America's Road to Wealth

Chapter 192 Smith Capital Losing 20 Million

1 month 4 day.

Goldman Sachs headquarters.

In the trading department.

A lot of people are looking at the USD/JPY currency pair that has been shorted to around 105.900.

They couldn't help feeling a little more admiration for the company's CEO, His Excellency Paulson.

To know before this.

The reason why Smith Capital began to short USD/JPY aggressively.

Many people at Goldman Sachs want to be like last month.

Enter the market like Merrill Lynch, Lehman Brothers, etc.

They wanted to see if they could take a bite or two off of Smith Capital like last time.

But CEO Paulson who made this decision last time.

This time, they rejected the opinions of these people in Goldman Sachs.

Paulson also gave no reason.He just used the authority of the CEO to make them obey orders.

The elites of Goldman Sachs did not understand this at first.

But now seeing this kind of multi-turn short, it is still a very fast multi-turn short market.

Everyone couldn't help but admire Paulson a little bit.

This is if Goldman Sachs entered the market like other Wall Street investment banks at that time.

Now that other investment banks are in a hurry, it will be what Goldman Sachs is now.

Look at those investment banks who were long before.

At this time, one or two are busy turning more empty.

They are all trying to ensure that floating profits turn into profits.

It's not that easy.

Goldman Sachs avoids this and is able to sit on the sidelines.

Paulson's investment ability this time made everyone more convinced of him.

But in reality, Paulson is also secretly glad.

You must know that Paulson did not let Goldman Sachs end this time.

Not because of his investment ability.

It was because of Paulson, who was getting closer and closer to Texas.

After learning of Abel's close connection with the shrub family through some channels.

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

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

Avoid Abel's influence from affecting his future official career.

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

To put it bluntly, Paulson's decision this time is a bit selfish.

Against the interests of Goldman Sachs.

Unexpectedly, it might have been a bad thing for Goldman Sachs, but now it has turned into a good thing.

Goldman Sachs, which has not ended, does not need to be in a hurry like other Wall Street investment banks at this time.

Facing the awe-inspiring eyes of his subordinates, Paulson felt refreshed.

He kept an unfathomable expression on his face, and Paulson asked the person in charge of the Market Supervision Department:

"Now the major investment banks, as well as Smith Capital, what is the status of their accounts?"

Goldman Sachs' market surveillance department is in similar departments throughout Wall Street.

It is definitely at the forefront.This department specializes in collecting capital market intelligence, as well as various business intelligence around the world.

It brought a lot of accurate business intelligence to Goldman Sachs, and indirectly brought a lot of profits to Goldman Sachs.

This also makes this department very important in Goldman Sachs.

Goldman Sachs has invested a lot in it and has formed very good positive feedback.

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

In the face of inquiries from the CEO, the person in charge of Goldman Sachs' Market Monitoring Department replied:

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

"More than a dozen major investment banks, including Morgan Stanley, Lehman Brothers, Merrill Lynch, Bear Stearns, etc., have basically completed the transformation 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 in a bear market, everyone likes to be short.

In normal times, it is very common for Wall Street investment banks to switch between long and short.

But what the person in charge said next surprised Paulson.

The head of the market monitoring department of Goldman Sachs said:

"But according to other information we have learned. In the second half of the market yesterday, Smith Capital closed all their short positions."

"And after that, Smith Capital built a lot of long orders."

"According to the information we can understand, Smith Capital has at least built a long position of more than 200 billion U.S. dollars."

"Smith Capital is idling too much?" Paulson asked in surprise.

"That's right." The person in charge of the Market Supervision Department replied.

Paulson couldn't help frowning.

Paulson at the moment is just like David Mellon yesterday.

Can't figure out why Abel did this.

The Fed has already cut interest rates, so why do they still do more?

Although every time the Fed cuts interest rates, the currencies of other countries will also choose to cut interest rates along with it.

As a result, the depreciation cycle of the dollar is often only a few days.

So this bear market won't last long.

But before long, it will generally have a short market that lasts for four or five days.

Four or five days is enough for several transactions in the foreign exchange market.

In other words, at least within a few days visible to the naked eye.

Both USD/JPY will go short.

There are at least four or five days of profit time for the short orders that Abel established before.

As a result, Abel did not make these profits, but instead went long against the general trend of the market.

This is the same as his previous shorting against the general trend of the market, which puzzled Wall Street.

Fortunately, Paulson also made up his mind not to interfere.

So whether Abel is long or short, it has nothing to do with Goldman Sachs.

He just asked the people in the Market Supervision Department to keep watching the market.

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

But other Wall Street investment banks will not sit back and watch this "good thing" indifferently.

Lehman Brothers Bank.

In the trading department.

Chief Executive Officer Richard Fuld.

At this moment, he was staring at a subordinate who was on the phone.

