New York 2006

Chapter 91 Bulls’ Counterattack

The RV was driving on the American interstate highway. The sun was shining brightly and the scenery was beautiful. The arrival of spring made the scenery along the way look very beautiful.

After Luo Ji chatted with the publicity team for a while, he went to his small room, opened his laptop, and logged on to Bloomberg News.

Today's Bloomberg News headline page is dedicated to Wall Street's king of short sellers, John Paulson.Like Luo Ji, he used CDS to short the subprime mortgage market.

However, he had already entered the market in the summer of 2006 and invested a small portion.At the end of last year, another $10 billion fund was established to specifically use CDS to short the real estate industry, subprime loan market, house price index, ABX index, etc.

"New Century Financial's profit warning caused some hedge funds to make a fortune. John Paulson was so convinced that the subprime mortgage market would collapse that he launched two funds last summer to focus on predicting this Collapse, the $60 billion fund has risen more than 33% since its launch. The Credit Opportunities Fund, which was established late last year and now has more than $10 billion, is up 67% in February and is up about 82% year to date."

Such a large fund can have such a rate of return, which is already very scary.

Unlike private investors like Luo Ji, who would go all out to short certain products with the highest returns, he would diversify his investments and share risks.

"After New Century Financial Corporation issued a profit warning, within two weeks, the BB and BBB indexes in the ABX index, involving subprime loans, have dropped from 96 points to 60 points. Even AA and AAA have dropped by 3 percentage points."

After reading this report, Luo Ji opened his CDS trading software and invested 1000 million yuan, which has now become 3663 million yuan.

Luo Ji felt very satisfied.The yield is higher than that of short-selling king John Paulson.

"Hahaha, what an investment like a genius." Luo Ji took a sip from the juice on the table, put his feet on the stool next to him, and lay down happily.

Although the rate of return is higher than that of John Paulson, to a certain extent Luo Ji just took advantage of it.

According to Xu Youyu, there was a crazy rumor on Wall Street during this period that John Paulson had made a crazy profit of 26 billion U.S. dollars. John Paulson also spread the news everywhere that the subprime loan was about to collapse.

Under the ironclad evidence of John Paulson's high returns, various investment institutions around the world began to respond to John Paulson and started a short-selling feast.

For a time, countless investment institutions around the world began to short a large number of investment institutions and banks that held CDOs.

The first to bear the brunt are Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac, Merrill Lynch and other companies in the United States that hold a large number of CDOs.

Many of the tens of trillions of CDOs produced in the United States are held by European banks.European banks also suffered.

Northern Rock Bank, Allied Irish Bank, and Anglo-British Irish Bank in the UK.French-Belgian bank Dexia Group, Germany's Deutsche Bank, Spain's largest bank Santander, the Netherlands' Fortis Financial Group, the National Bank of Greece, etc., have all been besieged by short-selling institutions.

This is a global short-selling feast, and no institution holding CDO investment products will be spared.Therefore, Luo Ji has only been able to make so much money in the past two weeks, and the short sellers are now very strong.

Luo Ji read the news magazine again.Here are some important news from recent weeks.

"Martin Scorsese's "The Departed" won four awards including Best Picture and Best Director at the 79th Academy Awards. Bill Condon's Dreamgirls led the way with eight nominations. The TV broadcast attracted reached more than 3990 million viewers."

"The terrorist organization launched a suicide attack at Bagram Air Base when US Vice President Dick Cheney was visiting Bagram Air Base, killing 23 people but leaving him uninjured."

"The New Horizons space probe performed a gravitational ejection of Jupiter, changing its orbit toward Pluto."

"Senator Barack of Illinois announces his candidacy for the U.S. presidential election."

……

Jingle bell, jingle bell.Xu Youyu called.Luo Ji lay lazily on the bed, put his cell phone to his ear and listened.

Xu Youyu said: "Logic, Bear Stearns and Lehman Brothers just issued statements at the same time, saying that the subprime loan business is basically good, and there is no problem with the value of derivatives CDOs. The short sellers have exaggerated the profit warning of New Century Financial Corporation. , there were no problems with the subprime loan business.”

Luo Ji sat up suddenly and said solemnly, "What does this mean?"

Xu Youyu said: "The bulls' counterattack has begun. The speeches of Bear Stearns and Lehman Brothers are likely to be a signal. Companies holding CDOs around the world will definitely not see their assets shrink on a large scale. They will definitely Take action.”

Luo Ji thought for a moment: "What will they do?"

"They will increase their holdings of CDOs in the market, use CDS to go long on the ABX index, and increase their holdings of company shares. Various investment institutions will attack in all directions."

"Mr. Xu, so what is your suggestion?"

Xu Youyu said sincerely: "The ABX subprime loan index has just risen by 2 points. Do you want to consider taking a profit and exiting the market first?"

"You wait for me first."

Luo Ji opened the ABX index and saw that it had risen to 62.3.It seems that Bear Stearns's speech really triggered the bulls' counterattack.

