounces also went to Chicago and New Jersey increasing his hoard to 55 million ounces.  Texas imposed a 5% state tax on silver, so Hunt found it cheaper to fly his millions of ounces in silver to Switzerland than to keep the silver safe in Texas. Nelson knew that he could “buy” silver through the futures market, though few people did. Whenever someone purchases a futures contract in the silver market, there is certifiable silver that is tied to each contract.  Silver producers can lock in the price of silver to obtain a fixed price for the silver in the future.  If the contract is at $10 for an ounce of silver and the price closes at $9, the silver producer will make a $1 profit on the contract and add that profit to the $9 the silver is selling for to net $10.  If the contract price is at $11, they lose $1 on the futures contract, but receive $11 for the silver netting them $10.  No matter what happens to the price of silver, the producer has locked in their price. The primary risk to the silver producer is that if there are large fluctuations in the price of silver, for example, if the price went from $10 to $20, the producer would have to put up additional margin to cover their anticipated losses since the producer is short silver and will lose money on the contract when it expires. Under normal circumstances, this is not an issue, but 1979 and 1980 were not normal times in the silver market. Futures contracts are typically for a period of three months, and when the contract expires, most silver producers and speculators sell their contract and collect or pay the difference between the strike price on the contract and the price the contract settles at.  Hunt, however, took delivery of the silver.  

The Hunt Family Tries to Corner Soybeans

In 1977, Nelson made his first attempt at cornering a market, i.e. having control over the supply in the market so he could fix the price of the commodity. When a seller has to go to the market to cover their position, they can only go to the person who has cornered the market and pay whatever price they demand to close out their positions. Nelson bought a substantial number of soybean contracts attempting to profit from the ensuing rise in the price of soybeans. In 1977, the legal limit on soybean contracts was 3 million bushels which was equal to about 5% of the market. He and William Herbert both bought contracts controlling 3 million bushels.  Then Nelson created dummy accounts for five of brother Herbert’s children. The Commodity Futures Trading Commission (CFTC) easily saw through the ruse. When the CFTC realized all the accounts used the same address, they realized someone was trying to corner the soybean market.  As one CFTC member put it, the only member of the family who didn’t have an account to trade soybeans was the family dog. The family’s control rose to 24 million bushels, about 40% of the soybean market, and eight times the legal limit for one person.  The Hunts represented about half of the trading in soybeans in 1977 and the price of soybeans rose from $5.15 to $10.30 as is illustrated below. The CFTC alleged that Nelson, his brother and his brother’s children were trying to manipulate the price of soybeans, but Nelson alleged they were all acting independently of one another and the only reason their trades were similar was because they had access to the same information. The Chicago Board of Trade had encountered a similar situation when Tony de Angelis had tried to corner the soybean market several years before, but de Angelis was a member of the exchange and did not face limits on the amount he traded.  The Hunts were complete outsiders and did face limits. The CFTC took the Hunts to court in April 1977 and forced the Hunts to divest themselves of their positions, but it is estimated that the Hunts made tens of millions of dollars in their attempt at a corner.  As the chart of soybeans above shows, the price of the commodity rose from under $5 in 1976 to over $10 in 1977, but quickly fell back after the Hunts were forced to divest themselves of their holdings. In 1981, the Hunts had to pay a $500,000 fine for exceeding the position limits, which compared to the tens of millions in profit they probably made was little more than a speeding ticket. Nelson Bunker Hunt’s distrust of government officials only deepened.  

