The year 1979 put Refco on the map. We’d been long on cattle starting around 1977. All the research was saying that we were going to have the smallest cattle supply in the last thirty years, and that cattle that was at $40 should go to $80. By 1979 we were long so much that the Exchange called me daily to ask what percentage of the open interest Refco had. “You tell me,” I’d say.
“You have 80 percent of the open interest on April cattle,” they’d tell me. “You have 40 percent of the open interest in the entire cattle trade.”
“Okay, so . . . ?”
“You’re just too big.”
“Yeah,” I’d say. “But we’re right.”
Years later, on one of my first dates with my current wife, Frances Schultz, a.k.a. “F-2,” she asked me if I really did try to corner the cattle market. Obviously she’d been checking up on me.
“No!” I told her. “I did corner the cattle market.”
In 1979, our clients netted $500 million after commissions. The brokers also made millions, and Refco netted $30 million itself. I don’t think that’s happened any place in the commodities business before or since. We made a fortune for our customers and everybody heard about it, and that was really exciting.
I’ve always believed that there are no higher callings in life than creating jobs for people and raising kids. I want everybody to do well. By the ’80s, our business was exploding. We expanded and opened offices in Singapore, Hong Kong, New York, Rome, Jakarta, Amsterdam, Barcelona, Hamburg, Paris, and London. I had 1,000 brokers on commission and about 1,000 other employees, which was a very efficient ratio. Everybody was making good money. We had over 150 membership seats on exchanges around the world. I would buy the seats at $400,000 each and those guys could make $1,000,000 or more a year. To this day, there are fifteen or twenty guys who get together for drinks twice a year and get me on the phone. They tell me that if it hadn’t been for Refco, none of them would have had the families they had and college-educated kids, and that their time with Refco was the most fun they’d ever had.
* * *
Randy Kreiling was from Peoria, Illinois, and one of the handsomest guys ever, just a stud. He was married to Helen, who was Bunker and Herbert Hunt’s niece. Randy was hustling business for the Hunt brothers, and I was hustling him. When he moved from Dallas to Chicago, I gave him office space. That’s when the Hunts decided they were going to squeeze the silver market, meaning they were going to buy up all the silver they could and make the price go up.
Bunker and Herbert Hunt were the sons of H. L. Hunt. H. L. started out as a dishwasher, learned to play poker, won his first oil lease in a poker game, and went on to become one of the richest men in America.
The Hunt brothers started buying silver in the early ’70s when silver was $1.50 an ounce. Early in 1974, after they had amassed about forty million ounces of silver—8 percent of the global supply—they decided to ship it all to Switzerland. Before the silver was shipped, Randy Kreiling and his brother, Tilmon, held a shooting contest with a group of cowboys on the Circle K Ranch. They picked the twelve best marksmen. Randy, Tilmon, and the cowboys flew in the middle of the night on three chartered 707 jets to Chicago and New York. They loaded up the planes with the Hunts’ silver—one of the largest silver transfers ever—and flew to Switzerland.
Now, Refco then was a relatively small business with maybe $10 million in capital. At the time, the capital requirement for a trade was around 6 percent. So if all our customers combined were trading, say, $100 million in commodities, Refco would have to have $6 million in capital. The Hunts were putting up maybe $200 million on margin to trade the silver, and that was in addition to all of our other customers’ trades. Hell, we had to go out and raise money just to have enough capital on hand. By January 1980, silver was at $50 an ounce. On January 21, the Board of Trade suspended silver trading. On March 27, which was called “Silver Thursday,” silver opened at $15.80 and closed at $10.80, and the Hunts lost a lot of money. Since they traded some of that through Refco, Refco didn’t participate in the trade. Refco never traded for itself. I traded for myself but not in this silver trade. And this, by the way, was when I stopped trading from the floor and started calling in trades from my office. Anybody could walk by and hear me on the floor, and obviously I didn’t want that.
* * *
On January 4, 1980, Frannie and I were hosting a big, fancy dinner party at the house in Lake Forest. I was short to the gills on corn and wheat and losing big at the time, like $4 or $5 million. I get a call from Rick Kaplan who was then the executive producer for ABC News. Rick was from Chicago and I met him through a friend in Washington and we became good friends. He went on to become president of CNN under Ted Turner, then later president of MSNBC. The Soviets had invaded Afghanistan, and Rick told me that they were preparing for the broadcast of President Carter’s response that night. He thought Carter was going to impose a grain embargo against the Russians, and the guys in the newsroom were preparing charts to show how an embargo might affect the American farmer.
“What are you talking about?” I say. “He can’t embargo the fucking grain. There’s no one to sell it to except the Russians.” By rights of course he told me this after the market had closed, but it didn’t matter because my position was already in place.
“Well,” Rick said, “that’s what he’s going to say.” I called up Willard Sparks, who was short up to his ass, too.
