‘It’s been going down for the last month,’ I said, ‘people are looking for yields to go higher.’ As treasury prices fall, their yields go up, reflecting an expectation of higher interest rates in the future.
‘Why has it been going down?’
‘Everyone is frightened that the US may have reached full employment. Last month’s unemployment figures were 5.2 per cent. Most economists think that it will be impossible for unemployment to get much below 5 per cent and that once it gets down to that level inflationary pressures will build up in the system. It will get more difficult for businesses to find workers, and so they will have to pay higher wages. Higher wages mean higher inflation, which means higher interest rates. So treasury prices go down.’
‘So what’s going to happen after the figure?’ Hamilton asked.
‘Well, the market expects that the unemployment number will be down to 5 per cent. If that happens, lower unemployment will mean higher inflation. The market will sell off yet again.’
It always seemed to me ironic that what was good for jobs was bad for the bond market. I could remember the day I had been on the trading floor of one of the big brokers. On the announcement that a few thousand more people had lost their jobs than expected, a huge cheer had risen round the room, and the treasury market had roared ahead. Talk about an ivory tower!
‘You are right that nearly everyone thinks that the number will be 5 per cent and that the market should sell off. So what should I do about it?’ Hamilton asked.
‘Well if we had any treasuries left, we could sell them,’ I said. ‘But since we sold what we had a month ago, I suppose we can just sit and watch.’
‘Wrong,’ Hamilton said. ‘Or at least you can sit and watch.’
The green television screen in front of us showed where the market was trading at that instant. A dense array of little green numbers winked as bonds were bought and sold, and prices changed. The key treasury bond we were looking at was the thirty-year bond otherwise known as the ‘long bond’. Its current price was 99.16, meaning 99 and sixteen thirty-seconds, or 99 and a half.
With one minute to go until the release of the figure, the green numbers stopped winking. Nothing was trading. Everyone was waiting.
The minute seemed to last for ever. All over the world, in London, New York, Frankfurt, Paris, Bahrain, even Tokyo, hundreds of men and women were sitting hunched in front of their screens, waiting. The bond futures pit on the floor of the Board of Trade futures exchange in Chicago would be silent, waiting.
A muffled beep came from our Reuters and Telerate screens. A second later a little green message flashed up, ‘US July unemployment rate falls to 5.0 per cent versus 5.2 per cent in June.’
Two seconds after that the number 99.16 by the long bond flashed to be replaced by 99.08, meaning 99 and eight thirtyseconds, or 99 and a quarter. I was right. It was a bad number and the market was falling.
Two more seconds, and our phone board was dotted with flashing lights. The salesmen did not know what Hamilton was thinking but they knew he was thinking something.
Hamilton picked one up. I was listening on the other line. It was David Barratt.
‘I just wanted to let you know our views on …’ he began.
‘Offer me twenty million long bonds,’ Hamilton cut in.
‘But our economist thinks …’
‘I’m glad you have an economist who thinks. Now get me that offer!’
David shut up, and went off the line. He was back five seconds later. ‘We would offer them at 99.04. Watch out, Hamilton, this market is crashing off!’
‘I’ll buy twenty at 99.04. Bye.’
The green number by the long bond on our screen was flashing constantly. It now read 99.00. I didn’t know what on earth Hamilton was doing but I knew he knew exactly what he was doing.
Hamilton picked up the next line. It was Cash. ‘Offer me thirty million long bonds.’
Cash didn’t argue. Someone wanted to buy thirty million bonds in a falling market, that was fine with him. ‘Our offer is 99.00.’
‘Fine, I’ll take them,’ Hamilton said. He put down the phone and stared at the winking screen intently. So did I.
The price kept flashing, but it was no longer plunging straight down. It was wobbling between 99.00 and 99.02. Hamilton and I sat motionless in front of the screen. Every time the number 99.00 flashed, I found myself holding my breath, expecting to see 98.30 follow it. We could lose a lot of money on a fiftymillion-dollar position. But the 99.00 level held. Suddenly it flashed up at 99.04, then 99.08. Within seconds the price had moved up to 99.20.