The Silver Corner Begins

Nelson Bunker Hunt had bought millions of ounces of silver in 1973, but had generally ignored the precious metal for the next few years. In 1978, following his success in the soybean market, Nelson decided to take control of the silver market. Nelson’s idea was to “buy” millions of ounces of silver through the futures markets and corner the amount of certifiable silver that was available, driving up the value of his holdings and making billions in the process.  Nelson had seen the price of oil go from $3 to $30 during the 1970s and with inflation raging throughout the world, he saw no reason why silver shouldn’t permanently rise in price as well. Silver had been used as money for thousands of years.  Hunt believed paper money was a false creation of the government that would ultimately collapse.  If OPEC could create a cartel that drove up the price of oil, why couldn’t Nelson create a cartel to buy up the supply of silver and profit from it? As in the case of soybeans, Nelson got fellow family members involved in the corner as well as several Saudi sheikhs and other speculators who agreed with Nelson’s evaluation of the silver market.  On July 1, 1979, the Hunts formed the International Metals Investment Co. (IMIC) with Prince Fahd who ran the Saudi Central bank to buy silver and drive the price up. IMIC bought 43 million ounces which added to the 55 million ounces the Hunts already owned. The attempt to corner the silver market had begun. However, as I have shown in similar blogs on the Piggly Crisis and Stutz Automobile, the problem with executing a corner successfully is that you have to borrow money to drive the price up and you can create a huge profit on paper once you corner the market, but inevitably, you must sell the underlying stock or commodity to someone else, and when this happens, the price of the good will collapse and the accumulated debt will drive most speculators into bankruptcy. This is why selling the underlying commodity after a corner is completed is called “burying the corpse” because it is probably the corpse of the person who cornered the market that will be buried. Throughout the silver fiasco, the Hunts alleged that they were not trying to corner the silver market, but that they were simply trying to hedge against the voracious inflation that engulfed the world in the 1970s.  But did the Hunts need to own three-fourths of the world’s privately-owned silver to achieve that? As I detailed in the case of Eddie Gilbert, there is no clear line between speculation and manipulation.  Attempts to manipulate the price of a commodity is illegal in the United States and if the weight of the market doesn’t overwhelm the person trying to corner the market, the government and the commodity exchanges will.  

The Exchanges Change the Rules

The house makes the rules and they can be changed. The first change occurred on January 7, 1980, when the CBOT limited buying to 3 million ounces of silver and COMEX limited buying to 10 million ounces of silver.  Nelson Bunker responded by promising to reduce his involvement in the silver market, but secretly bought an additional 32 million ounces of silver. One thing you have to admire about the Hunts is that they never did anything half way.  When they went into silver in 1979, they pulled no punches. In January 1979, the actual silver owned by the Hunts and their futures contracts amounted to 75 million ounces. By January 1980, this amount had grown to 375 million ounces, and the Hunts were short an additional 100 million ounces in straddles (buying long and short positions simultaneously).  This gave the Hunts and their fellow traders a net position of almost 300 million ounces of silver and control over 70% of all contracts listed on the futures exchanges.  Every $1 increase in the price of silver netted them $300 million and at the height of the silver squeeze, the silver bars they owned were worth about $6.6 billion. In addition to actual silver they owned, they had an equal amount in silver contracts. As the price of silver rose, producers who were short silver had to put up additional margin against their positions.  These deposits were transferred to the Hunts who used their profits from the rising price of silver to increase their silver holdings even more. When the price of silver rocketed up from $5 at the beginning of 1979 to $51 at its peak, not only were the silver markets thoroughly disrupted, but financial markets throughout the world were affected.  Photograph companies like Kodak which used silver to develop pictures as well as dentists and jewelers like Tiffany’s were forced to buy silver at ten times the price it had been at just one year before.  Tiffany & Co. took out an ad in The New York Times condemning the Hunts for their manipulation of the silver market. But to the average American, the silver rush was on. Moms and pops throughout the country took their silverware to local metal dealers to sell their heirlooms at a profit. Millions of dollars of silver coins, which the government had stopped producing in 1964, were sold to coin shops. This brought tens of millions of dollars of silver onto the market.  The silver was purchased by Englehard Silver who converted the coins and silverware into certificated silver, adding to the hoards the Hunts had already accumulated. If you read Mark Cymot’s account of the trial of the Hunts over their attempts to manipulate the price of silver, entitled Squeezing Silver, you can see that the Hunts had running battles with COMEX and the CFTC during 1979 and 1980 with the commodity regulators demanding that the Hunts reduce their positions in silver, the Hunts promising they would, and then adding to their positions instead.  One ploy the Hunts used was that they wanted to delay the tax impact of selling their contracts at a profit in 1979.  The Hunts wanted to wait until January 1980 to sell their contracts so the profits would be in 1980 and not in 1979 and delay the amount of taxes they had to pay the IRS. The exchanges gave the Hunts to January to sell their silver, but instead the Hunts loaded up even more. On January 18, 1980, the price of silver peaked at $50.35, up tenfold from the price a year before. The Hunts had billions in unrealized profits. After the first of the year, COMEX got serious in limiting the Hunts’ speculation in the silver market.  On January 7, COMEX adopted Silver Rule 7 which capped the size of silver futures exposure to 3 million ounces. When this didn’t stop the Hunt’s greed, on January 21, the Chicago Board of Trade pulled their trump card and suspended the issue of ANY new futures contracts in silver. Buying silver was effectively banned on the exchange.  Traders were only allowed to close out existing contracts, not create new contracts.  In other words, you could only sell silver, you could not buy it. The Hunts accused the CBOT of “changing the rules of the game” since they had turned a market where people could buy and sell into a market where people could only sell. No doubt, on this point the Hunts were right.  Gadaffi had changed the rules on oil in Libya and the CBOT had changed the rules on silver in the United States. The impact was immediate, and the price of silver fell $10 in one day. Silver had traded over 300,000 contracts on January 3, 1980, but only 12,000 contracts on January 25. On March 14, 1980, Paul Volker, head of the Federal Reserve, demanded that banks limit lending for speculative purposes, in part, to constrain borrowing by the Hunts to cover their losses.  Since the banks wouldn’t loan the Hunts more money, the Hunts had problems meeting their margin calls.  The Hunts owed Englehard Silver $665 million for delivery of 19 million ounces of silver due March 31.  The Hunts did not have the money to meet this call, and they turned to the banks to bail them out. The Hunts had borrowed billions to support their position in silver, but they were no longer able to borrow hundreds of millions of dollars. Consequently, the price began to crash.  Bache Group asked the Hunts for $100 million in collateral to cover their losses on March 25, 1980, but the Hunts were out of cash and defaulted on their loans.  Bache Group had no choice but to sell silver and the price collapsed from $30.80 on March 12 to $21.25 on March 25 and $10.80 on “Silver Thursday”, March 27, 1980. Some people feared that Bache Group might go bankrupt under the pressure of selling its silver contracts at a loss.  If the companies that had loaned money to the Hunts went under, some people feared a depression-like crash of the markets similar to what happened in 2008 when Lehman Brothers failed.  Instead, a consortium of banks put together a billion-dollar loan to bail out the companies that had loaned money to the Hunts and allow an orderly disposal of the Hunts’ silver contracts. The Hunts were provided with a $1.1 billion line of credit which allowed them to pay off Bache Group. The Hunt Brothers’ ownership in Placid Oil was used as collateral on the loan.  

