One Step to Danger

by John Gubert

  Our next stop was a dance club where they were playing smooth and smoochy music. We danced together, allowing our bodies to sense each other. My silk shirt and her top of similar material pretended not to exist. It seemed we were already undressed and enjoying the touch of each other’s skin.

  Through the evening we danced. Sometimes fast and sometimes slow. Our bodies were never apart even if they were not together. And as the evening turned to morning, we were still dancing. And as the morning drew on, we walked outside and got into a red cab. In the back we moved our bodies close together. I smelt her hair, her perfume mixing with the smells of the evening. The slight smell of perspiration from our dancing blended with the intrusive smoke and fumes of the dance floors or bars.

  But it was our bodies that continued to build up the desire that we had created earlier in the evening. And that desire had been fed and refed since that time. The wonder of her dressing flooded back. The excitement of the Captain’s bar blended with the eroticism of the Wan Chai bar. And the close contact of the dance floor still throbbed in the proximity of our thighs and the meeting of our chests in the tightness of the cab seat.

  We skated through the lobby and up the lift to the twentieth floor. We closed our door behind us as we entered the room with its King sized bed. Our lips and bodies clung and clung together as we kissed.

  I picked her up, her shoes falling to the ground, and carried her to the bed. Panting, almost crying, my excitement was only equalled by hers. We had thought and planned this all night. In a way we had started when she had got dressed some six or so hours ago.

  All that I felt was soft, erotic and desirable. Her body moved to my movement. Her cries called out above mine. We ended the evening in pleasure and felt desire meet its ultimate goal.

  HONG KONG STRIKES

  That morning we had breakfast in bed. We looked out of our window. We watched the boats and tugs move across the narrow strip of water between Hong Kong Island and Kowloon. We saw the red taxis pick up one group after another as the ferries discharged the workers from Central District and beyond at the unexpectedly decrepit buildings of the terminal. It stood in poverty beside the more modern General Post Office and the towering eminence of the adjacent skyscrapers.

  We had no need to rush. And it was with definite reluctance that we got out of bed and prepared ourselves for the start of another day.

  As planned, we started to call the brokers as the markets opened. They were quiet at the start of business although the market had drifted back from the close. This was not surprising for United’s likely buying had driven the late afternoon surges. The market looked nervous but not over vulnerable.

  We called the brokers on our list and asked for their views. They were almost all universally optimistic about markets. The only difference between them was the degree of optimism they revealed. Later in the morning we called my parents.

  “Watch the market and add to the position every time it strengthens five per cent,” said my father. “In addition start putting around some of those ‘is Sebo selling?’ lines.”

  “Surely” said Jacqui, “they won’t fall for that again?”

  “Don’t over-rate the intelligence of the Filth,” said my father.

  “The filth?” enquired Jacqui.

  “It stands for ‘Failed In London, Trying Hong Kong” I said. “It’s quite apt for the bulk of the traders here.”

  So we went back to our long watch. It was a dull day , but we knew we had to be patient. In the evening we handed over the job to my father in America. We went out again but this time it was for a quieter time than the night before.

  Jacqui was dressed in a business suit, had her hair up and was wearing light make-up. She looked the perfect image of a businesswoman. The restaurant we selected was similarly formal. For we ate in the polite correctness of the grill at our hotel rather than the more trendy places in Wan Chai and elsewhere.

  The next few days were similar. The market would rise a few hundred points. The next day it would fall a few hundred more. At the end of the week it was a bit below our option prices, but only marginally.

  “They can’t hold this too much longer,” predicted my father. “It will crack soon. It could go one way or another. We can only carry on asking the questions and waiting.”

  United called from time to time. It was never the trader who had sold us the options. I sensed that they had not been able to lay off the position to any extent. They were too keen for us to close out. I recounted that to my father and he was pleased. “That shows that they are nervous about these levels. And others must be too or they would lay off the position. Even if it meant taking a small hit. Their management would hate that exposure.”

  It was some few days after this conversation that the strident ring of the phone woke us. Jacqui and I started. We jumped from the bed. It was my father. He was excited, “Switch on CNN,” he instructed, “And look at the news.”

  Jacqui grabbed the remote control and hit the buttons. The story was from the Middle East. The pictures were of troops and weapons being loaded onto transport planes. The place was Tripoli. The story was clear. Libya, Syria and Iran had signed a mutual accord. Troops were going to Iran to help it defend itself against alleged American aggression. The build up of US forces had been accelerated. The President’s office was making threatening noises. The British Prime Minister grinned nervously and said the move was a threat to World Peace.

  “What are the markets doing over there?” I asked. I saw it was four in the morning in Hong Kong. It would, therefore, be late afternoon in New York.

  “Wall Street’s just fallen five hundred points. It could be that they’ll soon have to put the circuit breakers into place,” he said. That meant that they would stop trading for a period to allow the market to take a breather. It was a process they introduced whenever the market went into a major free fall.

