HardAssetsInvestor

Mike Norman (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. My guest today is Dr. Henry Jarecki, chairman of Gresham Investment Management, a commodity fund manager. Dr. Jarecki, thank you very much for coming on the show.

Henry Jarecki, chairman, Gresham Investment Management (Jarecki): Thanks for having me.

Norman: Now, I’d like to also tell people that you were the former chairman of Mocatta Metals, one of the largest, if not the largest, bullion dealer in the world, really, back in the ’70s.

And you lived through the silver bubble of the late ’70s, 1980, when the Hunt Brothers … in fact, your firm, right, Mocatta Metals, was the principal counterparty to the Hunt Brothers? You were on the short side. Why don’t you tell us about that? That must have been a harrowing experience, for a while, anyway; worked out well for you.

Jarecki: Well, a bullion dealer is not typically on the short or on the long side. He just treads nimbly, hoping to stay out of various kinds of trouble. And he’s a dealer, sort of as a market maker. But what he buys, he sells; and he tries to keep a very flat position. Inevitably − because the Hunts were buying a great deal of silver in their efforts to squeeze the market − we mobilized silver from many places in the world; from our customers, like the Bank of Mexico, or like silver miners around the world.

We would buy from them and, ultimately, sell to the Hunts. And when they had a very long position, and ultimately had to get out of that position, we assisted the market by buying in those pieces and selling it back to some of the same people that originally …

Norman: … buying in those pieces at a much, much lower price. But the Hunts were successful for a time. They drove the price of silver up to $50, which still stands as the high price. Let’s talk about the silver market today; we see it at a 30-year high. Do you think we’re going to hit that $50 price level at some point?

Jarecki: Well, as I’ve said, a bullion dealer − and the same is true of a commodity fund manager − doesn’t try to predict prices. We try to provide for customers the ability to buy or sell. We provide liquidity in the markets. And we provide, currently, exposure to the entire world of commodities for people who want to own part of the commodity fund, in order to stabilize the returns of their portfolio, generally. That’s what we can promise, because that is what happens.

When you add any asset to a portfolio, you’re going to diminish the volatility of that portfolio. It’s almost an arithmetic tautology, that that must be true. I don’t want to go through the math of it, but there is a logic in why that would be so. That’s what we provide. And in those days, it’s true that the drama of those markets did, indeed, provide big opportunities for those who were making markets.

In the beginning, we used to try to make a penny an ounce. And at the high point of the Hunt drama, I remember making $8 or $10 an ounce during some of those days when nobody knew where you could sell silver anymore. And we had dozens of very large customers who were quite willing to buy silver at substantial discounts, which existed.

But I don’t think you can predict where markets go. I think that markets are random. I think that those who get a reputation as being brilliant market operators are on the right side of randomness. And those who are called mugs, ultimately, they’re on the wrong side of randomness.

There is a great economist called Nassim Taleb and his teacher Benoit Mandelbrot, who have written a great deal about how the world is fooled by the randomness of markets. And you really have to …