by James Conway
The
LAST
TRADE
a novel
Jame Conway
DUTTON
DUTTON
Published by Penguin Group (USA) Inc.
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Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario M4P 2Y3, Canada (a division of Pearson Penguin Canada Inc.); Penguin Books Ltd, 80 Strand, London WC2R 0RL, England; Penguin Ireland, 25 St Stephen’s Green, Dublin 2, Ireland (a division of Penguin Books Ltd); Penguin Group (Australia), 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd); Penguin Books India Pvt Ltd, 11 Community Centre, Panchsheel Park, New Delhi–110 017, India; Penguin Group (NZ), 67 Apollo Drive, Rosedale, Auckland 0632, New Zealand (a division of Pearson New Zealand Ltd); Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Africa
Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R 0RL, England
Published by Dutton, a member of Penguin Group (USA) Inc.
Copyright © 2012 by James Conway
All rights reserved
REGISTERED TRADEMARK—MARCA REGISTRADA
LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA
Conway, James, 1964–
The last trade : a novel / by James Conway.
p. cm.
ISBN 978-1-101-58457-6
1. International finance—Fiction. I. Title.
PS3603.O56476L37 2012
813’.6—dc23 2011036278
Printed in the United States of America
Designed by Nancy Resnick
Title page photograph © Diseñador / Fotolia
PUBLISHER’S NOTE
This book is a work of fiction. Names, characters, places, and incidents either are the product of the author’s imagination or are used fictitiously, and any resemblance to actual persons, living or dead, business establishments, events, or locales is entirely coincidental.
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For Patricia Helen Conway
and Judy
In an effort to slow or temporarily halt catastrophic financial disasters, demonstrated by a sudden broad and steep decline in the markets, the New York Stock Exchange relies on a series of Circuit Breakers, each of which addresses a different level of decline in the Dow Jones Industrial average. For instance, these are the NYSE Circuit Breakers for the second quarter of 2012: In the event of a 1350-point decline in the DJIA (10 percent) before 2 P.M., there will be a one-hour halt of trading. In the event of a 2100-point decline in the DJIA (20 percent) before 1 P.M., there will be a two-hour halt of trading. In the event of a 3150-point decline in the DJIA (30 percent), regardless of the time, markets will close for the day, if not longer.
* * *
The Hindenburg Omen is a technical analysis pattern that portends a major stock market crash. It is named after the crash of the German zeppelin Hindenburg on May 6, 1937. The rationale is that on a given day, under “normal conditions,” a substantial number of stocks on the NYSE will set new annual highs or annual lows. A Hindenburg Omen occurs on those rare days when there is a simultaneous presence of substantial new highs and lows. Soon after, according to the data, a major to catastrophic market decline is likely to follow. It is a known fact that every major U.S. stock market crash of the past seventy-five years has been preceded by a confirmed Hindenburg Omen.
“Derivatives are financial weapons of mass destruction.”
—Warren Buffett
“The moment a person forms a theory his imagination sees in every object only the traits which favor that theory.”
—Thomas Jefferson
Contents
Copyright Page
Dedication
Prologue
MONDAY,OCTOBER 17, 2011
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TUESDAY, OCTOBER 18
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WEDNESDAY, OCTOBER 19 A.M.
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WEDNESDAY, OCTOBER 19 P.M.
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THURSDAY, OCTOBER 20
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FRIDAY, OCTOBER 21
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FRIDAY, OCTOBER 28
New York
MONDAY, NOVEMBER 8
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Acknowlegments
About the Author
Prologue
Las Vegas
March 12, 2008
The world is on fire and they are spraying champagne on it. Pissing on it. Laughing at it. Puffing the smoke of five-hundred-dollar cigars in the white-hot center of it.
They are in a ten-thousand-square-foot mansion, the former home of a suddenly bankrupt mortgage broker, having a party, a bash, an all-American bacchanal celebrating the antithesis of bankruptcy.
Celebrating a windfall now in the billions while the country is in the midst of losing trillions.