  “This could make us a fortune,” said Jacqui. “Well,” said my father. “Let’s hope that it does. As long as it lasts a couple of days and gets worse, we’ll be all right. By the way I have managed to buy half a billion US dollars against the Hong Kong dollar. I want us to go up to four or five billion. That will take around five hundred million of margin. But these sorts of crises always help the US dollar. And if that strengthens it makes the Hong Kong dollar link all that more difficult to defend. This could be the big one.”

  “We’ll start some new rumours here, and we’ll ask about the peg all over the place once we have our position. Are you going out a month?”

  My father said he was. He was buying the dollars for delivery in a month’s time and would therefore have to close his position within that period.

  The big game had started.

  Once Hong Kong opened, the blood bath started. The market fell by eight hundred points at the opening. Other markets followed suit.

  I checked the price of the dollar. It was holding steady. I expected that the pressure on the markets would soon unsettle the rate.

  I called all the major banks one after another. I sold as many Hong Kong dollars as they would take from me. In the end I dumped over seventeen billion of them. That was incredible. That sort of activity was rarely seen. The market had to be under pressure.

  We found it more and more difficult to deal after that. The banks wanted more security. They got nervous. In the end, I called my father and told him what I had done. I advised where I needed margin. When we added it all up, it amounted to almost half a billion US dollars.

  “That’s better than I thought,” he said. “Now we keep twenty four-hour watch and close contact. Get Jacqui to start up rumours, any way she can. Attack the peg.”

  The peg, I explained to Jacqui again, was the name given to the official rate between the Hong Kong dollar and the US dollar. We had dealt at 7.70 forward. If the official rate were abandoned, the Hong Kong dollar would fall and we would buy back the ones we had sold for less than we had got. The difference was our profit.

  “Sh
all we take a value check?” I said. “On the share front, if all markets are down in line with Hong Kong, then we are up just over three hundred million dollars against the one eighty million we paid the banks for the options. On the currency side, we have sold twenty three point one billion Hong Kong dollars. That equals around three billion US dollars. The banks are holding around five hundred million or so US dollars as security on those deals. We would get the security back from the banks when the deals were settled. And we would make or lose thirty million dollars for every one per cent variation in the exchange rates.”

  Jacqui called our contacts. She asked if they had news of meetings. The meetings were allegedly ones involving the leading Hong Kong financiers and government officials. She knew of no news of any meetings, but the fact that she asked made people worried. They, too, started questioning about a meeting.

  The stock markets fell. On average I calculated that they were around nine percent down on the night before and eleven per cent down on the price of our options. We were two hundred million dollars up net of the fees. The currency was stable though. The peg stood.

  CNN reported that the British were sending another aircraft carrier to the Gulf. The US announced it was considering freezing Iranian, Syrian and Libyan dollar assets. Iran and Libya announced a ban on all oil exports to the West and a blockade of several of the regions’ ports. Venezuela stopped oil exports in sympathy. The markets wobbled again.

  Hong Kong put up its interest rates and declared again that the peg was a core part of its strategy. Local brokers started worrying about the possibility of defaults. Malaysia attacked the dark forces of speculation.

  “I guess that includes us,” I said to Jacqui. “Or at least you because I’m blond.”

  She was watching the screen with fascination. She called another broker and asked if there was truth in a rumour that the Chinese Finance Minister had called a meeting to discuss the crisis. She asked if it was true that China was going to intervene in favour of Iran.

  Minutes later another broker fed the rumour back to her. “That’s excellent,” said my father. “Rumour breeds rumour. And then the rumours become fact. That’s the way this merry go round works.”

  Other governments in the region put up interest rates. Then the rupiah in Indonesia went into total free fall. It hit 17,000 to the dollar, down from 6,000. It was followed by the baht in Thailand. You could buy won but not sell them. They had ceased to be convertible. The markets went crazy.

  I recalculated. I estimated markets were now down another five percent, well over five per cent. In many countries the Exchanges were asked to close but trading continued offshore. And the sudden closures dragged them down even more.

  As the markets in Asia closed, the markets in London opened. London slumped seven hundred points and then further to a thousand point fall. That had never been seen before. The market was an amazing twenty per cent down. Those double-digit falls were seen elsewhere. Germany, France, Amsterdam were all down sharply.

  Currencies came under attack. Briefly the Hong Kong dollar traded beneath the peg. Then again it breached the peg. Interest rates hit four or five hundred per cent as the market crashed.

  It was then sheer and unadulterated panic. And that panic fed panic in Wall Street. The market opened. The market slumped. They stopped the market trading for a bit to try to stem the flood of sales. But it was to no avail. It was a blood bath. There were also rumours of major broker defaults. One of the big banks was calling in all their loans to brokers. Another bank had called to see the Federal Reserve. There were rumours that it was in trouble.

  In the afternoon, two brokers announced that they would no longer make prices in Asian stocks. The omens for start of day in Hong Kong, just a few hours away, were very bad indeed.

  Once the market opened, we watched the screen flood again with red figures indicating market falls. One stock after another fell through the floor. One market after another panicked.

