Golden Spoon Investment Portfolio - Chapter 224

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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‘Lightly,’ you say… Only the boss could use an expression like that.

January 5th, 1996.
Clouds hung heavy over the morning sky, threatening another downpour, and I sat on the Penthouse sofa sipping coffee with its rich aroma of roasted beans, reading the Wall Street Journal.

[US Federal Government Shutdown 20 Days]
The Federal Government shutdown, stemming from the power struggle between the White House and the Republican Party—the majority in Congress—over this year’s budget proposal, has now persisted for a full twenty days.
There had been considerable hope for a dramatic resolution with the start of the new year, but contrary to expectations, both sides have failed to narrow their differences and continue their standoff at the brink.
President Davidson has strongly criticized the opposing side, stating that “Speaker Sabitz and the Republican Party’s unilateral and hardline stance not only backfires on national security but also damages America’s reputation globally.”
Meanwhile, Speaker Sabitz…]

I muttered to myself while looking at the shutdown article sprawled across the front page.

“It’s about time patience runs out.”

On New Year’s Day, the New York stock market had surged dramatically, raising investors’ expectations considerably.
But as the budget resolution failed to progress as anticipated and time dragged on sluggishly, with the shutdown period growing longer, the New York market too could rise no further and showed mixed signals.
It was a clear demonstration that anxiety rather than hope now pervaded the market, just as I had said.

“What are you looking at so intently?”

Turning my head, Landon Shore, holding a dark gray cashmere coat in one hand, approached and settled onto the empty left side of the sofa.
He glanced at the newspaper I had set down, then shook his head slightly.

“I thought an agreement might come any moment, but it seems both sides are remarkably stubborn.”
“Indeed. Have you had tea?”
“Ah, yes. I’m fine, thank you.”

When Landon Shore declined the tea, I leaned back in my seat and spoke.

“I hear the freshman Republicans in the House are showing a particularly hardline stance—that the existing budget proposal must pass without any modifications, no matter what the cost.”
“Yes. Because of that, despite poor public opinion, the moderates within the Republican Party seem unable to exert much influence.”
“It’s not just stubborn insistence—they have a plausible justification: a balanced budget must be enacted to reduce the deficit. Even if the Republican leadership wanted to compromise and wrap things up at this point, it won’t be easy for them to simply suppress it.”
“That’s true. Because of that, the market is growing increasingly anxious that the Federal Government shutdown could drag on even longer.”
“The record for the longest shutdown has already been broken, and Washington continues to fail to narrow their differences, so it’s only natural.”

I picked up the teacup before me, took a sip of coffee, set it down, and continued speaking calmly.

“Rather, I’d say we’ve been blinded by the scorching internet boom and grossly underestimated political risk. Only now are we recognizing that something is amiss.”

Landon Shore leaned forward in his seat and spoke.

“Looking at how futures selling surged dramatically toward the end of yesterday’s session, there’s a real possibility that massive sell-offs driven by anxiety could flood the market today.”

I nodded slightly, sharing the same assessment.

“Since it’s Friday, if we don’t sell today, we’re exposed to risk throughout the weekend. The desire to lock in profits while still in the green will be intense.”
“Quite so.”

Landon Shore’s mouth curved upward as his eyes gleamed with meaning.

“The atmosphere is already like thin ice, with everyone watching each other nervously. If massive selling emerges from somewhere, it’ll trigger a cascade—everyone dumping their positions at once. Then the crash we’ve been waiting for will finally arrive.”

Landon Shore’s voice brimmed with anticipation, his face alight with excitement.
It was natural—if the stock market plummeted, the Eldorado Fund’s short positions would generate substantial profits.
Moreover, with the New York market climbing contrary to our bet, we’d injected an additional two billion dollars in margin to maintain our position, making a market decline all the more essential.
Yet I, who should have naturally shared his elation, remained composed, my expression barely shifting.

“Selling pressure will certainly push the index down, but the market still retains considerable strength. The decline won’t be as dramatic as we might hope.”

Landon Shore’s expression turned puzzled as he absorbed my unexpected response.

“If the market shows signs of wavering like that, it could actually provoke the hesitant politicians into reaching a dramatic budget agreement over the weekend.”

Landon Shore furrowed his brow, clearly struggling to grasp my meaning.

“A stock market crash is certainly serious, but does it have enough impact to drive a budget negotiation that’s failed despite intense efforts since last year?”
“Of course it does.”

I methodically laid out the reasoning behind my projection.

“The shutdown has left federal employees idle, yes, but that applies only to the Federal Government. State governments continue operating normally.”
“I see.”

Landon Shore nodded in acknowledgment.

“That means while there are certainly inconveniences both large and small, except for federal civil servants who aren’t receiving paychecks, the damage felt by ordinary citizens isn’t severe enough to be called critical.”
“But you’re saying the stock market crash is different.”
“Exactly. You know what a 401K is, don’t you?”
“Of course.”

