Golden Spoon Investment Portfolio - Chapter 452

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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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452. That will be the climax of this crash.

[U.S. G-7, IMF Pledge Russian Government Reform Implementation Before Loan Support Discussions]
[White House: No Additional Financial Support Without Economic Reform Promises]
[“No More Reckless Moral Hazard” IMF Chief Dismisses Expectations of Russian Bailout]
[Financial Markets Shocked as Hopes for Additional Russian Bailout Collapse!]

When Russia’s moratorium declaration—once dismissed as a tempest in a teacup—was confirmed to be a catastrophic hurricane, global financial markets, particularly Wall Street, convulsed violently.

Ring! Ring!

“Damn it! Where did this come from out of nowhere?”
“You want to sell everything? I can place the order, but I can’t guarantee it will execute.”

The Trading Floor was always chaotic during trading hours, but today panic seized everyone as they scrambled to sell their stocks first.

“Hell! There are no buy orders—how am I supposed to sell this?”

One trader, speaking with a client, slammed the receiver down so hard it seemed ready to shatter, his frustration boiling over.
As he looked up at the massive ticker displaying the Dow Jones Industrial Average, which had plummeted over 200 points in a single movement, despair filled his eyes.

“Christ. How much lower will it go?”

He scratched his head frantically with one hand and picked up the receiver as the phone rang loudly again.
As markets crashed across Europe, Turkey, and South America in succession, terrified investors dumped stocks not only in emerging nations but also in the relatively safe U.S. stock market.
Gripped by fear of how far Russia’s moratorium would ripple, they were determined to liquidate any asset with even the slightest risk.
Moreover, as Russian government bond prices plummeted, many leveraged hedge funds responded to margin calls by dumping their holdings, pushing stock indices even lower.
When individual investors, startled by the market crash, joined the selling frenzy, a vicious cycle of decline feeding decline was born.

* * *

At the same moment.
The Eldorado Fund Trading Floor, located in One New York Plaza Building, Manhattan, appeared serene, contrasting sharply with Wall Street’s turbulent waters.
With all positions already secured and routine trading halted, the floor even seemed quiet.

“The Dow’s decline has widened to 280 points!”

[DJI : 8,243.22 (
−290.13)]

Seok-won stood with both hands in his trouser pockets, his navy pinstripe suit complemented by a white pocket square, before turning at the sound of Mason’s voice—now a senior trader on the floor.

“With the selling pressure showing no signs of weakening, we’ll definitely break through 8,200 points by the afternoon session.”

Landon Shore and Andrew descended onto the Trading Floor together, taking positions on either side.

“That does appear to be the case.”

Andrew replied, his gaze fixed on the massive ticker board—a sea of crimson red—with an almost reverent wonder.

“If things unfold as you say, this will rank among the five most catastrophic crashes in Dow history.”

Landon Shore followed suit, rubbing his hands together with a smile.

“Russia’s moratorium declaration isn’t a tempest in a teacup—it’s a mega-hurricane that will sweep everything away. The selling pressure will continue for quite some time.”

Seok-won spoke with measured composure.

“The hedge funds and Wall Street investors hit by Russian sovereign debt losses are clearly creating a death spiral, continuously dumping equities to cover their losses. A rebound won’t come easily, as you predicted.”

As Andrew’s eyes gleamed behind his spectacles, Landon Shore picked up the thread.

“Just as you forecasted, equities and emerging market bonds—particularly Russia—are collapsing, while U.S. and German government bonds are skyrocketing without limit.”
“When fear strikes, human nature drives people to flee toward safety.”
“Precisely.”

Landon Shore nodded in agreement with Seok-won’s observation, a low chuckle escaping him.

“Since we’ve already positioned ourselves with long-short bets, every widening spread between the two sides multiplies our profits. It’s impossible not to smile.”