The share prices of CDO companies that have invested globally have also begun to rebound.The stock prices of Bear Stearns, Lehman Brothers, Merrill Lynch, Citibank, etc. all rose by more than 3%.

Luo Ji hesitated and said: "Mr. Xu, what we are analyzing is that as house prices fall, fewer people repay their loans. Loan default rates increase, and the value of CDOs falls. This crisis will be a chain of links, and bulls will Although there is a lot of momentum now, they cannot solve the fundamental problem. Fewer people are repaying their loans.”

Xu Youyu said: "The analysis is just an analysis, but the reality is too complicated. No one knows what methods the bulls will use, and they will not just watch their assets shrink. Maybe the government will take action, and the government will not Those who are willing to watch a large number of people go bankrupt and live on the streets.”

Luo Ji was moved by Xu Youyu's words: "Okay, then I will sell some CDS first and wait and see for a while."

Luo Ji did what he said and directly sold $2000 million worth of CDS.At this time, ABX's subprime loan index had reached 63.3.There are now only 1430 million US dollars of CDS left in the account. "I sold part of it," Luo Ji said.

"How about the income?"

Luo Ji said calmly: "The income is not bad. You can give me a private account with your bonus. It should arrive in the evening."

Xu Youyu quickly refused: "My share is included in the handling fee. No need."

Luo Ji said seriously: "One code is the same. You are my financial advisor. If you don't accept it, then I will find someone else."

"Thank you, boss!" Xu Youyu's title changed.

At seven o'clock in the afternoon, most people at Deutsche Bank had left, and Xu Youyu finished his analysis and summary of today's subprime mortgage market.Come to the toilet and prepare to pee.

I happened to bump into my colleague Grape Lippman who had finished working overtime. The two nodded to each other, then walked to the toilet and chatted.

Grape Lippmann said depressedly: "Let me tell you something. A few days ago, AIG, Goldman Sachs, including our Deutsche Bank, have stopped all underwriting of CDS related to the ABX index, CDO value, and house price index. .I may be specifically responsible for CDS transactions in the future.”

Xu Youyu said: "So, in the future, these CDS can only be purchased in the market, right?"

"Yes." Grape Lippman said.

Xu Youyu said: "How many related CDS are circulating in the market now?"

"More than 200 billion meters!"

Xu Youyu was shocked: "Does that mean these large institutions are not optimistic about the subprime mortgage market, so they stopped underwriting."

Grape Lippmann said: "No, it's because the risk is not proportional to the income. In the past, these indexes hardly changed, so the odds were so high. But some time ago, New Century Financial Company's thunderstorm, the price dropped in two weeks More than 30 points. Only then did these financial institutions realize the risks, so they all stopped underwriting CDS related to house prices."

"I see! Then will CDS with lower odds be launched in the future?"

"Maybe."

Grape Lippman looked around and found that the toilet was empty, so he asked Xu Youyu: "What do you think of Bear Stearns' series of speeches today?"

"I suggest leaving the market and waiting for a while. I don't know what the bulls will do." Xu Youyu said.

Xu Youyu zipped up his zipper and came to the sink, followed by Grape Lippman.The two stood together and washed their hands.

Ding, ding.

Xu Youyu picked up his phone and saw that it was a message from the bank.When I opened it, I saw that 100 million dollars had been added to the account.His blood suddenly surged, his face turned red, he felt dizzy, and he was stunned while holding his cell phone.

Grape Lippman looked at Xu Youyu in confusion, stepped forward and exclaimed loudly: "Oh My God. Who transferred it to you? Is it Logic? He is the one who bought the most CDS among the customers you introduced. .”

Xu Youyu reacted, quickly put away his phone, and looked around warily: "Shh! Keep your voice down."

Grape Lippman looked at the toilet and saw that there were only two of them, so he whispered: "It's really Logic. Is he so generous?"

"I didn't expect him to give so much." Xu Youyu whispered.

Grape Lippmann asked, "How much did he make?"

Xu Youyu said: "I don't know the specific figures. His accounts are all private transactions. Apart from him, only the company's senior executives can see them."

Ding!Xu Youyu turned on his phone and received a private text message from Luo Ji.

"Thank you, Mr. Xu, ABX's subprime loan index has now risen to 66. Your reminder is very timely. The 100 million bonus has arrived in your account, remember to check it. If there is new news, remember to remind me to enter!"

Xu Youyu immediately replied: "Okay!"

"Is this a text message from Logic?" Grape Lippman asked.

Xu Youyu said with a smile: "Well, after I saw the news about Bear Stearns this morning, I reminded him that his CDS move was very timely!"

"No wonder he is so nice to you." Grape Lippman suddenly realized.

Xu Youyu put his cell phone in his pocket and arranged his upward hairline happily in front of the mirror.Grape Lippman also tidied up a little, and the two of them walked out of the toilet.

The empty toilet, only the sound of water flushing the urinal.

At this time, the door of the innermost stall of the toilet suddenly opened, and a middle-aged white man walked out. He went to the sink to wash his hands and whispered.

"I didn't expect Logic to buy it too..."

(End of this chapter)