The Aftermath of the Silver Fiasco

A Peruvian silver company, Minpeco had sold their silver production in the futures market in 1979 and was unable to keep up with the increased demands for margin the commodity exchanges demanded as the price rocketed up.  The company put up over $100 million in cash to cover their positions, but were unable to raise additional funds and sold off their contracts during the price increase in 1979, closing out their futures positions at a loss. Minpeco sued the Hunts for their losses and in 1988, after a six-month trial, the Hunts were found guilty of manipulating the price of silver and forced to pay $134 million in compensation.  The Hunts were unable to pay the $134 million and declared bankruptcy, forcing Nelson Bunker to sell his stable of 500 horses, his collection of Roman and Greek coins and other items he had accumulated on the way up. It is estimated that Nelson Bunker Hunt was worth $16 billion in the 1960s after he discovered oil in Libya, but after settling all the lawsuits against him in 1988, his fortune had sunk to $10 million.  Hunt spent the next seven years disposing of his assets to meet the demands of his creditors. The Senate led an investigation into the silver fiasco the Hunts had created, and during the proceedings, a Senator asked Nelson Bunker Hunt how anyone could lose a billion dollars.  And you have to remember, this was 35 years ago when $1 billion was a lot of money.  Nelson Bunker Hunt responded in his best good ole’ boy Texas drawl, “Well, Senator, a billion dollars just ain’t what it used to be.”

One of the questions I hear from customers is how to find a particular file among the 150,000 files that are included in the GFDatabase. Is there any shortcut or rule of thumb I can use to find the file I’m looking for? The answer is yes. Global Financial Data has made the search for some files easy by using codes that will enable users to put together with some degree of accuracy the tickers that are used for different files.  This tutorial is designed to help you understand how codes are put together to create many of the most-often used tickers that are used in the GFDatabase  

The Basic Mnemonic

Global Financial Data combines a number of different codes into a single ticker that can be deduced and used to find files within the database.  The code is designed to have 8 letters or less since many of these codes were designed back in the 1990s when files could only have 8 letters as identifiers.  The keys to this code are the  

Ticker Prefix of 2 or 3 letters

This prefix usually identifies the type of code that it is.  CP is used for Consumer Prices, POP for Population, GDP for GDP, etc.  

Country ISO Code of 3 letters

The International Standards Organization (ISO) has assigned two-letter and three-letter codes for every country on the planet, such as USA for the United States, CAN for Canada, and JPN for Japan.  In some cases, the codes reflect the name in the national Language, DEU for Deutschland/Germany, ESP for España/Spain and CHE for the Latin Confeoederatio Helvetica/Switzerland.  GFD has also created ISO Codes for countries that existed before World War II that have no codes (DZG for Danzig) as well as codes for regions, such as WLD for World and EUR for Europe. The list of ISO Codes that GFD Used can be downloaded here.  