I exhaled. Hamilton had done it again. We had managed to buy fifty million long bonds at what appeared to be the lowest prices for months. And it looked like the market was going back up. I studied Hamilton closely. He was still staring at the screen. His expression was unchanged. He wasn’t smiling, but I thought I could detect a slight relaxation of his hunched shoulders.
The price flashed up to 100.00.
‘Shouldn’t we sell now?’ I asked.
Hamilton slowly shook his head. ‘You don’t know what is happening here, do you?’ he said.
‘No, I don’t,’ I said. ‘Tell me.’
He leaned back on his chair and turned to me. ‘You have to be one step ahead of what the market is thinking,’ he said. ‘Market prices move when people change their minds. The market will go down if people suddenly decide that they would rather not buy or hold bonds, they would rather sell them. This often happens when there is a new piece of information. That’s why the market often moves when an economic figure is released. Are you with me?’
‘Yes,’ I said.
‘Now, over the last couple of months a lot of people have been changing their minds, deciding to sell. As each piece of bad news has come out, more and more people have sold, driving prices ever lower. The situation has got so bad that by this week everyone expected more bad news and a further fall in the market.
‘When the bad news came out, it was just what people had expected. Sure, the dealers moved their prices down, but all the sellers had sold long before. Like we did a month ago. There were no sellers left.’
‘OK, that explains why the market didn’t go down for more than a minute or so, but why is it going up?’ I asked.
‘Well, when a market is falling, natural buyers tend to delay their purchases until they think all the bad news is out of the way,’ Hamilton said. ‘And there are people like me who are tempted to buy bonds at low prices.’ Hamilton talked slowly and deliberately, and I hung on every word, trying to extract the maximum amount of knowledge I could from what he had to say.
‘But what about the economic fundamentals? What about the threat of inflation if the US has full employment?’ I asked.
‘That fear has been in the market for at least a month. Prices have been discounting that for weeks.’
I thought about what Hamilton had said. It did make some kind of sense. ‘So one of the reasons the market went up was because everyone was so pessimistic?’
‘Precisely,’ Hamilton said.
‘One last thing I don’t understand,’ I said. ‘If all that was the case, why did the market wait until the release of the figure before moving up?’
‘Before taking the decision to buy, investors wanted to wait until the last major uncertainty was out of the way. Once they saw that the unemployment figure, although bad, was no worse than expected, they had no reason to put off their decisions. They bought.’
I had a lot to learn in this business, I thought. I knew you needed a cool, calculating mind to be a good trader. But Hamilton was more than just an expert at analysing numbers or economics. He analysed human nature, weighing up the exact balance between fear and greed amongst the thousands of individuals who collectively make up ‘the market’. And he was very good at it.
‘I think we can leave this market to its own devices now,’ Hamilton said. ‘You wanted to see me about something.’
I told
Hamilton everything that Debbie and I had found out about Tremont Capital. I told him it looked to me as though we would never see our $20 million again.
In all the time I had worked with Hamilton I had never seen him shaken. He was shocked now. He had lost control, a rare feeling for Hamilton.
‘How could that happen? Didn’t we check the documentation?’
I shook my head slowly.
‘Why didn’t I get Debbie to check the documentation?’ he muttered, biting his bottom lip. ‘That bastard Callaghan! He must have known about it all the time!’
‘I heard Cash sold you the bonds?’
‘He certainly did. At the time those bonds were yielding 11/2 per cent more than US government’s. Not bad for bonds with a triple-A guarantee. They were the cheapest bonds around at the time.’
‘And you think he knew that the guarantee was worthless?’
‘He must have done,’ said Hamilton bitterly. ‘If the library at Bloomfield Weiss knows nothing about the bonds, you can bet no one else there does. He must have set this thing up himself. I do my best never to rely on that man. I can’t imagine how I let him get away with it.’