That subordinate was talking on the phone in fluent neon dialect.

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

After a few minutes.

The subordinate, who can speak neon, ended the call.

Richard Fuld couldn't wait to ask immediately: "How is it? Is there any definite news?"

The subordinates who spoke neon words respectfully replied:

"According to our news channel over there."

"Our informant in the Nihong Central Bank said that in the short term."

"Limited by the pressure from the Fed and the White House, they will not cut interest rates immediately like other currencies."

Hearing the news, Richard Fuld suddenly showed an ecstatic expression on his face.

It has been said before.

After the Fed made a decision to cut interest rates.

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

In this way, the depreciation of the U.S. dollar will be reflected in the U.S. dollar, and the U.S. dollar will appreciate, and the U.S. dollar index will rise even more.

But in essence, the US dollar still depreciates when the Fed cuts interest rates.

What's more, there are still a few days of reaction time in the middle, and the dollar will definitely depreciate in these few days.

Richard Fuld, an informant from Lehman Brothers over at Neon.

After learning the news that the Neon central bank was forced to be unable to follow the Fed's interest rate cut.

The bulldog of Wall Street immediately beamed with joy.

Because as long as Neon does not cut interest rates with the Fed.

That also means that the yen will continue to maintain the current exchange rate strength unchanged.

The dollar depreciated, the yen maintained.

This is the exact opposite of the previous three-year bull market, which is conducive to the continued shorting of USD/JPY.

Richard Fuld still can't fully trust this news channel.

This kind of transaction involves tens of billions of dollars, of course, the more accurate the information required, the better.

Bulldogs of Wall Street, another few hours.

This news has been confirmed in many ways through many channels.

Determine why Neon is being threatened by the White House.

Neon will really not cut interest rates along with the dollar this time.

After really confirming that the news is true.

In the trading department, Richard Fuld decisively issued the decision to short USD/JPY.

All of a sudden, he empty the original more than 3 USD/JPY orders.

It has increased to more than [-] hands.

Not only Lehman Brothers got the news that Neon will not cut interest rates this time.

Other well-informed Wall Street investment banks also got the news.

These people make the same judgments as Richard Fuld.

The dollar cut interest rates, but the yen did not follow suit.

That is bullish for the yen/dollar, and the yen will appreciate.

The reverse is negative for USD/JPY, and the USD will depreciate.

Some people may think that USD/JPY and JPY/USD are not the same?
Aren't they the exchange of two currencies?
Between normal foreign exchange, they are indeed the same.

But in the international foreign exchange futures market.

USD/JPY is USD/JPY.

JPY/USD is JPY/USD.

The two are two different currency pairs.

Even if they generally appear in pairs in the foreign exchange market, it is the same.

USD/JPY is based on the US dollar.

Conversely, the yen/dollar is based on the yen.

Let's put it this way, USD/JPY 107.500 means that one US dollar can be exchanged for 107.5 US dollars.

Going short becomes 107.300, and one dollar can only be exchanged for 107.3 yen.

There are fewer yen that can be exchanged for a dollar, so the dollar depreciates and the dollar/yen goes short.

Conversely, if 107.500 becomes 107.600.

That is, more yen can be exchanged for one dollar.

For the dollar, that means the dollar appreciates and the yen depreciates.

USD/JPY, which is based on the US dollar, is naturally going long.

At this time, the Neon Central Bank was pressured by the United States and could not lower interest rates, but the United States itself lowered interest rates.

That is, the depreciation of the U.S. dollar reduces the number of yen that can be exchanged for.

It is reflected in the USD/JPY currency pair, where bulls and bears are now fighting fiercely.

That is, the dollar/yen will continue to go short normally.

It will be empty until the end of the period when the United States is not allowed to cut interest rates for Neon. After Neon starts to cut interest rates, it may go more again.

This is undoubtedly a very favorable condition for Wall Street investment banks who are shorting the yen.

This is why Stanley O'Neill and them before.

There will be serious doubts about the reason for Abel's collusion with the White House.

This situation, in addition to the fact that it is good for strengthening the US economy.

Undoubtedly, there will be huge benefits for Abel, who was shorting USD/JPY at that time!
It was precisely because Abel benefited the most at that time that Wall Street investment banks suspected his collusion with the White House.

But now
Not only Goldman Sachs found out that Smith Capital started to go long on USD/JPY instead of idling.

Goldman Sachs detected it, but Paulson chose not to end it because of personal reasons.

But other Wall Street investment banks, after confirming these two news.

They are not polite.

Richard Fuld of Lehman Brothers placed [-] new short orders at once.

Stanley O'Neill of Merrill Lynch was also polite, and also confirmed the two news.

The most powerful black man on Wall Street even directly bet Merrill Lynch on [-] empty hands.

By the afternoon of January [-]th, the international foreign exchange market.