File Identifier of 1 or 2 letters or numbers

Most files don’t have this identifier, but some files, especially interest rates do.  The identifiers for T-bills and T-bonds use the number of years to maturity to differentiate between the different types of yields.  The ticker for the 3-month US Treasury bill file is ITUSA3D while the 6-month ticker is ITUSA6D.  The 5-year US Government Bond is IGUSA5D while the 10-year is IGUSA10D.  

Periodicity identifier of 1 letter

The codes for these are D for Daily, W for Weekly, M for Monthly, Q for Quarterly, and A for Annual.  These codes are based upon the highest periodicity in the file.  IGUSA10D has monthly, weekly and daily data, but ends in D since daily data is the highest frequency in the file.  GFD does not provide separate files for the Daily, Weekly, Monthly, Quarterly and Annual versions of the file, but files with those periodicities can be downloaded when requested.  

Ticker Suffixes

In come cases, GFD provides a suffix to the code to identify either the source of the data or the type of data that is provided.  Eurostat provides tens of thousands of files to the GFDatabase and we usually put an EU after the ticker for that file to identify the file as coming from Eurostat. For example, ALD0036AEU is the Eurostat file for the Population of Albania. GFD also provides thousands of files that calculate the Annual Percentage Change (APC) for the underlying file.  Although it might be interesting to know that the index value for the United States CPI was 252.439 in September 2018, it is more interesting to know that consumer prices increased by 2.27% between September 2017 and September 2018.  It is also more interesting to know the change in Real GDP than the actual value of Real GDP since the Real GDP value tells you what GDP would be as measured in Dollars from several years ago.  For many of these files, GFD Calculated the Annual Percentage Change and designates these files with the suffix APC.  The annual percentage change for the US CPI is the file CPUSAMAPC and the annual percentage change in Real US GDP is GDPCUSAAPC. So if you know the underlying ticker, you can add APC to the ticker and get the annual percentage change rather than the data values.  

Examples

We have already mentioned that IGUSA10D is the ticker for the 10-year US government bond.  IG is the Prefix for Government Bonds, USA is the ISO Code for the United States, 10 is the years to maturity and D is the periodicity, thus IG + USA + 10 +D = IGUSA10D.  The code for Canadian Consumer Prices is CPCANM since CP is the Prefix for Consumer Prices, CAN is the ISO Code for Canada and M is the Periodicity, thus CP + CAN + M = CPCANM. TRDEUGVM is the ticker for the Total Return on German 10-year Bonds since TR is the Prefix for Total Returns, DEU is the ISO Code for Germany, GV is the File Identifier for 10-year Government Bonds and M is the Periodicity Identifier, so TR + DEU + GV + M = TRDEUGVM. Of course, there are always exceptions to these rules, but we think that using these mnemonics, you can put together the tickers for many of the files that you are looking for and avoid the problem of looking them up.  This can help you to create long lists of tickers simply by changing the ISO Code or Prefix for the file.  GFD provides a list of the mnemonics in an Excel File, but if you download a Main Indicator and can sense that a mnemonic is used to create the ticker, you can probably figure out most of the associated codes just by changing the ISO portion of the ticker. Also, please note the following:  

Exchange rates

The ISO has created three-digit exchange rate ISO codes for all of the currencies in the world.  These three-letter codes use the two-letter ISO code for each country, plus a third letter for the currency.  The code for the United States Dollar is USD (US for United States and D for Dollar), while the code for the Japanese Yen is JPY (JP for Japan and Y for Yen).  GFD uses a six-digit code for exchange rates by combining the two three-letter codes into a single six-letter code. The currency the exchange rate is calculated in is placed first and the currency that is converted  is put second.  Thus, USDJPY is the number of Japanese Yen you receive in exchange for 1 United States Dollar.  However, you have to be careful.  The British Pound-US Dollar exchange rate is usually quoted in terms of how many US Dollars you receive for a British Pound so GBPUSD is the “normal” exchange rate that is quoted for these two currencies, not USDGBP. Sometimes, the three-letter code is not what you might expect. The code for the Mexican Peso is not MXP, but MXN because the new Mexican Peso (thus the N) replaced the old Mexican Peso in 1993 at the rate of 1000 MXP = 1 MXN.  Venezuela has recently gone from the Bolivar (VEB) to the Bolivar Fuerte (VEF) to the Bolivar Soberano (VES).  GFD will be happy to provide its subscribers with a list of ISO currency codes so they can put together the correct codes for exchange rates.  

