New York 2006

Chapter 112: Collective silence on Wall Street

On April 2007, 4, after a week of touring, Luo Ji and the tour team returned to New York.After giving everyone a three-day holiday, Luo Ji and Fiona returned home at ten o'clock in the morning.

Luo Ji was sitting in the study, happily drinking the winter melon soup made by his grandmother Queenie. He felt his stomach was warm and very comfortable.Sure enough, the taste at home is the best.

However, although Luo Ji felt very comfortable physically now, he felt a little uncomfortable in his heart.Luo Ji stared at the ABX curve on the computer and frowned.

On April 4, New Century Financial Company went bankrupt.At Xu Youyu's reminder, Luo Ji bought 2 million real estate-related CDS. Including the more than 2060 million in the previous account, there were almost 1000 million in CDS in the account at that time.

However, eight days have passed. The bankruptcy of the second-largest subprime loan company in the United States has not caused any disturbance in the financial market. The media only mentioned it and there was no follow-up.

The imagined collapse of the subprime mortgage market has not occurred at all. The market is still touting good news such as strong housing prices and stable CDO values.

Even the ABX index, which marks mortgage securities, actually rose instead of falling, rising from 69 to 75.The value of the CDS that Luo Ji shorted on the ABX index also shrank to more than 2000 million, and the market showed a strange deviation.

Luo Ji dialed Xu Youyu's phone angrily: "What's going on now? Why is the ABX index still rising?"

"Wait a moment." Xu Youyu picked up the phone and quickly ran to a remote place, and then explained: "The current market is very unscientific and completely violates the laws of mathematics. Housing prices are still falling, and the Fed's benchmark interest rate It is still 5.25%, and the repayment amount of balloon loans that fluctuates with the base interest rate is still high. The default rate of subprime loans is still rising, and it is showing an expanding trend."

"But the market happens to be in the opposite direction, right?" Luo Ji said loudly.

"Yes."

"Then why is this happening? There must be a reason." Luo Ji picked up the phone and walked around the room anxiously.

Xu Youyu glared at his colleague who wanted to get closer, but his colleague immediately walked away.Xu Youyu then said: "I don't know. Even the short-selling king John Paulson has been silent in the media during this period. I don't know if he has withdrawn. Do you want to consider withdrawing? , you are still profitable now anyway.”

After hearing this, Luo Ji calmed down and touched his chin with his hand: "Are you sure that the current market violates the laws of mathematics?"

Xu Youyu pondered for a while and said: "I'm sure!"

"Okay, you can send me a copy of the report now, and I'll take a look at it first."

Luo Ji looked at the files on his computer. There were probably more than 20 pages.Whenever he encountered some words he didn't recognize or data he didn't understand, Luo Ji would look it up a bit.

After two hours, Luo Ji roughly understood Xu Youyu's analysis report. He based it on the rise and fall of housing prices in recent years and the loan default rate.Made a related function.

The conclusion reached is that as long as house prices fall, or as long as they do not rise but rise more slowly, the subprime loan default rate will rise.

It is easy to check the housing prices in the past two months online, which shows an accelerating downward trend.Luo Ji plugged into the function and found that the subprime mortgage default rate had increased by 3% in the past two months.

"Is there something wrong with the function itself?"

Luo Ji muttered to himself, and then he began to look at the creation process of the function. The loan default rate from 2000 to the present, and the housing prices from 2000 to the present.There is obviously a positive correlation between the two, and there is nothing wrong with the function.

"Mathematics cannot lie to people." Luo Ji lowered his head and touched his chin as he thought, and his thoughts began to diverge: "Although mathematics cannot lie to people, the market is made up of people, and people can lie to people."

Luo Ji immediately searched the Internet for news. Bear Stearns, Lehman Brothers, Milin Securities, HSBC, Wall Street Journal, and Bloomberg all issued good news. Real estate would not collapse, and the default rate of subprime loans had not increased.

The three major rating agencies, Standard & Poor's, Moody's and Fitch, have not downgraded the ratings of derivative securities on subprime loans.

John Paulson, the king of short sellers, seems to have gone silent during this period, and Goldman Sachs, which was short on the housing market some time ago, has no news either.The bearish news in the market seems to have suddenly become much smaller.

All the media seem to have reached a certain tacit understanding. Everyone sings in unison about the long market, which goes against the laws of mathematics.

Luo Ji walked to the window, looked out at the people walking their dogs in the neighborhood, and murmured to himself: "This group of elites on Wall Street has gathered almost the smartest talents in the world. There are already signs of the subprime mortgage collapse. They can't possibly No downward spiral was seen. So clearly there was only one possibility."

Luo Ji searched the Internet but couldn't find any information, so he immediately picked up the phone and called Xu Youyu: "You have been on Wall Street for a long time, can you find out the changes in CDO holdings of major investment banks during this period? .”

Xu Youyu immediately reacted: "You mean, the major investment banks on Wall Street are now cooperating to sell potentially worthless CDOs to relevant parties who are not aware of it?"

"If you look at the media last month, you will find that there is still a lot of news about short sellers. Now the media related to Wall Street finance seems to be showing a collective silence, eliminating all news about short sellers. Even John Paulson They are all speechless. This kind of control over the media can only be achieved with the tacit cooperation of several major investment banks on Wall Street."

"This……"

Luo Ji interrupted directly: "Stop it, can you find out?"

Xu Youyu thought for a while: "If your guess is true, then the CDO holdings of several investment banks must be top secret. It is difficult to find out. But we can find out through side information."

Luo Ji asked in confusion: "How do I inquire?"

Xu Youyu smiled slightly: "Just ask the investment managers of major investment banks."

