Golden Spoon Investment Portfolio - Chapter 445

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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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445. Bring All the Gold Bars

LTCM Headquarters, Long Island, New York, USA.
In the heavy atmosphere, Jacob Wiseman, the CEO, and Arthur Engeron, the head of the arbitrage division, sat on the sofa.

“Contrary to our expectations, the Russian government bond spread has widened further, resulting in a $500 million valuation loss.”

At the troubled voice, Wiseman opened his mouth with a hardened expression.

“I hear the Chief Secretary unilaterally canceled the scheduled talks with the Prime Minister.”
“Yes, that’s what I’ve been told as well.”
“Tsk. That young, provincial Chief Secretary really made a mess of things.”

As Wiseman clicked his tongue while sitting with one leg crossed, Engeron glanced at him and spoke.

“Due to this incident, anxiety has grown, and foreign investment capital is rapidly flowing out of Russia. As a result, the ruble and Russian bond prices are expected to continue their sharp decline for some time.”
“If things go wrong, a currency crisis could spread to Russia. If I were in their position, I’d want to pull my money out immediately too.”

Wiseman continued, leaning back against the plush leather sofa.

“In such circumstances, with exchange rates skyrocketing, even sitting idle causes invested capital to melt away, so investors naturally become desperate.”

Funds, investment banks, and securities companies evaluated their profits in dollars, so when exchange rates soared and the local currency’s value fell, losses were recorded on their books accordingly.
Therefore, while the Russian government still maintained a fixed exchange rate system, the urge to withdraw investment capital and move it out grew stronger.
Wiseman looked at Engeron with sunken, intense eyes.

“Do you think Russia will actually reach the worst-case scenario everyone’s worried about—defaulting on its external debt?”

Engeron then leaned forward and answered.

“Due to the Russian government’s foolish actions, they’ve brought the crisis upon themselves, but as I mentioned before, it won’t go that far.”
“You mean they’ll prevent it because if Russia falters, the crisis could spread to Europe.”
“Exactly.”

Engeron continued, putting force into his voice.

“Weren’t we already in discussions with the International Monetary Fund about introducing loans worth 700 million dollars? They made things difficult by indulging in pointless pride, but now they’re suffering tremendous humiliation because of this situation. They’ll definitely bow their heads soon and meekly accept the International Monetary Fund’s demands.”

Wiseman snorted in agreement.

“The Russian government wouldn’t be foolish enough to stubbornly resist even as massive capital outflows are occurring.”
“Once the International Monetary Fund loans come in, market concerns will subside and talks with the United States will resume.”
“I share that view.”

Wiseman’s eyes gleamed as he spoke in a measured tone.

“Looking at it from the opposite angle, this seems like an opportunity that won’t come again. What do you think?”
“Pardon? What do you mean by that….”

Engeron blinked, momentarily failing to comprehend.

“Because of this situation, the spread has deviated completely from the average and widened abnormally. So if we scoop up Russian bonds that have plummeted to the bottom right now, wouldn’t we be able to achieve even higher returns?”
“We’ve already accumulated Russian bonds exceeding 10 billion dollars—are you suggesting we increase our position further?”

Engeron asked in alarm, and Wiseman nodded calmly in response.

“Even in the worst-case scenario, Russia could simply close or restrict currency exchange windows like Malaysia did to prevent dollar outflows. Of course, it won’t come to that.”
“….”
“That means prices are at their lowest right now, so if we increase our bet, our profits will grow accordingly, won’t they?”
“That’s certainly true.”

Engeron nodded carefully.

“How much are you thinking of increasing the position to?”

Wiseman tapped his fingers on the sofa armrest as he considered for a moment, then spoke again.

“The maximum leverage ratio agreed upon with our partners was 25 times, correct?”
“That’s correct.”
“Then let’s go all-in with 25 times leverage.”

Engeron swallowed hard, his throat suddenly dry.
Using a leverage ratio of 25 times meant, in simple terms, borrowing 25 dollars against every 1 dollar in collateral.
It was an extraordinarily aggressive leverage strategy.
However, considering that major Wall Street investment banks like Lehman Brothers, Merrill Lynch, and JP Morgan typically employed leverage ratios exceeding thirty times on average, LTCM wasn’t uniquely excessive in its borrowing practices.
Yet unlike other investment funds and banks, LTCM was obtaining capital with virtually no collateral and minimal margin deposits, making the risk substantially higher.
This alone revealed how recklessly leverage was being deployed during this era—without any regulatory constraints or safety mechanisms.

“Are you truly confident this will work?”

Engeron asked, his voice trembling slightly.

“You also believe the Russian government bond spread that’s widened so dramatically will eventually narrow again, don’t you?”

Engeron nodded in response to Wiseman’s question.

“Multiple adverse factors have caused the spread to spike, but according to theory, it should eventually revert to the mean.”

Wiseman’s expression grew confident.

“Unless Russia collapses or openly defaults on its debt, this is a guaranteed win. There’s no reason to hesitate.”

In that moment, a worry surfaced in Engeron’s mind—the probability was low, but what if such a catastrophe actually occurred?
However, that was an anomalous variable that contradicted the Black-Scholes theory that traders and economists at LTCM revered like scripture, so he immediately dismissed the thought.