A 401K was an American retirement system where companies deposited at least one-twelfth of an employee’s annual salary into individual accounts each year, allowing workers to select their preferred portfolio options and entrust management to banks, insurance companies, or Securities Companies.
The term 401K came from Section K of Article 401 of the American Employee Retirement Income Security Act.
It was the primary means of ensuring a comfortable retirement for American retirees who worked until retirement age.

“While some purchase stable bonds, most participants invest a substantial portion of their portfolios in stocks—particularly in the American stock market—to generate greater returns. I’m sure you’re aware of this.”
“…!”
“It’s undeniable that the continuous emergence of innovative companies like Intel, Microsoft, and Netscape forms the foundation for the long-term upward trajectory of the American stock market. However, one cannot deny that another pillar driving the index higher is the continuous influx of investment capital through 401K plans.”

Seok-won asked in a subdued voice, observing Landon Shore listening quietly.

“But what do you think would happen if the stock market suddenly crashed when so many American workers’ retirement funds are heavily invested in it?”
“The public backlash would be severe since their retirement savings would shrink.”

Landon Shore answered with an expression of sudden realization.

“Exactly. The Republican Party can’t continue taking a hard line when they’d face backlash from voters whose support they need, especially considering that this year’s presidential election also involves electing members of both houses of Congress simultaneously.”

Unlike South Korea, where all National Assembly members are elected in a single election, the United States rotates elections for the entire House of Representatives every two years—matching House terms—and one-third of Senate seats.

“They’ll have to be cautious since they could lose their own seats if they’re not careful.”

Landon Shore murmured in agreement, then his expression suddenly hardened.

“If the budget negotiations happen over the weekend as you say, that would be a disaster!”

If the Federal Government budget resolution eliminated the bad news, the fallen index would undoubtedly rebound sharply—as clear as day.
If that happened, it would be a nightmare for the Eldorado Fund, which had taken short positions.
Moreover, with the short-selling price set considerably lower, it would be difficult to avoid losses unless the S&P 500 plummeted more than fifteen points today alone.
But unlike the anxious Landon Shore, Seok-won displayed a composed demeanor, his thoughts unreadable.

“Even if the budget negotiations conclude over the weekend and the Federal Government shutdown ends, there’s no need to worry.”
“Pardon? What do you mean?”
“Even if there’s a rebound on Monday, it will be modest at best. The market will soon plummet sharply again.”
“…?”

When Seok-won suggested that the market would plummet rather than rise once the shutdown—the greatest headwind—came to an end, Landon Shore couldn’t hide his bewilderment.

“The Federal Government will reopen, but investors have a far more significant event waiting for them just days away.”

Landon Shore, who had been tilting his head in confusion, suddenly widened his eyes as a thought flashed across his mind.

“You’re referring to the earnings reports from major corporations coming out soon!”

Seok-won smiled at the corners of his mouth as if to confirm the correct answer.

“Apple, HP, Coca-Cola, GE—earnings from major corporations in the fourth quarter will begin rolling out one after another. Unlike how the market has surged significantly riding the internet boom, what do you think will happen if disappointing results emerge?”

Landon Shore, grasping the implication, let out a small gasp of realization.

“With expectations running so high, selling pressure from disappointment will be absolutely enormous.”
“Exactly right. But given that reports are circulating about how corporate earnings will suffer due to the shutdown’s impact, investor anxiety won’t be particularly severe.”

Landon Shore’s expression, which had grown stiff at some point, softened as he replied with sparkling eyes.

“Since the market has already risen substantially and investors have already made considerable profits, rather than taking on risk, they’ll likely sell first to lock in gains, then wait to see the earnings results before trading again.”
“Once profit-taking selling begins pouring in, even investors who intended to hold their positions and wait for earnings will grow concerned about shrinking profits and dump their shares, triggering a sudden crash.”

Landon Shore gazed at Seok-won with admiration in his expression.

“So you’re saying investors will behave like a pack of rats running because those ahead are running and those behind are pushing—eventually panicking and plummeting over a cliff.”
“Nothing spreads as swiftly and terrifyingly as fear.”

Landon Shore nodded in agreement at those words.
Seok-won crossed one leg and interlaced his fingers above his knee.

“That will be the real crash. Once the S&P 500 breaks below 580, we’ll liquidate all our short positions and exit before earnings reports truly begin.”
“Unlike what analysts predict, do you believe earnings won’t be poor, sir?”
“We’re currently in an expansion phase where the economy is growing—why would earnings be poor? And even if they do come in weak, expectations about growth potential will quickly rise again, and the market will begin climbing once more.”

Seok-won issued his instructions without hesitation, as though he possessed precise knowledge of when to strike and exit.

“From that point forward, once all concerns are shed, the New York market will truly begin its unstoppable ascent. Switch our position and begin accumulating S&P 500 futures aggressively.”
“How large should the bet be?”

Raising a hand to stroke his freshly shaved chin from that morning, Seok-won paused in thought before speaking again.

“Since we’ve already shorted 20 billion dollars this time, let’s simply double the bet to keep it light.”
“That would be 40 billion dollars, yet you call it ‘light’… Only the boss could use such an expression.”

As he shook his head, Seok-won laughed loudly, his white teeth flashing.

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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