Golden Spoon Investment Portfolio - Chapter 451

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

451. But the boss was not.

Wednesday, August 19, 1998.
Long Island, New York, USA. LTCM Headquarters.
A spacious private office where bright sunlight streamed through expansive floor-to-ceiling windows.
Seated in the center of the leather sofa sat Jacob Wiseman, the CEO, flanked on either side by Arthur Engeron with a grave expression and Francois, a partner-level Chief Trader.
Francois, too, had come from Salomon Brothers and was part of the arbitrage team that Jacob Wiseman had led, just like Arthur Engeron.
Having worked together for so long, the three men shared a bond so tight that they could understand each other’s desires with merely a glance.
In the heavy atmosphere, the three watched the television playing on one side.
On the screen, a well-known securities analyst from Wall Street was answering a host’s questions.

[It’s quite shocking, but in a sense, Russia’s government moratorium declaration could be said to have been inevitable.]
[Are you saying that Wall Street had already anticipated this crisis?]

The analyst, dressed in an expensive tailored suit, shrugged his shoulders as he answered the host’s question.

[Since May, we’ve seen Russia wavering from foreign currency outflows, and even after the International Monetary Fund and World Bank significantly increased their loan amounts recently, the situation hasn’t improved at all. However, I don’t think Russia’s moratorium declaration will be a major problem.]
[Why is that?]
[Because the scale of Russian government bonds subject to payment suspension from this incident is around 40 billion dollars, which in terms of total debt is not enough to shake the market.]

He then spoke with confident conviction.

[Although Asian stock markets vulnerable to the moratorium declaration have been shaken significantly, you can see from the fact that the Dow has risen nearly 150 points that the impact is limited.]
[I see.]

Click.
Wiseman turned off the television with the remote and asked the two men seated beside him.

“What do you two think?”

Francois, responding to the terse tone, adjusted his gold-rimmed glasses with his finger before answering.

“It was our mistake not to have anticipated beforehand that a cornered Russia might declare a moratorium. However, I also agree that the situation won’t deteriorate further.”

Engeron added his thoughts with an equally serious expression.

“Just as we saw in Mexico and Asia before, Washington will certainly provide emergency aid through the International Monetary Fund and the World Bank to resolve this.”
“Yes. That should be the case.”

Wiseman nodded slightly, sharing the same thoughts.
Yet an inexplicable unease lingered in a corner of his mind.

“If we liquidate our Russian position now, the losses would be substantial, wouldn’t they?”

Engeron’s expression stiffened slightly as he met Wiseman’s gaze, and he spoke.

“I’d need to calculate the exact figures, but we’d have to absorb at least an additional $300 million in losses.”
“Hmm.”

Wiseman’s face contorted immediately upon hearing this.
Even maintaining an average 25% return rate was insufficient; taking such massive losses would cause the tower he’d built to crumble in an instant—as clear as seeing fire.

‘But the losses aren’t finalized yet.’

Like all investments, until the final moment when positions were liquidated into cash, even billions of dollars in losses remained merely numbers on the ledger.
Engeron, sensing Wiseman’s thoughts, asked carefully while studying his expression.

“Are you considering liquidating the position?”

Francois watched with a stern gaze as Wiseman concealed his anxiety and leaned back in his chair.

“Unless the situation deteriorates further, I’ll leave things as they are for now.”

Engeron’s expression brightened with relief.

“You’re right. Pulling out now would result in far too much loss.”
“Exactly. Even if we were to sell, now is not the time.”

Francois nodded in agreement with Engeron’s words.
Wiseman withdrew a cigarette, placed it between his lips, lit it, and asked in a measured voice.

“More importantly, how are the banks that lent us the borrowed funds reacting?”

As I mentioned earlier, these were merely accounting losses, so even in the worst case, if the Russian government didn’t go bankrupt, I could recover all the principal on the government bonds.
Moreover, since I had purchased Russian government bonds at a considerably discounted price—higher than now but still substantially reduced—there was a chance of turning a profit if luck favored us.
The problem was whether the banks that had extended massive loans through leverage would wait for Russian government bond prices to recover.

“The trading banks like Bear Stearns and Merrill Lynch have only called a few times to confirm there are no issues, but there have been absolutely no requests for loan recovery or additional margin calls.”
“Well, that’s fortunate at least.”

Since I was using a leverage of 25 times with almost no margin posted, if the banks attempted to recover even a portion of the funds or demanded additional margin, I would be in serious trouble immediately.
Wiseman exhaled a sigh of relief and flicked the cigarette wedged between his fingers.

“Continue monitoring market movements, and reassure the banks that while they may experience some losses, there are absolutely no problems with fund operations.”
“Yes.”
“Understood.”

Engeron and Francois answered in unison.
Just then, a knock sounded from outside, and the Female Secretary entered.

“Dan Perry is calling. What should I do?”

Wiseman’s eyebrows furrowed slightly as he spoke.

“Put him through.”

The Female Secretary bowed and left, and Wiseman made a light gesture to the other two men.

“You two can head out now.”
“Yes.”

Since all the important matters had been settled, Engeron and Francois rose from the sofa without hesitation.
As the two men left and the door closed, the telephone on the side table began to ring.

“Sigh…”

Wiseman stubbed out the cigarette, which he had barely half-smoked, in the ashtray, then reached to the side and picked up the keyphone receiver.
He relaxed his hardened expression and spoke in a deliberately bright voice.

“Dan! What brings this call?”
[It’s been a while.]