“Is there any chance that there’s a grain embargo?” I asked him.
“Who you gonna sell it to?” he said.
“Right,” I said. “Let’s get Victor Pershing on the phone.” Victor was the head of the Export Club of Russia and ran all the Russian grain imports. I figured the White House had Victor’s phone bugged, but the three of us got on the phone anyway.
“Victor, any chance of a Russian grain embargo?” I asked.
“Who you gonna sell it to?” he answered. We hung up. I was trying my best to be a good host at our dinner party, but I was choking on my trade and running in and out of the dining room, back and forth between the phone and the television, to see if President Carter was actually going to announce a grain embargo. No one could believe it because it was an economically stupid move.
Nevertheless, the embargo happened and they closed the exchange for five days. Obviously prices plummeted when they reopened the market. I made $53 million the first day. Jimmy Carter was my favorite president because he did everything wrong, and I made a lot of money. Reagan, however, almost killed me.
Rick was returning the favor of a little news scoop I’d given him some months earlier about the Russians in Iran. In 1979, Iran’s Shia Republic came to power and aggravated relations with Sunni-ruled Iraq. I called Rick. “Tell me about the Russian tanks in Iran,” I said.
“There aren’t any Russian tanks in Iran,” he told me.
But there were and here’s how I knew: my guy at Fiat in Italy. Italian car manufacturers had great information because the Italians had great intelligence. Do you know the name of the Italian intelligence agency? Me either. Nobody does. American car manufacturers weren’t doing business in Russia, but the Italians were. I had spoken to my contact at Fiat who told me about the Soviet tanks in Iran and that it was just kind of a fuck-you move. The Russians wanted to send a message.
Rick got off the phone with me and went to his bosses and said, “What about the Russian tanks in Iran?”
“There aren’t any Russian tanks in Iran, get outta here.”
A day later they came back to Rick and said, “Where’d you get that information?”
“I have sources,” he said.
“Well, they were good sources because the Russians are in Iran.”
* * *
Another lucrative deal in the 1980s was trading with Russia. US companies were forbidden to trade directly with the Soviets, but Refco London was a separate entity. We financed the Soviets’ oil-for-sugar swap with Cuba.
Cuba gave Russia sugar and Russia gave Cuba oil. No one would take Cuban credit, so the Russians had to finance the Cubans. If you were to loan the Russians money, they might pay you 10 percent interest on January 1. The fact that interest rates were 2 percent wouldn’t matter to them. It wasn’t in their mentality. They didn’t know what interest was. There’s no word for risk in the Russian language. That became a huge trade for us.
The year 1980 marked the twentieth anniversary of the Cuban Sugar Company, which had been nationalized under Fidel Castro. I had just gotten my Falcon 50, and Frannie and I flew down to Havana. Travel between Cuba and the US was of course not allowed, but we could go as guests of the Cuban government provided we had the permission of the US government, which we did. We stayed at the Hotel Nacional de Cuba, a beautiful hotel in its day. It opened in the ’30s and was a getaway spot both for celebrities and organized crime types. When we got there it was a shithole and still had bullet holes in it dating back to the 1933 rebellion. The first night of the anniversary party was a big deal simply because Cuban sugar was a big deal, and there were hundreds of people in the room. A guy walked up to me and asked if I was the person who owned the Falcon 50. I told him yes, and he said President Castro wanted to meet me. “Will you come with me?” he said.
Hell, I didn’t know what they wanted, or if I was being set up or what. “Frannie, honey, if I’m not back in two hours, get the pilots and get the fuck out of here.” I was dead serious.
I followed this guy to a private room where there were about thirty people, and Castro walked over.
“You came down in the Falcon 50?” he asked.
“Yes, sir.”
“It’s wonderful,” he said. “Can I take a look at it?”
“Sure, Mr. President, you sure can. You just contact my pilots and the airport and we’ll do it.” I went back to Frannie in the dining room and we we’re seated next to the kitchen where every time the door opened it went bang! against my chair. Bang! All night long. The next night we were moved to a table in the center of the room, right in front of the head table. The night after that, we were at the head table, for no reason other than Castro wanted to see my plane. Frannie and I had a good laugh about that. I saw him three or four times after that, and we gave a dinner for him at our house in New York when he was in town for a big UN event. Not because I was fond of him or even approved of him—I wasn’t and I didn’t—but Cuba gave Refco a ton of business.
While we were in Cuba we had an interpreter whose father had been a doctor and had left Cuba when Fulgencio Batista was in power. The interpreter had been going to Juilliard in New York when her father moved them back to Castro’s Cuba. At the time we met her, she had a fifteen-year-old daughter who wanted to become a prostitute because she could make more money doing that than the $350 her mother made per year as an interpreter. I asked this woman why her father came back, and she told me that he believed in communism. When I left, I gave her $500 and she wept. She probably could have gone to jail for having US dollars, but she sure was grateful.
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