  My father called and told me to check the option. “We should take part of our profits. We don’t want to be caught in a squeeze.”

  I called United and they jumped at the chance of getting me to reverse my positions with them. The fall was now twenty three per cent and we could close out half our positions for a four hundred million-dollar profit. Against that we would have to set off half the fees paid, or ninety million dollars. United were over the moon to close out some of the loss. We had cost them over three hundred million of losses on that half. And we still were running the other half of the stock market positions and the whole of the currency one.

  I looked to the news and saw that the President was holding a press conference. He warned that the US would strike if the Syrians and Libyans did not announce their withdrawal within twenty-four hours. The Iranians responded by arresting all United Nations personnel on their soil. At that time there were some three hundred inspectors from the UN in Iran, monitoring their alleged peaceful nuclear enrichment programme. The Libyans called the US a scared capitalist hound and promised war in Iran and in Libya and around the world if they attacked. The UN issued a statement saying they regretted Iran’s action and called for calm.

  The markets fell further. The tone was bad. Currency rates in Hong Kong came under greater pressure. Then it all happened. The rumour started that there was a flow of funds by local residents into the dollar. The peg was in serious trouble.

  The Indonesian rupiah fell even further. The ringit in Malaysia and the dollar in Singapore started to crumble. The panic continued. As we had planned, the roller coaster had begun.

  I took again the value of our open stock. “The next twenty four hours will be critical,” said my father. “If the index falls to give us a thirty per cent profit on the other half of the stocks, let’s take it. I don’t want to be greedy.”

  I checked. The fall was twenty seven per cent.

  A medium sized local brokerage house announced it could not meet its obligations and went under. The market panicked. Another admitted under pressure that it was in talks with its bankers. The market went into free fall. The contagion spread. Asia under siege fell through the floor.

  When I managed to get through to United’s terrified traders, they quoted me a price that indicated the fall was now up to thirty five per cent. They jumped to close the balance of our position. We did it at a profit of an incredible six hundred million plus profit before taking into account the associated ninety million dollar fee. Our second excursion into equity markets had been even more profitable than our first.

  We had made over eight hundred and fifty million dollars after our expenses. We were worth over two billion three hundred million dollars even if the peg held.

  And it did not look as if it could. As the market closed, there were stories after stories about the massive sale of the Hong Kong dollar. The reserves were strong but they would not last forever. And soon something had to give or the flow of funds had to stop.

  As the US ultimatum drew closer, the UN asked for talks. The US extended their deadline by twelve hours but started flying over Iraq and Libya on reconnaissance missions. The atmosphere was tense.

  Once again in Europe, markets fell sharply. The panic continued. It allowed no respite. The calls for calm were met with incredulity. There was only one way to go and that was down.

  Again the currencies came under attack. We monitored the continued rise in interest rates. They soared. The Hong Kong dollar stopped trading. It was impossible to sell.

  We monitored the worsening situation overnight in New York. We had had no sleep for thirty-six hours. Things were tense. Then it happened.

  A serious faced announcer advised that, against unrelenting pressure, the official exchange rate, or the peg, was suspended as a temporary measure. That moment the rate slumped to 11.50 to the dollar.

  “Close out now,” barked my father. “It’s going to over do it.”

  I jumped to the phone and asked for a price against the dollar forward. 12.20 offered n
ot bid. I could buy Hong Kong dollars but not sell them. I asked for size.

  “Whatever you want,” came the reply.

  “Tell me what that means in real money?”

  “I’ll make it in up to a half billion.”

  “What price would you make me for a larger deal than half a billion US dollars?”

  “12.10 for a billion to close you,” the trader responded. He had seen my position with him on the screen and so widened his price as much he dared.

  “I sell a billion US dollars and buy Hong Kong at 12.10,” I said.

  I reminded him again of the confirmation details and looked at my pad.

  I needed to buy in total 23.1 billion Hong Kong dollars to close out our positions. I had 11 billion left to buy.

  I did that in four deals across the market. And as the rate fell further, I got a better price. In the end I spent just under one point eight billion US dollars. And I had bought back our short position. We had made just over one billion two hundred million dollars in all.

  My father yelled, “We’ve done it. That’s just a tad over three point five billion dollars in the kitty.”

  I was staggered that he had managed to work that out so quickly. Jacqui was beaming and waving her hands about in the air shouting “yeah.”

  I sank my head in my hands and tried to let it all sink in. Jacqui came round and kissed me on the neck.

  I heard my father speak, “Check the faxes and be sure they are accurate. Make sure all the deals are the right way round. We should get the option money tomorrow and the foreign exchange at the end of the month. Check and double-check all faxes. Then ensure that you get all contract notes tomorrow.”

  The faxes came through. I checked them and confirmed that to him. The figures tallied. We were in the clear. We had the confirmations. We had done it. We had made ourselves multi billionaires.

  I looked again at CNN. They had the crisis in the Middle East on the news. It read deadline less three hours. I mentioned this to my father. He shrugged his shoulders, or so it seemed, “The Iranians will capitulate at the eleventh hour.”