Dan Perry, the CEO of Merrill Lynch, offered a perfunctory greeting while probing cautiously.

[Those Russian bears have caused quite a stir in the market, haven’t they? I called to check if your company was having any issues.]

As expected, he was calling to gauge just how severe LTCM’s losses were following Russia’s moratorium declaration.
Wiseman, having easily discerned his intent, responded with an even more composed demeanor.

“We’ve certainly incurred some losses from this unexpected adverse development, but such setbacks are inevitable in the investment business, wouldn’t you say?”
[Well, that’s true enough.]
“In fact, if the International Monetary Fund becomes directly involved in this crisis, it could actually improve the Russian situation compared to before.”
[That would certainly be better than those vodka-swilling bears left to their own devices.]
“From that perspective, buying Russian government bonds at rock-bottom prices could prove to be a worthwhile investment.”

Seeing my unflappable composure, Dan Perry’s concerns began to dissipate.

[If the Russian economy does recover as you say, we could make quite substantial profits, but the situation doesn’t look particularly promising at the moment. I think it’s better to pass on this one.]
“Of course, we should monitor how things develop a bit longer.”

Wiseman felt inwardly relieved that my performance had worked, and I smoothly steered the conversation in a new direction.

“The weather has been absolutely beautiful lately. Shall we go out on the golf course together next week?”
[I’d like to, but unfortunately I’ve already committed to a summer vacation with my family.]
“I see. That can’t be helped. Where are you planning to go?”
[Greece, as it happens.]
“The Mediterranean waters are so calm—perfect for enjoying a yacht.”
[That’s exactly what I had in mind—sailing around the Greek islands on a yacht. My wife and daughters will be pestering me all day to take photographs.]

Dan Perry joked as if the mere thought exhausted him.

[Let’s make time for golf another occasion.]
“Of course.”

After exchanging a few more pleasantries, I set down the receiver and found myself exhaling a long, involuntary sigh.

“At least I’ve bought some time.”

I had been able to deceive Dan Perry, the Merrill Lynch CEO, with mere words because the banks providing LTCM with loans didn’t know the exact composition of our portfolio—citing business confidentiality as the reason.
It was absurd, but it had become possible because LTCM had been delivering such remarkable returns that we occupied the position of strength rather than weakness in our relationships with the lending banks.

“For now, we’ve managed to gloss over it, but if this situation drags on, it won’t be long before everyone catches on that we hold a substantial position in Russian government bonds.”

Wiseman’s expression grew anxious as he bit down hard on his lower lip.

* * *

Seok-won, who had woken up a bit late due to jet lag, emerged from the bedroom after a refreshing shower, his feet sinking into the plush carpet beneath him.
Han Ji-sung, who had been waiting in the living room in formal attire, quickly rose and bowed respectfully.

“You’re awake, sir.”
“I slept well.”

Seok-won acknowledged the greeting with a nod and made his way to the table positioned beside the expansive terrace window, where brilliant sunlight streamed in, and sat down.
The table, draped in a white tablecloth, already had place settings arranged.
As Seok-won settled into his seat, the Hotel Staff Member in uniform, who had been standing silently like a shadow, approached and carefully poured steaming coffee from a silver pot into his cup.
Catching the rich aroma of the beans, he reached for today’s Wall Street Journal placed at one corner of the table when the Hotel Staff Member asked.

“Shall I prepare your meal, sir?”

Seok-won nodded while scanning the Wall Street Journal with one eye.
Shortly after, the Hotel Staff Member brought a warm omelet and French toast, setting them on the table.
After taking a sip of coffee and cutting the powdered-sugar-dusted French toast into small pieces to eat, Han Ji-sung leaned in from the side and spoke.

“It’s Landon Shore on the phone.”
“Hand it over.”

Seok-won wiped his hands on a napkin and brought the mobile phone to his ear.

“Landon? It’s me.”

Landon Shore’s voice came through the phone, tinged with slight excitement.

[Your prediction hit the mark perfectly, boss.]

Seok-won set down the newspaper in his hand and asked immediately.

“Washington has responded?”
[No official announcement yet, but both the United States and the International Monetary Fund have decided not to provide any additional support beyond what was previously promised.]

Seok-won’s eyes gleamed with an unusual light as he spoke.

“The naive assumption that someone would always step in and resolve problems whenever a crisis erupted has been shattered. The shock to the market will be considerable.”
[That’s certainly the case. If it weren’t for the boss’s words, I myself would have taken this situation lightly, assuming the United States and the International Monetary Fund would intervene again.]
“It’s been that way consistently until now, so it would seem inevitable.”

Landon Shore chuckled in response to Seok-won’s casual shrug.

[But the boss was different. Thanks to his exceptional foresight, we’ve hit the jackpot spectacularly this time.]

Seok-won held his mobile phone and wore a satisfied expression.

“We’ll have to wait and see on that.”
[Once it becomes known that the United States and the International Monetary Fund have declared NO, as you mentioned earlier, the market will panic. Wouldn’t you say the outcome is essentially predetermined?]

Seok-won didn’t particularly deny it, instead drawing a deep smile across his lips.

“When the sell-off occurs, the financial stocks—particularly those that suffered direct losses from Russian government bond investments—will take the heaviest blow.”
[I share that view. Goldman Sachs, which was planning to go public with an IPO next month, will see their plans completely derailed by this.]

Landon Shore burst into laughter on the other end of the line.
Since they held the largest short positions in financial stocks, the stock price collapse of major Wall Street banks including Goldman Sachs would translate directly into profits for the Eldorado Fund.

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