Excel Worksheet

The attached Excel Worksheet describes the Mnemonics that GFD Uses. The GFD Mnemonics worksheet provides information on the Type of Mnemonic (Column A), the Prefix (Column B), the ISO Code (Column C), whether a Special Suffix is used (Column D) and the probable Periodicity for the file (Column E).  This is followed by a sample code (Column F) and a description of the file for that code (Column G). The World Bank WDI provides Codes for the different types of annual files we provide from the World Bank. To find a code for a particular country, place a dot at the end of the code and add the ISO Code for that country.  The World Bank Code (Column A) is followed by the Type of File (Column B), the Indicator (Column C) and a description of the Indicator (Column D).  So the Code for United States S&P Global Equity Indices (annual % change) is CM.MKT.INDX.ZG + .USA = CM.MKT.INDX.ZG.USA. Conclusion We hope this guide enables you to make better use of the Global Financial Database.  If you have any questions, please feel free to contact us.

We recently wrote a blog on Tom Moore’s Distillery which along with Park and Tilford and the National Distillers Products Corp. paid dividends in whiskey to their shareholders. Companies are not required to pay out cash dividends, and they can pay out in-kind dividends in any way they want. Back in the 1980s, Ranchers Exploration and Development Corp. paid their dividends in bars of gold and silver!  

From Uranium to Copper to Silver

Ranchers Exploration and Development Corp. incorporated in New Mexico in 1954.  The company operated several uranium mines in New Mexico and Utah.  Its principal uranium mine was the Johnny M Mine located near Granta, New Mexico. The company also mined uranium from the Small Fry Mine located near Moab, Utah, and mined cathode copper at its Bluebird Mine near Miami, Arizona. However, two of the company’s mines produced precious metals.  The company conducted placer operations for gold in Alaska, developed the Escalante Silver Mine in southwest Utah and the Revenue Virginius Silver Mine near Ouray, Colorado. During the first ten years of its existence, the Ranchers Exploration mines failed to generate any significant results, but in 1966, the Bluebird Copper Mine began to produce large amounts of copper and the price of the stock shot up from $5 per share in 1966 to $70 per share in 1967. The company used their increased valuation to acquire the Big Mike Corp. and expand its operations. In 1970, the company moved from the over-the-counter market to a listing on the American Stock Exchange where it stayed for the next 14 years. Ranchers Exploration and Development Corp. is another example of a company that made its major move over-the-counter before moving onto an exchange. By 1971, the company’s sales had risen from $400,000 in 1963 to over $15 million in 1971, and to over $30 million by 1978. The company had 2-for-1 splits in 1970 and 1980 and a 3-for-2 split in 1983.

Pay Me in Bars of Gold and Silver!

Ranchers Exploration read the writing on the wall and began offering to pay dividends not in US Dollars, but in gold and silver, in part to attract shareholders to their stock.  The Dutch East India Company had regularly paid in-kind dividends to its shareholders in the 1600s and the Ranchers Development and Exploration Corp. decided to follow in their footsteps. The June 1981 dividend was payable in 2.5 grams of gold for every 500 shares held. Holders who owned 6,221 shares received a one-ounce gold bar.  Cash equal to $0.0766 was paid for fractional shares. The September 1981 dividend was payable in 2.5 grams for each 400 shares held.  Holders of 4,997 shares received a one-ounce bar in gold. Gold was selling at $600 an ounce on June 8, 1981 and $700 an ounce on September 24, 1981. In 1981, Ranchers Exploration had about three million shares outstanding, so the company would have paid out about 600 ounces in gold. In December, the company switched from gold to silver, and shareholders received a one-ounce bar of silver for every 120 shares that they owned. This would mean that the company paid out 25,000 ounces of silver to its shareholders. The March and June 1982 dividends were also payable in silver at the rate of 1 ounce of silver for each 120 shares, the September 1982 at the rate of 1 ounce of silver for each 100 shares, and the December 1982 dividend was payable in gold at the rate of 1 ounce of gold for every 4,977 shares. The 1983 dividends were payable at the rate of 1 ounce of silver for each 100 shares owned and the 1984 dividends were payable at the rate of 1 ounce of silver for each 150 shares owned. Investors who were tired of getting paid in dollars that were rapidly losing their value to inflation piled into the stock. The price of Ranchers Exploration shares gyrated with the price of gold and silver as the graph above illustrates. The stock price fell from over $65 at its peak in April 1981 to $12.50 in March 1982 and rose up to $53 ($35.25 after the 3-for-2 split) in April 1984. Other corporations saw value in the company, and on July 27, 1984, Ranchers Exploration and Development Corp. was acquired by Hecla Mining with shareholders receiving 1.55 shares of Hecla Mining Co. common stock, equivalent to about $21 in cash. Hecla Mining did pay dividends to its shareholders, but in cash, not in gold or silver.  Nevertheless, I would imagine that some of the former shareholders still probably hold bars of gold and silver they received from Ranchers Exploration and Development Corp. when it paid its dividends in bars of gold and silver.