Seok-won’s lips curved into a subtle smile as well.
As Russia’s moratorium declaration loomed, Eldorado Fund had cranked leverage to the maximum, executing an aggressive long-short strategy.
Short-selling equities across multiple nations while simultaneously dumping Russian and emerging market bonds, all while accumulating U.S. and German government debt.
In essence, we’d placed bets everywhere profit could be extracted, maximizing returns across the board.
Andrew wore an expression brimming with anticipation over the potential gains when curiosity suddenly flickered across his face.

“The stock markets across the world—the United States, Europe, South America, Turkey—are all collapsing together. It’s surprising that only the Asian markets aren’t falling sharply and are holding their ground. Well, excluding Japan, of course.”

Seok-won grimaced and picked up the thread of conversation.

“Holding their ground isn’t quite right. It’s more accurate to say they’ve been pummeled relentlessly since last year due to the foreign exchange crisis, so there’s simply nothing left to fall.”
“So that’s why you told us not to short the other Asian countries, excluding Japan.”

Landon Shore spoke as if the realization had just struck him.

“Why bother entering a market when there’s barely anything left to profit from?”
“That’s a fair point.”

Andrew steered the conversation back on track from the tangent.

“Right now, panic is driving panic selling, but as time passes and fear subsides, won’t the market stabilize?”
“It will, certainly, but this is only the prelude.”
“You’re saying the LTCM problem will explode if things continue just a bit longer.”

Landon Shore interjected with sharp intuition.

“LTCM is also short betting, but their positions are completely opposite to ours. That means as much profit as we make, LTCM is losing that exact amount.”

Seok-won turned to look at Landon Shore and asked.

“LTCM’s total capital is around 4.7 billion dollars, correct?”
“That’s right.”
“With 25 times leverage, the funds they’re moving in the market would be roughly 117.5 billion dollars.”

Seok-won continued, his expression laden with meaning.

“What do you think will happen if the spread gap continues to widen until they’ve lost all their capital and have no money left in hand?”

Landon Shore and Andrew, hearing this, swallowed hard without realizing it.
Watching the two tense men, Seok-won spoke in a grave, subdued voice.

“In the worst case, the borrowed funds inflated by leverage could vanish entirely.”
“…!”
“Even if they cut their losses late, there won’t be much money remaining.”

With his hands still thrust into his trouser pockets, Seok-won’s lips curved into a crooked smile.

“No matter how massive the major investment banks on Wall Street are, they wouldn’t survive losing such an astronomical sum all at once without staggering.”

The smiles vanished from both men’s faces in an instant.

“Surely LTCM wouldn’t hold onto its positions without liquidating them even as it’s being driven to such extremes?”

Andrew, the first to regain his composure, denied it with a trembling voice, unable to hide his shock.
If Seok-won’s prediction were true and LTCM really did lose 117.5 billion dollars all at once, not only would all of Wall Street be shaken, but there was a real possibility of an economic depression.
As Landon Shore stared at him with a pale face, Seok-won spoke in a flat, measured tone.

“I wish that were the case, but given that they’ve built the fund up to this point by touting high returns, they won’t easily lock in such massive losses. If they did, the reputation they’ve painstakingly built would crumble like a sandcastle.”

Both men fell silent, their expressions growing heavier, unable to offer any rebuttal.

“Of course, they wouldn’t have put all their positions into Russian government bonds, but in a situation where every market is collapsing like this, that won’t be much comfort. And even if they wanted to cut their losses now, the timing has already slipped away.”

Seok-won spoke in a low voice while watching the massive market board, where more and more stocks were turning red as their declines deepened.

“When the fact that LTCM is sitting on an enormous time bomb is revealed before long, that will be the climax of this crash.”

The two men shuddered with horrified expressions as they imagined the shock that would come when the LTCM bomb detonated.
At the same time, they looked at him with awe-struck eyes, amazed that he had anticipated all of this and orchestrated the board in advance.