Luo Ji suddenly realized: "I understand. You call people on Wall Street to find out the inside story, and I will also take action."

Luo Ji checked the telephone number of the investment departments of investment banks such as Lehman Brothers, Merrill Lynch, and Bear Stearns on the Internet. Then he copied it into a notebook and walked downstairs. Luo Ji found that Fiona, his mother Sammy, and his grandmother Queenie were... Sitting and watching TV together, talking and laughing.

Luo Ji walked up to a few people and asked, "What are you looking at? Are you so happy?"

Fiona said excitedly: "Anna Nicole Smith, did you know? Didn't everyone say some time ago that her lawyer might have killed her."

Luo Ji said casually: "Yes, he has the strongest motive. Now he is the father of Anna's only daughter, and he is very likely to benefit from the subsequent inheritance lawsuit. But without evidence, isn't it just nonsense? Like him Lawyers are the shrewdest. They only need to supply unlimited amounts of addictive drugs to Anna Nicole Smith. A worm like Anna has no idea of ​​restraint. It will be a matter of time before she kills herself. The police have also explained that Anna died after An overdose, no trace of human coercion.”

Grandma Queenie also looked excited: "You are right, but something dramatic happened." Luo Ji also became interested in eating melons: "Did something happen that I don't know about?"

Mother Sami immediately spoke: "Some time ago, under the order of the judge, several people who claimed to be the father of the child conducted DNA comparisons. Today the results came out and it was found that the father of the child was not Anna's lawyer at all, but Anna's bodyguard."

Luo Ji's eyes widened immediately: "It's really bloody. The reality is even more outrageous than the movie."

Fiona said: "That lawyer has been busy for so long, and he never expected this result. But he deserves it, and his scheming is too deep."

"Yeah." Sammy and Queenie immediately agreed.

Luo Ji digested the news for a while, then remembered the business, and handed the notebook to a few people: "These are the numbers of the investment departments of major investment banks in the United States. Call them and tell them that you have millions in hand and want to Go to where they invest and see if they have any investment suggestions. Then just tell me the investment suggestions they said."

Fiona asked in confusion: "What do you want to do?"

"Things are a bit complicated, just ask."

"Okay." Mother Sammy said.

Luo Ji picked up the phone and dialed the number of his prospective father-in-law, Mr. Swift: "Hello."

"Logic, what do you want from me?"

Luo Ji asked, "I want to ask you if Milin Securities has launched any new investment projects recently."

Mr. Swift said doubtfully: "Isn't the rise in Apple stock very good? This is what you suggested Taylor buy. Is there any news that I don't know about? Or do you think it has reached a high point and is ready to leave?" Is it on stage?"

"It has nothing to do with it. I plan to hold Apple stock for a long time. I just ask about new investment projects."

Mr. Swift did not raise any suspicion, raised his legs on the desk, and said casually: "Recently, the headquarters sent a task to promote a business called CDO on a large scale. It seems to be some kind of mortgage securities. Let's sell this to Investors. But I am mainly responsible for stock investment and don’t know much about it.”

Luo Ji's eyes narrowed: "When did Milin Securities ask you to promote this business on a large scale?"

"I can't remember clearly, please wait a moment." Mr. Swift typed on the keyboard a few times: "I found it. It was the 20th of last month."

"Okay, I'll find out."

"Yeah." Mr. Swift then said with a smile: "By the way, congratulations on becoming a billionaire. You are a very good child."

"Haha, it's all nonsense from the media. I also have a lot of debt."

The two chatted for a while, and at the end of the call, Mr. Swift smiled and invited: "Remember to come to Nashville when you have time."

"Okay, then I'll hang up first."

After Luo Ji hung up the phone, he looked at Fiona and the others. Fiona concluded: "We just called Bear Stearns, Lehman Brothers, Milin Securities, Morgan Stanley, HSBC, etc. They all It is recommended that we buy a financial product called CDO."

"Okay, I know."

Fiona asked in confusion: "Did something happen?"

"It's okay. By the way, you must not buy CDOs."

"Uh-huh."

After Luo Ji finished speaking, he walked to his room and stared at the ABX curve on the computer in a daze.

After a while, Xu Youyu called: "Logic, your guess is correct. They are recommending CDOs to people everywhere. There are customers in Japan, Europe, South Korea, and the Middle East."

Luo Ji curled his lips: "They actually recommended this kind of derivative securities to individual investors. They were about to jump off the cliff and didn't forget to pull others in. How could they sell out such a large amount in such a short time? This is a life and death race. There will always be people who can’t help but sell at a lower price.”

"They think they can run a little bit."

Luo Ji said unhappily: "Wall Street is disgusting. In the end, only individual investors will be hurt."

Xu Youyu heard Luo Ji's tone and hurriedly said: "You must not talk nonsense in the media. The major investment banks have a strong will this time. Their actions are also very consistent. You must not provoke them. "

Luo Ji smiled and said, "Don't worry, I know the stakes. I'm just complaining."

"That's good. Are you interested in adding more positions?"

In the past few days, Universal Music has settled its record revenue for the first two months, and Luo Ji's cash has increased by another $700 million.The time to pay taxes is coming soon, and the money needs to be spent quickly.

However, investing all in CDS is still too risky, and you may lose everything if you are not careful.

Luo Ji planned to allocate 1000 million to the film company to start the initial preparations for the film project.Some of the remaining cash will be kept to maintain the company's operations, some will be invested in the stock market, and the rest will be invested in CDS.

"Let's do this, I'll invest another 1000 million, and I'll just buy it from the market."

(End of this chapter)