Sears Holding Co. filed for protection under Chapter 11 bankruptcy on October 15, 2018 to avoid a $134 million debt payment.  Thus, an American icon which issued its first catalog in 1887 and opened its first store in 1925 came to an end.  Between 1906 when the company had the largest retail IPO in the United States up until that time and 1972 when the stock peaked, Sears’ stock market capitalization increased over 1200-fold from $15 million in 1906 to $18 billion in 1972. The stock price rose 2000-fold providing a 12% annual return between 1908 and 1972.  After reinvesting dividends, $1 invested in Sears in 1908 grew to over $20,000 by 1972 providing an annual return over 16%, making Sears one of the greatest investments in American history.  The company was bought out by K-Mart in 2005 and since 2007, Sears Holding Corp. stock has seen a steady decline from $195 in 2007 to 30 cents today. Sears, which had led the retail market from the 1890s to the 1970s was unable to find its retail focus and became a shadow of its former self.  Sears did innovate and introduce new products and lines, but this only delayed the inevitable collapse of the company. Sears has been unable to reinvent itself during the past 50 years and instead of other retailers following in its footsteps, it tried to imitate its competitors and ultimately failed.  Today, however, Amazon is the Sears of the twenty-first century and one wonders whether Amazon will repeat Sears’ mistakes in the years to come.  

The First Sears Catalog

Sears was originally a watch business, just as Amazon was originally a book business.  Its founder, Richard W. Sears worked as a freight agent for the Minneapolis and St. Louis Railroad in 1886 when a local jeweler gave him an unwanted shipment of pocket watches which Sears resold.  Sears bought and resold more watches and soon quit his railroad job to form the R.W. Sears Watch Co. in Minneapolis.  Sears hired Alvah Roebuck as a watch repairman in 1887, moved to Chicago in 1887, and in 1888 published his first mail-order catalog.  By 1890, the 80-page catalog had grown to 322 pages and by 1895 to 532 pages.  Anyone wanting to understand what life was like in America 100 years ago need only purchase one of the reproductions of a Sears catalog to see the thousands of goods people were able to buy.  Unfortunately, no Amazon catalog will exist 100 years from now. Sears bought out Roebuck in 1893 and recapitalized the company at $150,000 with two new partners, Aaron Nusbaum and Julius Rosenwald. Sears was a classic entrepreneur and always pushed to expand the company.  As one person put it, Sears could “probably sell a breath of air.”  In the nineteenth century, America was still a rural country.  Farmers had to buy their goods at the local general store, pay high prices and have little choice in what they could buy. However, Sears offered a large catalog with hundreds of pages of items that farmers needed and wanted.  Sears provided an unconditional money-back guarantee for all of the items in the catalog and his willingness to accommodate his customers at every level paid off. As Sears once put it, “Honesty is the best policy. I know it. I’ve tried it both ways.”  Sears sold on a low margin to get rural America hooked on buying through the mail rather than go to the local general store, and his plan succeeded.  Sears enjoyed phenomenal growth for the next 30 years. Two postal changes helped Sears to penetrate the rural market. The Rural Free Delivery Act was introduced in 1896 and parcel post was introduced in 1913.  Before Rural Free Delivery, farmers had to go to distant post offices to pick up packages.  In fact, before 1863, all letters were delivered from one post office to another post office.  No home delivery existed. Beginning in 1863, mail was delivered to homes in major cities, and in 1896, mail was delivered directly to rural farms, but 4 pounds was the limit on the size of packages delivered by the post office.  All other goods had to be shipped by railway freight or railway express. Before parcel post, four express companies divided up the delivery market between them with little competition. The government wanted to destroy this cartel and in 1913, the post office began delivering parcel post across America.  Once the post office entered the business, companies like Sears could mail packages to anyone anywhere in the United States. Both of these changes made it easy for Sears to send millions of items through the mail to eager customers in rural areas.  

