Chapter 192

Chapter 192 Smith Capital lost two billion

January 4.

Goldman Sachs headquarters.

At the sales department.

Many people are interested in the USD/JPY currency pair which is selling at around 105,900.

They couldn't help but feel a little more admiration for the company's CEO, Mr. Paulson. Know that in advance.

Through Smith Capital, the company began shorting USD/JPY.

A lot of people at Goldman Sachs want to do what they did last month.

Enter markets like Merrill Lynch, Lehman Brothers, etc.

They wanted to see if they could take a bite out of Smith Capital like last time. CEO Paulson made this decision last time.

This time, they refuted the comments of these people from Goldman Sachs.

Paulson did not give a reason. He simply used the CEO's authority to force them to carry out his orders.

The Goldman Sachs elite did not understand this at first. But now, faced with this shift from buying to selling, this is still a market with many selling positions very quickly.

People can't help but admire Paulson.

If Goldman Sachs entered the market like other investment banks on Wall Street at that time.

Then the rush of other investment banks will be like Goldman Sachs today.

Look at the investment banks that existed a long time ago. Currently, one or two people are busy making multiple transfers.

They are all trying to turn floating profits into profits.

It's not that easy.

Goldman Sachs has avoided this and can stay away.

This time, Paulson's investment ability makes people trust him even more. But in reality, Paulson is also secretly happy.

You should know that this time Paulson didn't let Goldman Sachs finish talking.

Not because of my investment capacity.

That's because of Paulson, who is getting closer and closer to Texas.

After learning of Abel's close relationship with the shrub family through certain channels.

This guy wants to let himself have a retreat, for his own future development.

Paulson decided to try not to be an enemy of Abel.

Avoid Abel's influence and affect his future career.

This made Paulson decide that Goldman Sachs will not end this time.

To put it bluntly, Paulson's decision this time is a bit selfish. Going against the interests of Goldman Sachs.

All of a sudden, this could have been a bad thing for Goldman Sachs but now it has turned out to be a good thing.

Goldman Sachs, the work is not done yet, nor does it need to tighten like other Wall Street investment banks right now.

Under the impressed gazes of his subordinates, Paulson felt rested.

Still looking confused on his face, Paulson asked the head of the market surveillance department:

"Now, the big investment banks as well as Smith Capital, how are their accounts doing?"

Goldman Sachs's market surveillance division is located in the same departments as Wall Street. is definitely in the top spot. This department specializes in gathering intelligence on capital markets as well as various economic information around the world.

This brings a lot of accurate trading intelligence to Goldman Sachs, indirectly bringing more profits to Goldman Sachs.

This also makes this department very important at Goldman Sachs.

Goldman Sachs invested heavily in it and received very good positive feedback.

The more resources invested, the better and more accurate the business intelligence collection capability of this department will be.

Faced with inquiries from the CEO, the person in charge of Goldman Sachs' market surveillance department replied:

"Mr. Paulson. From what we know and observe."

"A dozen major investment banks, including Morgan Stanley, Lehman Brothers, Merrill Lynch, Bear Stearns, etc., have basically completed the transition from long to short."

Paulson nodded.

This situation is very common.

When the market is in a bull market, everyone likes to be long. When the market is bearish, everyone likes to sell short.

In normal times, it is all too common for Wall Street investment banks to alternate between long and short positions.

But what the manager said next surprised Paulson.

Goldman Sachs's head of market surveillance said:

"But according to other information we saw, yesterday in the second half of the market, Smith Capital closed all of its short positions."

"And then Smith Capital established a large number of long-term orders."

"From the information we can understand, Smith Capital has at least established a long position of over $20 billion."

"Is Smith Capital running too slow?" » Paulson asked in surprise.

"Right." The head of the market surveillance department replied. Paulson couldn't help but frown.

Paulson is today what David Mellon was yesterday.

I don't understand why Abel did this.

The Federal Reserve has already cut interest rates, so why are they doing more?

Although each time the Fed cuts interest rates, other countries' currencies will also choose to cut interest rates at the same time. In this way, the dollar's depreciation cycle usually lasts only a few days.

This short-term market will therefore not last.

But before long, there is usually a short market that lasts four or five days.

Four or five days are enough for some transactions in the foreign exchange market.

In other words, visible to the naked eye for at least a few days. USD/JPY will be short.

Abel has at least four or five days to profit from the short position he set up earlier.

As a result, Abel did not realize these profits and instead took a long position against the general market trend.

This is similar to the fact that he has sold against the general market trend in the past, which has made Wall Street curious.

Luckily, Paulson also decided not to intervene. Therefore, whether Abel buys or sells has nothing to do with Goldman Sachs.

He simply asked people from the Market Surveillance Department to continue monitoring the market.

Goldman Sachs's indifference was mainly due to Paulson's personal reasons.

But other investment banks on Wall Street will not stand idly by in the face of this "good thing."

Lehman Brothers Bank. At the sales department.

CEO Mr. Richard Fuld.