‘Couldn’t Cash have been passing on the bond prospectus in good faith? Perhaps someone in his corporate finance department is behind this? Claire mentioned a chap named Dick Waigel.’
‘Maybe. But I don’t think so. I think it’s Callaghan.’
I hesitated. I wasn’t sure whether to mention what was in my mind. Quietly I asked, ‘Do you think Cash had something to do with Debbie’s death?’
Hamilton looked at me, puzzled. ‘That was an accident, wasn’t it? Or suicide? Surely not murder?’
‘I’m not sure what it was,’ I said. ‘Remember I told you that I saw a man just before Debbie’s death?’ Hamilton nodded. ‘Well, that man turned out to be Joe Finlay, Bloomfield Weiss’s US corporate trader. Now, I told the police this, but it appears that Joe had a couple of friends who said they shared a taxi with Joe immediately after they all left the boat.’
‘Joe Finlay?’ said Hamilton. ‘I’ve met him. He’s not a bad trader. But from what you said, the police have ruled him out?’
I sighed. ‘Yes, they are going to put Debbie’s death down as an accident. But I just don’t believe it.’
Hamilton looked at me for a second. ‘I suspect the police know what they are doing. In any event, I doubt that Cash had anything to do with it.’ He lapsed into silence, an unusual fire in his cold blue eyes. Then, slowly, he began to relax. He rhythmically stroked his beard. He was back in control. Thinking. Calculating all the angles.
‘What shall we do?’ I asked. ‘Shall we confront Cash? Go to the president of Bloomfield Weiss? Go to the police?’
‘We shall do nothing,’ Hamilton said. ‘At least not for a while. My guess is that Tremont Capital will continue to pay interest for several years so as not to arouse suspicion. It is the principal we will never see again. So we have time. It is our turn not to arouse suspicion. As soon as Cash finds out we are on to him, then the money will be gone and we will never see it again. So we act as though nothing is amiss.’
‘But we can’t just do nothing!’
‘We won’t just do nothing. We will get our money back.’
‘But how?’
‘I’ll find a way.’
And somehow, I thought he would.
10
I had quite a backlog of work to catch up on. Accounting discrepancies, monthly valuation commentaries, a pile of reading. I ploughed through it all afternoon and the early part of the evening.
I left the office at half past seven and sauntered down Gracechurch Street towards the Monument underground station. I couldn’t work out how we could try to get the Tremont money back. I had no idea how Hamilton would go about it, although he seemed confident he would think of something.
I was interrupted by a voice next to me and a hand slipping through my arm. ‘Paul, why so miserable?’
It was Claire. I caught the same subtle scent she had been wearing in Luc’s the day before.
‘I’m not, I’m just preoccupied.’
‘With work. But work is over for the day! It’s time to play.’
I smiled weakly. I couldn’t tear my mind away from the Tremont Capital disaster.
‘Look, you’ve been worrying too much lately,’ Claire said. ‘You take it all too seriously. I am meeting some old friends of mine tonight. Do you want to come?’
I hesitated.
‘Oh, come on!’ she said. She raised her arm at a passing taxi which screeched to a halt. She bundled me in. I didn’t resist. She was right. All that I had learned over the last few days was weighing heavily on me.
Claire directed the taxi to a small wine bar in Covent Garden. It was dark and wooden and crowded. Her friends were there already. Denis, Philippe and Marie. They had all been to university together at Avignon. Denis was doing a Ph.D. in Anglo-Saxon history at King’s College, London, and Philippe and Marie were both teachers in Orléans. They were in England on holiday. And only Denis spoke English.
My French is barely up to conversational standard, but I did my best. I was encouraged with enthusiasm by the others, who derived no end of amusement from my Yorkshire French accent. I got by pretty well, although the conversation took some strange paths since my comments were dictated more by what words I knew than what it made sense to say. The wine flowed. The volume of the conversation rose, punctuated by bursts of hysterical laughter. No one mentioned bonds, markets, interest rates, Tremont, Joe, or Debbie.