“Only the bold win the beauty, as they say. Perhaps this is an opportunity heaven itself has granted us.”

Wiseman’s unwavering gaze radiated absolute certainty of success.
Engeron, now consumed by greed at the prospect of the enormous returns they would reap if the bet succeeded, deliberately ignored the risks and aligned himself with Wiseman’s conviction.

“I’ll increase our positions as you’ve instructed.”
“Excellent.”

Wiseman nodded and added a few additional directives.
Once Engeron left the office, Wiseman sank deeper into his leather sofa, his eyes gleaming with avarice.

“If this bet succeeds, I can restore our returns to new heights in one stroke.”

Obsessed with salvaging the declining returns as the fund’s assets had swelled, Wiseman never once entertained the possibility that the bet might fail.

***

As usual, Seok-won arrived at the office and handed his jacket to Na Seong-mi, who had recently been promoted to manager, and spoke.

“By the way, send a flower basket to the VIP ward at Sasung Hospital today.”

Na Seong-mi’s face broke into a knowing smile.

“You’re sending it to the younger madam who gave birth yesterday, aren’t you?”
“That’s right.”

Even after the due date had passed with no signs of labor, the family had been anxious. But yesterday, contractions suddenly began, and this morning my sister-in-law gave birth to a healthy boy naturally. That’s what I heard.
Since it was the first grandchild born to the family, naturally both Chairman Park Tae-hong and Jo Deok-rye were overjoyed.
Seok-won sat down at his L-shaped desk and spoke.
Seok-won sat down at a wide, L-shaped desk and spoke.

“Understood. Is there anything else you need?”
“Would you bring me a warm cup of coffee?”
“Yes. I’ll prepare it right away.”
Yes. I’ll get it ready right away.

As the door closed, Seok-won habitually picked up the neatly organized reports on his desk.
The reports contained a well-summarized overview of important developments from the European and New York markets overnight, along with various economic indicators.
Approval documents from each department that needed to be processed during the morning were also set aside on one side.
While I was carefully reviewing the reports, sipping the coffee Na Seong-mi had brought, my cell phone vibrated on the side.
Seok-won checked the name displayed on the screen and answered immediately.
Seok-won confirmed the name displayed on the screen and immediately answered the call.

Boss, I’m here.

Leaning back at the familiar sound of Landon’s voice, Seok-won spoke.

[Is there something you’d like to instruct me on?]
“Tell me what you’ve got first.”
[Over the past two weeks, more than 1.5 billion dollars has flowed out, and Russia’s foreign exchange reserves have dropped to 14 billion dollars.]
Over the past two weeks, more than 1.5 billion dollars have flowed out, causing Russia’s foreign exchange reserves to drop to 14 billion dollars.

Seok-won held his phone to his ear, his eyes gleaming.

“The foreign currency is being depleted at quite a rapid pace.”
[In an effort to calm market concerns, the Russian Central Bank raised interest rates from 30% to 50% and injected a billion dollars in foreign currency over four days, but the atmosphere of unease remains unresolved.]
“Unlike expectations that Russia would back down gracefully and reach an amicable agreement with the International Monetary Fund, they continue to display their pride. The market’s concerns can only grow larger.”
[Moreover, the international crude oil price, which shows little sign of rebounding, is another factor causing investors to doubt Russia’s repayment capacity.]

The report Seok-won was reviewing also mentioned this very issue.

“International crude oil prices have fallen to eleven dollars per barrel and continue to trade sideways.”
[That’s correct. With the Asian currency crisis compounded by economic recession, some experts forecast prices could fall to ten dollars in the second half of the year.]

Oil and natural gas were crucial export commodities, accounting for nearly half of Russia’s total export revenue.
Yet crude oil prices, which had traded at around seventeen dollars per barrel until last year, suddenly plummeted by 35%, making Russia’s already dire fiscal situation even more precarious.

“If international crude oil prices fall further as the experts predict, Russia’s government budget deficit will balloon dramatically.”
[In this situation, they’re locked in a power struggle not only with the International Monetary Fund but also with the United States. It seems only the Russian bears themselves are unaware they’re playing with fire in front of a powder keg.]

Landon Shore spoke with a tone of exasperation.

“Thanks to that, we’re able to profit from our short positions, aren’t we?”
[That’s true.]

Landon Shore asked with a slight smile.

[Russian bond prices have plummeted and we’re already seeing substantial returns. What should we do?]
“There’s still more profit to be made, so let’s continue holding.”
[Understood.]

Seok-won answered without hesitation, and Landon Shore followed without complaint.

“And I need you to make a quick trip to Moscow on my behalf.”
[To Moscow?]

Landon Shore’s voice carried a note of bewilderment at this sudden request.

“Yes. There’s something I need you to purchase there.”
[What would that be?]
“Gold.”
[Pardon?]

Landon couldn’t hide his bewilderment at words he’d never anticipated.
Through the phone, Seok-won sensed his confusion and allowed a deep smile to spread across his lips.

“Go to Moscow and bring back every last gold bar stored in the Russian Central Bank Vault.”
[…!]

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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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