There were hundreds of thousands of empty orders in USD/JPY.

The long-term long position that had been accumulated for more than two years was instantly flattened.

USD/JPY held the exchange rate around 106.100 for a day before heading down again, breaking below 106.

In the Smith Building.

Traders at Smith Capital.

They were a little desperate, looking at the account of Smith Capital.

There are 41 lots of USD/JPY long orders, with a cumulative floating loss of more than 10 billion US dollars.

If it weren't for Smith Capital's main funding provider this time, Pacific Commercial Bank, Abel's own bank.

Losing money like this, bank middlemen.

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

But this kind of loss is already very scary.

A total of only 30 billion US dollars in deposits, this is a loss of one-third.

It is not far from the forced liquidation line, that is, liquidation.

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

"Boss, things don't look good."

David Mellon said worriedly:

"Continue, even if the Pacific Commercial Bank does not need to call for a margin. But Citigroup and Wells Fargo will definitely ask us to call for a margin."

Margin call is very common in financial investment.

But the problem is that there are only hundreds of millions of dollars left in Smith Capital's account.

These hundreds of millions of dollars are used for emergencies, and they cannot all be filled here.

And even if you fill it in, it may not be enough later.

Of course Abel knew of the situation.

But the more this happened, the more relaxed the expression on his face looked.

"Simply speaking, you are short of money, right?"

Abel asked with a smile.

David Mellon hesitated for a moment, then nodded slightly.

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

No shortage of money can guarantee the maintenance of the margin, so you are not afraid of floating losses.

"Will there be another squeeze at the Pacific Commercial Bank?" Abel immediately thought of his own bank.

David Mellon shook his head and said:
"I've contacted John over there. I'm afraid I can't. It has reached the critical line. If it crosses the line, John said that it may attract the attention of the FDIC and OCC. There is a high probability of a lawsuit."

This time Smith Capital's foreign exchange investment.

Pacific Bank of Commerce both provided $250 billion in funding.

Its custody assets are only about US$1000 billion.

Most of them are immovable assets.

In fact, the active funds can be said to have been used to support the boss.

It would be a bit too much for the Pacific Commercial Bank to contribute.

In addition, strictly speaking.

If something goes wrong with Smith Capital's investment this time.

The Pacific Commercial Bank will definitely suffer from this.

It may not even necessarily lead to bankruptcy.

There is nothing I can do with my own bank.

There are only two ways for Abel to raise a large amount of funds.

One was a mortgage on the Pacific Bank of Commerce.

Pacific Commercial Bank is now at least a mid-sized bank, with more than $100 billion in proprietary assets.

Use it as collateral to get loans from those big banks.

At least billions of dollars in loans can be obtained.

That's it, a little too much for Pacific Commercial Bank.

It has already let it take the risk of bankruptcy in violation of regulations to contribute.

Now I have to take it out to mortgage for money.
It's not the last step, and Abel didn't want to do it.

He has another source of funding.

"Then take out our part of the funds in US stocks first."

Abel spoke.

Smith Capital has invested in 130 stocks in the US stock market.

The total investment exceeds 140 billion US dollars.

The purchase time has been more than half a month.

In the past half month, they each have a certain increase.

"Sell the ones that have risen the most and the market is the best." Abel told David Mellon.

David also knew about the funds.

Smith Capital's $140 billion US stock investment.

In half a month, Smith Capital has made almost 30 billion US dollars.

Many of these stocks will continue to rise, and holding them for a period of time can make 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 131 of the 31 stocks to sell.

Selling fast.

In these 31 stocks, Smith Capital invested about US$31 billion.

Selling them all left Smith Capital with an extra $48 billion in its account.

In other words, those shares brought Smith Capital a $17 billion profit.

This made David realize something.

He asked Abel: "Boss, it seems that you think they won't go up any more, so you choose to sell them?"

Abel smiled and said nothing.

But it was exactly as David guessed.

The stocks that will continue to rise and continue to make money, Abel did not choose to sell.

Most of the 31 stocks that were sold have already finished their gains.

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

Therefore, the liquidation of this part of the stock has little effect on the investment profits of Smith Capital in the US stock market.

And the extra 48 billion US dollars of funds also made Smith Capital's funds suddenly abundant and flexible.

That is after Abel has so much free money.

Immediately, he issued another order that made David tremble with fear.

Abel requested that Smith Capital continue to increase its short-selling efforts against the USD/JPY!
Send money into Wells Fargo and Citibank margin accounts by continuing to put in margin.

It's February 1th.

Smith Capital's foreign exchange account.

Already holding more than 55 USD/JPY long orders.

The account has a floating loss of more than 20 billion US dollars.

At the same time on the sixth day.

Six o'clock at night in neon time.

Neon Central Bank announced a new policy of theirs.

(End of this chapter)