As the night wore on, I found it more difficult to focus on what was being said or where the conversation was going. I just sat back in my chair and watched.
In particular, I watched Claire. God, she was sexy! She perched, cross-legged on her chair, her tight black skirt riding up over her well-shaped thighs. Her white blouse was tucked firmly into her skirt, stretching over the curves of her breasts, as she leaned forward to make a point. Her lips were full and pouted frequently as she talked. The French language was made for lips like hers, I reflected.
Suddenly, at a signal that I had missed, everyone stood up. I looked at my watch. It was midnight. We left the wine bar and spent five minutes on the pavement outside in a confusion of goodbyes. Then Denis disappeared in one direction and Philippe and Marie in another, leaving Claire and me alone.
Claire put her arm through mine and we wandered down towards the Strand. We wended our way through groups of people shouting goodbye to each other, hailing cabs and laughing excitedly. The night air was warm and relaxed.
‘I forgot to ask you whether you could speak French,’ said Claire. ‘You were good.’
‘After all those years of learning it at school, some of it was bound to sink in, I suppose,’ I said.
‘That was a nice evening, wasn’t it? Don’t you like Marie? And Denis is very funny, isn’t he? Oh, we all had such fun together at Avignon.’
‘I enjoyed it very much. Thank you for bringing me along.’
‘Shall we share a cab?’ asked Claire. ‘Where do you live?’
‘Kensington, and you?’
‘Oh, that’s fine. I live just off Sloane Square.’
We walked along the Strand, trying to get a cab. Eventually we caught one coming over Waterloo Bridge from the south side of the river.
Neither of us said anything in the taxi, but I was acutely aware of Claire’s presence beside me. She let her head rest gently on my shoulder.
We pulled up outside her flat. She clambered past me, opened the door, and dropped to the kerb.
‘Goodbye,’ I said, ‘I’m glad I bumped into you this evening.’
The taxi had stopped under a streetlight, so I could see Claire’s face clearly. Her eyes smouldered, dark and sensual, just as they had in the restaurant. She smiled. ‘Come on,’ she said.
I hesitated for a moment, then swallowed, climbed out of the taxi, paid the driver, and followed her into the building. Her flat was on the first floor. It w
as comfortable, stylishly furnished, with two large abstract paintings hanging on one wall.
That was all I had time to notice. As soon as we were inside, Claire turned and pulled my head down to hers. A long kiss, our bodies pressed against each other, both feeling the other’s excitement. Eventually, Claire drew her lips away from mine, chuckled hoarsely and whispered, ‘What do you want?’
I didn’t get a chance to answer. She led me into the bedroom. She didn’t turn on the light, but the curtains were open and the orange glow from the streetlamps outside lit the room. She loosened my tie and undid the top buttons of my shirt. I took off my jacket and undressed. In a moment Claire was standing before me, naked. The headlights of a passing car illuminated her. Her body was round and firm, almost muscular. I only just had time to take my socks off before she pulled me down on to the bed.
Claire was a vigorous, energetic lover. The bedclothes were soon strewn all over the floor. After an exhausting hour of the most intense pleasure, I rolled over on to my back, short of breath, sweating, spent. Claire lay down beside me and we talked and laughed as she ran her fingers over my chest and stomach.
Within a few minutes, relaxed and contented, I rolled over and fell straight to sleep.
I was awakened by Claire kissing me lightly on the nose. She was fully dressed in a blue suit.
‘Some of us have to go to work,’ she said. ‘Make sure the door locks behind you.’ She was gone before I could reply.
I dragged myself out of bed, pulled on my clothes, took a taxi home and had a bath. I was late into work that morning.
Hamilton had been thinking, as promised. He beckoned me into the conference room.
‘This isn’t going to be easy,’ he said. ‘We need to find out more.’ He leaned forward over the sparkling white pad on the table in front of him. All energy and purpose. I listened, ready to follow instructions.
‘We can attack this problem from two angles. I suggest I tackle one of them and you the other.’
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