He was looking at a subordinate talking on the phone.

Subordinates speak fluently on the phone in neon dialect.

Richard Fuld couldn't understand the neon lights' words, so he could only wait by the side. Minutes later.

The neon-speaking subordinate ended the call.

Richard Fuld couldn't wait to ask: "How are you?" Any specific news?

The subordinate spoke respectfully in response:

"According to our news channel over there."

"Our informant at Neon Central Bank said this in a short period of time."

"Constrained by pressure from the Federal Reserve and the White House, they will not cut interest rates as immediately as other currencies."

Hearing this news, Richard Fuld suddenly showed an ecstatic expression.

This has already been said. After the Federal Reserve decided to cut interest rates.

Most countries around the world will follow suit and cut interest rates.

This way, when the US dollar depreciates, other currencies depreciate further, and when this is reflected in the US dollar, the US dollar instead appreciates and the US dollar index increased even more.

But essentially, the US dollar continues to lose value as the Fed cuts interest rates.

Furthermore, there are still several days of reaction time in between, and the dollar will certainly lose value during these few days. Richard Fuld, Lehman Brothers informant at Neon.

After hearing the news that Neon Central Bank was forced to be unable to keep up with the Federal Reserve's interest rate cuts.

The Wall Street bulldog immediately beamed with joy.

Because as long as Neon doesn't lower interest rates with the Fed.

This also means that the yen will continue to keep its current exchange rate unchanged. The US dollar is losing value, while the yen is appreciating.

This is in stark contrast to the bull market of the past three years, which favors continued selling of USD/JPY.

Richard Fuld still cannot fully trust this news channel.

This type of transaction involves tens of billions of dollars. Of course, the more specific the information requested, the better.

The Wall Street Bulldogs, just a few hours away. After confirming this news through many channels and in many ways.

Determine why Neon is threatened by the White House.

This time, Neon actually won't cut interest rates along with the dollar.

After actually confirming that the news is true.

In the trading desk, Richard Fuld made the decision to sell USD/JPY. It immediately dumped initial orders above 30,000 USD/JPY.

Increased to more than 80,000 hands.

Lehman Brothers wasn't the only one who knew that Neon wouldn't cut interest rates this time.

Other savvy investment bankers on Wall Street also heard the news.

These people make the same comments as Richard Fuld. The USD reduced interest rates but the yen did not follow.

This is a bullish sign for the yen/dollar and the yen will appreciate.

This, in turn, is bad for the dollar/yen ratio and the dollar will lose value.

Some people may think that USD/JPY is not the same as JPY/USD?

Isn't this exchanging two currencies? Among common currencies, they are really similar.

But on the international foreign exchange futures market.

USD/JPY is USD/JPY.

JPY/USD is JPY/USD.

These are two different currency pairs. Although they are present in the foreign exchange market, they often appear in pairs.

USD/JPY is calculated based on USD.

In contrast, the yen/dollar ratio is based on the yen.

Let's put it this way, 107,500 USD/JPY means that one dollar can be exchanged for 107.50 dollars.

The short position becomes 107,300 and one dollar can only be exchanged for 107.3 yen. One dollar can be exchanged for fewer yen, so the dollar loses value and the dollar/yen ratio becomes short.

Conversely, if 107,500 becomes 107,600.

This means that one dollar can be exchanged for more yen.

For the US dollar, this means the US dollar is appreciating and the yen is depreciating.

The dollar/yen ratio, based on the US dollar, is naturally long. At that time, Neon Central Bank was under pressure from the US and could not reduce interest rates, but the US itself lowered interest rates.

This means the US dollar loses value and the yen may trade down.

This is reflected in the dollar/yen currency pair, where bulls and bears are currently fighting tooth and nail.

In other words, the dollar/yen ratio will generally continue to be on sale.

It will remain empty until the end of the period during which the United States is not allowed to lower interest rates on Neon. When Neon starts cutting interest rates, prices could rebound.

These are certainly very favorable conditions for Wall Street investment banks to short the yen.

That's why Stanley O'Neill and others before him.

will seriously doubt Abel's reason for colluding with the White House.

This situation is ongoing, except that it is actually beneficial to strengthening the American economy. For Abel, who was short USD/JPY at the time, this would certainly be of great benefit!

Because Abel was the biggest profiteer at the time, Wall Street investment banks suspected him of colluding with the White House.

But now

It wasn't just Goldman Sachs that discovered that Smith Capital had switched from inactive positions to long positions and started buying USD/JPY with bad sentiment.

Goldman Sachs found out about it, but Paulson decided not to end it for personal reasons.

But other investment banks on Wall Street later confirmed these two news.

They are not polite. Richard Fuld of Lehman Brothers placed 50,000 new blank orders at once.

Stanley O'Neill of Merrill Lynch was not polite after confirming these two pieces of news.

The most powerful black man on Wall Street even took down 100,000 Merrill Lynch for nothing.

On the afternoon of January 4, international foreign exchange market.