Sears Conducts the Largest Retail IPO

1906 brought two major changes to Sears.  First, Sears established its distribution through its Sears Merchandise Building in Chicago, which covered 3 million square feet, and which symbolized Sears dominance of the mail order business. The building remained the corporate headquarters for the company until the Sears Tower was built in the 1970s.  Second, Sears reincorporated in New York and went public, issuing shares at $50 a share and increasing the company’s capitalization to $15 million, a 100-fold increase over 1893. But this was just the beginning of Sears’ growth.  By 1929, Sears reached a market capitalization of $775 million, 50 times greater than in 1906. Sears clearly used the capital it raised in 1906 and after to expand the company throughout the United States. Consequently, sales grew six-fold between 1906 and 1920 and in 1911, Sears began offering credit to its customers to increase its sales even more. By the 1920s, the population of the United States was moving off the farms and into the cites and suburbs.  Sears hired Robert Ward, the “General” (since he had served as the U.S. Army’s Quartermaster General during World War I), from Montgomery Ward in 1924 and Ward drove the growth of Sears over the next 30 years.  One of the main innovations that Ward introduced in 1925 was to have physical stores where customers could buy their goods directly from Sears rather than wait for the goods to be delivered by the post office.  Using the U.S. Census and the Statistical Abstract of the United States, Robert Ward plotted where to build retail stores to maximize Sears’ growth. Montgomery Ward followed suit in 1926 and opened its first store. Sears was added to the Dow Jones Industrial Average in 1924 and remained a member until 1999. The key to Sears’ success was to open up stores in the suburbs, not in the city centers where Sears would have had to compete with high-end department stores.  Sears made their stores easily accessible to motorists with free parking.  Montgomery Ward built their stores in rural areas and Woolworth focused on urban centers, but Sears built their stores in the suburbs where people were moving to. The introduction of the stores was a huge success and by 1930, only five years later, Sears operated over 300 stores nationwide. By 1931, store sales exceeded catalog sales.  Sears began working more closely with its suppliers, converting the Nineteen Hundred Corp. into Whirlpool, and in 1931 Allstate Insurance began providing automobile insurance to Sears’ customers. In 1942, Sears opened its first store outside of the United States in Havana, in 1947 in Mexico and in 1952 in Canada. At the end of World War II, both Sears and Montgomery Ward each had sales of around $1 billion, but after the war, Sears’ sales grew to $3 billion in 1952 while Montgomery Wards sales remained around $1 billion. In part this was because Sears concentrated on the Sun Belt states where the population was growing. After the war, Sears also established stores in suburban malls where Sears became the anchor store for each new mall.  By 1967, sales had increased to $1 billion per month.  However, it was also in the 1960s that Sears began losing business to the lower-end retail companies.  In 1962, Target, Walmart and K-Mart were all founded, three companies which would eventually replace Sears in the retail market, and one of which would buy out Sears. In the 1970s, high inflation pushed low-end consumers to discount retail stores like Target and Walmart, while higher end customers went to the more fashionable retail stores.  

The Sad but Steady Decline of Sears

In 1974, the 110-story Sears Tower, the tallest building in the world at the time, was completed just as Sears began its slow but steady decline. For the next 45 years, no matter what Sears did to try to stop its decline, it failed.  Sears may have delayed the inevitable, but Sears had lost touch with the American market and Sears gradually but inevitably lost market share to companies above them and below them.  Sears became a company of the past. The amount of changes Sears made to try and reverse its decline is impressive. Sears went into the finance business, acquiring the Metropolitan Savings and Loan Association, the broker Dean Witter, the real estate firm Caldwell Banker, and introduced the Discover Card in 1985, but none of these reversed the firm’s fortunes.  In 1987, Sears introduced specialty superstores, in 1988, Sears acquired Eye Centers of America, Pinstripes Petites and Western Auto Supply. All to no avail. By the 1980s, K-Mart sales exceeded Sears’ sales. But the company could not change its core business and sales continued to decline and by 1991, Walmart’s sales exceeded those of Sears. In 1992, Sears slashed 47,000 jobs when it lost over $2 billion.  The company introduced Canyon River Blues apparel, bought Lands End, purchased Orchard Supply Hardware, and introduced a Sears credit card. No matter what Sears did, it ultimately failed because it was Sears. It was a retailer of the past hemmed in by its product line. The company could not reinvent itself no matter how hard it tried. In 2003, Sears sold its financial and credit business to Citigroup, but by then Wal-Mart, Target and Home Depot all had greater sales than Sears.  Sears was the retailer people used to go to, not the one they went to. Sears was no longer innovating and showing other retail stores how they needed to change.  They were imitating the innovations of other companies, introducing financial products that others could provide better and were stuck with locations where growth was no longer occurring.