* * *

September 1, 1998.
Jacob Wiseman sat in a conference room with his key staff members at the partner level.
Beyond the large floor-to-ceiling window that dominated one wall, the city center spread out below in an elegant vista, yet the heavy atmosphere had left everyone’s expressions rigid and tense.
Wiseman surveyed the gathered people with bloodshot eyes.
Once always impeccably dressed with a confident demeanor, he now looked so haggard that he was barely recognizable.
His entire body bore the marks of exhaustion from sleepless nights, and his eyes occasionally flickered with the anxious desperation of someone being hunted.
Wiseman opened his mouth first, his voice slightly hoarse.

“How much have our cumulative losses reached as of yesterday?”

Engeron, receiving his gaze, answered weakly with an exhausted expression.

“…It’s just over 1.9 billion dollars.”
“Hmm. So we’ve lost 45% of our total capital.”

Engeron then added defensively.

“We suffered losses not only from the widening spreads on our invested government bonds, but also from the MCI and WorldCom merger falling through unexpectedly, which cost us a considerable sum.”

Francois, who had spearheaded the merger arbitrage, then bristled, his expression darkening.

“Are you trying to pin the blame for these losses on me!”
“The stock price didn’t rise as much as expected because the forecast was wrong—that’s a fact!”
“By that logic, your team bears even greater responsibility for going all-in on Russian bonds and losing hundreds of millions of dollars!”
“What!”

Engeron and Francois raised their voices as if they were about to grab each other by the collar and fight.
Unable to tolerate this shameful display any longer, Wiseman raised his eyebrows and brought his palm down hard on the conference table in front of him.

“Enough! This is not the time for us to be fighting among ourselves!”

At the harsh shout, Engeron and Francois flinched, exchanged a glare, and fell silent.
Wiseman’s expression filled with irritation as he swept his hair back with one hand and asked.

“Have we heard anything at all from Gavin Phillips, the chairman of Berkshire Hathaway?”

An executive on the left then answered with a grim face.

“No. It seems we’ll have to give up on that front.”
“Ugh….”

Unlike the plummeting Russian bonds, investment capital was flowing into safe-haven assets—United States and German government bonds—driving their prices up, and the spread between the two assets widened dramatically with each passing hour.
For LTCM, which held a position of buying Russian bonds and selling United States and German bonds, it was a nightmare.
As the spread widened and losses mounted rapidly, eroding the capital, Wiseman urgently set out to find investors willing to inject funds into the fund.
Just a year ago, he had been forced to return money to investors who didn’t want it and had them exit the fund—now the situation had flipped 180 degrees.
Francois, his expression tinged with resignation, swallowed a sigh and spoke.

“It seems word is beginning to spread on Wall Street that we took a major hit investing in Russian bonds.”

Engeron, reading the mood, also conveyed the worsening situation.

“Seeing how Merrill Lynch and other trading banks keep calling, it seems we won’t be able to hide the losses much longer.”

Wiseman, too, had been receiving continuous calls from Dan Perry and other bank CEOs, and he now realized they had reached their limit.
As a heavy silence fell and everyone stared at him, Wiseman sat with his eyes closed for a moment without speaking, then opened them again.

“Let’s end today’s meeting here. Everyone, you’re dismissed.”

When Wiseman’s mouth produced words that seemed to deflate any hope of a decisive resolution, the attendees rose from their seats one by one with slumped shoulders and filed out of the Conference Room.
Moments later, left alone in the vast Conference Room, Wiseman exhaled a sigh so deep it seemed the ground itself might collapse beneath him.

“There really is no other way now.”

Wiseman finally admitted that he had been cornered into a dead end.

‘How did it come to this?’

No matter how much he retraced his steps, his plan had been flawless.
Indeed, LTCM had surged forward and achieved dazzling results.

“So I thought it would reach all the way to the heavens.”

Wiseman pressed his eyes shut, then walked with heavy steps back to the President’s Office and wrote a letter to the banks that had lent him borrowed funds.

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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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