USD/JPY has hundreds of thousands of empty orders. Long-term long positions accumulated over two years were immediately flattened.

USD/JPY held the exchange rate for one day around 106.100, then fell again and fell below 106.

In the Smith Building.

Smith Capital Trader.

They were a little desperate when looking at Smith Capital's account. 410,000 lots of USD/JPY buy orders, cumulative floating loss exceeds 1 billion US dollars.

Without Pacific Bank of Commerce, Abel's own bank, this time Smith Capital's main backer.

Such losses, from banking intermediaries.

I would definitely recommend Smith Capital to close the position or ask Smith Capital to increase the margin.

But this kind of loss is scary enough. Total deposits were only three billion US dollars and a third of this amount was lost.

This is not far from the path of forced liquidation, that is, liquidation.

In this regard, David Mellon had to find Abel himself.

"Boss, the situation doesn't look good."

David Mellon said with concern:

"Go ahead, even though Pacific Bank of Commerce doesn't need a margin call. But Citigroup and Wells Fargo will definitely ask us for a margin call."

Margin calls are very common in financial investments. But the problem is that Smith Capital's account only has hundreds of millions of dollars left.

These hundreds of millions of dollars are used for emergencies and cannot be spent here.

And even if it is full, it may not be enough later.

Of course, Abel knew about this situation.

But the more this happened, the more relaxed his expression seemed. "Simply put, you're short of money, right?

Abel smiled and asked.

David Mellon hesitated for a moment then nodded slightly.

Because strictly speaking, there really is a lack of money.

No shortage of funds can ensure margin maintenance, so you are not afraid of floating losses.

"Pacific Bank of Commerce, can you press again?" Abel's first thought was of his own bank. David Mellon shook his head and said:

"I've been in contact with John there. I'm afraid it can't be done. This has reached a critical level. If it gets out of hand, John said it could attract the attention of the FDIC and OCC. Yes It is highly likely that there will be a trial."

This time, Smith Capital's foreign exchange investment. Pacific Bank of Commerce both provided $25 billion in financing.

Its seized assets only amount to about $100 billion.

Much of it is real estate.

In fact, it can be said that the operating money is used to support the boss.

It would be a bit too much to let Pacific Bank of Commerce contribute. Also, strictly speaking.

If there are any problems with Smith Capital's investment this time.

Pacific Commercial Joint Stock Bank will certainly be affected.

It can even lead to bankruptcy.

I can't do anything with my own bank. There are only two ways for Abel to raise large sums of money.

One of them is the Pacific Bank of Commerce mortgage.

Pacific Bank of Commerce is currently a mid-sized bank with more than $10 billion in private assets.

Use it as collateral to borrow money from these big banks.

At least billions of dollars in loans could be collected. That's it, it's a bit too much for Pacific Bank of Commerce.

It has allowed itself to risk bankruptcy through regulatory violations to contribute to this.

Now he has to borrow money himself.

This is not the final step and Abel does not want to do it.

He has another source of funding. "Then let's withdraw our capital from the US stock market first."

Abel said.

Smith Capital has invested in 131 stocks on the US stock market.

Total investment capital exceeds 14 billion USD.

Purchase time is more than half a month.

During the past half month, each of them increased to a certain extent. "Selling the apartments with the highest price increase and the best prices on the market." Abel told David Mellon.

David also knew about this money.

Smith Capital's $14 billion equity investment in the United States.

In half a month, Smith Capital earned nearly three billion dollars.

Many of these stocks will continue to increase in price and holding them for a while can generate more profits.

David was reluctant.

But Abel insisted on this, and David could only immediately order the traders to start action.

Because the market was very good, Abel selected 31 stocks out of 131 and sold them.

Selling fast.

Smith Capital invested about US$3.1 billion in these 31 stocks. After selling out, Smith Capital's account had $4.8 billion left.

In other words, these actions brought Smith Capital a profit of $1.7 billion.

This made David realize something.

He asked Abel: "Boss, it seems you thought they wouldn't appear again so you decided to sell it?"

Abel smiled and said nothing.

But that's exactly what David guessed. These stocks will continue to increase in price and make money, Abel does not choose to sell.

Most of the 31 shares sold completed their gains.

In other words, there will be no more large-scale price increases in the future.

Therefore, the liquidation of this share has little impact on Smith Capital's investment profits on the US stock market.

The additional $4.8 billion also makes Smith Capital's capital resources more abundant and flexible. After that, Abel had a lot of free money.

He immediately gave another order that made David tremble with fear.

Abel has asked Smith Capital to continue increasing its short selling efforts against USD/JPY!

Continue depositing, deposit money into Wells Fargo and Citibank deposit accounts.

It was January 6th.

Smith Capital Forex Account. Held more than 550,000 USD/JPY buy orders.

The floating loss account amounted to more than 2 billion USD.

Also on Friday.

Neon time is six o'clock in the evening.

Neon Central Bank has announced its new policy. (end of this chapter)