Sears, Roebuck & Co. Becomes Sears Holding Corp.

Between 1972 and Sears’ buy out by K-Mart Holding Corp. in 2005, the stock only doubled in price as is illustrated above.  In 2005, K-Mart acquired Sears, Roebuck and Co. for $11 billion after K-Mart completed its bankruptcy and re-emerged as K-Mart Holding Corp.  Sears shareholders could choose to receive either $50 in cash or one-half share of Sears Holding Corp. Although the company made $1.5 billion in 2006, by 2010, Sears Holding Corp. was losing money and lost money every year after that. The Sears disease infected the renamed Sears Holding Corp. and the steady decline began as is illustrated below. K-Mart Holding Corp. stock had done well after it emerged from bankruptcy in 2003, rising from around $10 to $100 by the time the company acquired Sears, Roebuck and Co.The stock peaked in 2007 at around $195, but declined steadily after that.  At $0.30 a share, the stock is back to the same level Sears, Roebuck & Co. was at in 1915, over 100 years of stock growth down the drain.   The story of Sears Holding Corp. is the same as the story of Sears, Roebuck & Co.  Sears spent its time trying to imitate successful retailers but never found a formula that worked for the company.  Sears was still living in the 1970s, not the twenty-first century. Sears had 3,500 stores in 2010, but only 695 in 2017 and a little over 100 stores by the time its bankruptcy was announced in October 2018. Soon there will be none.  

Amazon vs. Sears

The parallels between Sears and Amazon are instructive.  While Sears had its catalog, Amazon has the internet.  Both companies want to provide everything to everybody.  Both companies rely heavily upon mail to ship millions of good from their distribution centers to millions of customers.  Both companies rely upon low margins to build their business and drive out the competition. One hundred years ago, Sears drove the local general store out of business while Amazon is driving malls and retail stores (such as Sears) into bankruptcy. Both companies went from being a single-product company (watches for Sears and books for Amazon) into being a multi-product corporation that sells everything.  Both companies didn’t want to just be the BEST retail option to its customers, but the ONLY retail option to its customers.   Sears expanded into insurance with Allstate while Amazon has expanded into television through Prime and Amazon Web Services offering internet access through the cloud. Amazon shareholders have benefitted tremendously from the growth of the company.  Between Amazon’s IPO on May 15, 1997 and the stock’s peak at $2050 in September 2018, Amazon stock increased 1000-fold generating an annual return of 39% over a period of 21 years.  By contrast, between 1908 and 1929, Sears’ stock price rose 100-fold and 200-fold with reinvested dividends.   The only other retail company that had similar rates of growth was Walmart.  Between November 1970 and December 1999, Walmart Stock increased 6088-fold and allowing for reinvested dividends, increased by a factor of 7,185, generating annual rates of growth of 35% in the stock price and 35.8% with reinvested dividends. Walmart’s capitalization grew from $30 million in November 1970 to $308 billion in 1999, an annualized increase of 37.5%.  It should be remembered that between 1970 and 1999 while Walmart was growing by leaps and bounds, Sears was floundering and shrinking in size. Although Walmart hasn’t retraced its steps as Sears did after 1929 and Amazon after 1999, in 2018, Walmart stock was only 50% higher than it was in 1999. Its annualized return has fallen to 20% between 1970 and 2018, and because of share buybacks, the market cap in 2018 is actually less than it was in 1999. Looking at market cap, Sears grew from $150,000 in 1893 to $15 million in 1906 and to $775 million in 1929, a 5000-fold increase between 1893 and 1929.  Amazon has grown from a market cap of $560 million when the stock debuted on May 15, 1997 to $1 trillion in September 2018, increasing in size almost 2000-fold for an annual rate of growth of 42%.  But as with the growth of Sears, Amazon will be unable to sustain its 42% growth rate into the future.  At the current rate of growth, in 10 years, Amazon’s market cap would be greater than the GDP of the United States.  You also have to remember that Amazon stock peaked in April 1999, lost 95% of its value over the next two years, and remained below its 1999 peak until October 2009, 10 years of no growth in the stock price.  Similarly, Sears fell 95% between 1929 and 1933 and remained below its 1929 stock price until 1949, a 20-year fallow period. A similar 95% drop in Amazon would push the stock back to $100, a thought that is unimaginable to current Amazon shareholders.