Rick Salvado bought the mansion a week ago just for this moment. He bought it as much for th
e outdoor shooting range, four hot tubs, twin swimming pools, and first-floor dance club replete with two DJ booths and four stripper poles as he did for the irony. Because this “event,” an exclusive gathering for the top-tier clients and executives of Salvado’s hedge, the Rising Fund, was bought and paid for because The Rising was one of the few funds to see it all coming. The sub-prime mortgage debacle, the chaos at Bear and Lehman, and the collapse of the U. S. and world markets—they were one of the few to see it, bet on it, and profit from the devastating misery of many.
No one is more intimate with this fact than Drew Havens, the twenty-eight-year-old stat-arb quant who designed the elegant computer model that foretold this inelegant mess. He’s the one who has made Rick Salvado an overnight multi-billionaire media darling and a lot of people, including himself, rich. Havens stands off to the side of the dance floor, sipping Diet Coke and watching the revelry. He’s exhilarated and exhausted, fascinated and more than a bit mortified. Once Salvado was certain that things were going to break right, he secured the mansion, fired up the Gulfstream, and whisked dozens of them out here on a flight filled with booze and sex and coke. Havens, a happily married man with a newborn girl, was more spectator than participant. He had a few glasses of in-flight Dom Pérignon but otherwise stayed on the periphery.
When they touched down on a private strip outside Vegas, the bender continued. Salvado had a convoy of Land Rovers take them to a makeshift shooting range far out in the desert, where, armed with everything from 50-cal machine guns to a nineteenth-century Gatling gun, and provisioned by scantily clad ammo hostesses, they blasted an assortment of targets—including life-sized cutouts of everyone from Osama bin Laden and Barry Bonds to Rosie O’Donnell and the head of the SEC. For the SEC leader, Salvado had a surprise. His handlers set up the cutout inside a Toyota Corolla one hundred yards away. They then towed up a twelve-foot-long T8 90mm antitank cannon.
Havens is looking at his BlackBerry at the latest pictures his wife, Miranda, sent of their daughter, Erin, who is waving good night, when his friend Tommy Rourke approaches. While Havens is all about numbers, Rourke is all about relationships. He’s the fund’s top rainmaker when it comes to landing high-net-worth prospects. Rourke slaps Havens on the back. “What’s up, egghead?” It’s a name the staff of The Rising had taken to calling the shy and numbers-obsessed Havens, at first disparagingly and now, post-windfall, with reverence.
“The egghead is doing all right,” Havens answers. “Other than having a busted eardrum from that goddamn cannon this afternoon.”
Rourke laughs. “Rick’s a crazy bastard. But you gotta love the guy . . . right?”
“No complaints here,” Havens answers. On the dance floor Rick Salvado is bumping and grinding to Chris Brown’s “Take You Down” with no fewer than three female “entertainers.” Nodding at Rourke’s glass of sparkling water, Havens continues, “So no strippers, coke, and single-malt for you?”
Rourke shakes his head. “Someone’s got to watch over this ship while the captain lets loose.” They clink nonalcoholic glasses and watch the spectacle on the dance floor and on the TV monitor hanging from the walls, where grim-faced anchors and manic scrawls predict Economic Armageddon. Unlike the others, they’re the only ones who seem to be paying attention to the screens. “Crazy shit, huh?”
“Only gonna get crazier,” Havens answers as numbers and models whistle through his head and he attempts to make some kind of emotional sense of what has come to pass.
* * *
Here’s what happened. In the early spring of 2007, little more than a month into his new job as a desk quant in the real estate sector, Havens received a surprise cube visit from Salvado and the man who discovered him, Tommy Rourke.
“Rourke here tells me you are a freak with numbers,” Salvado said. “But not exactly a people person.”
“This is true.”
“Fine by me,” Salvado replied. “We didn’t recruit you to be the face of the company. We recruited you because of your analytical skill, which I have been told is borderline genius. I say borderline because you haven’t made us rich yet. Do that and you get to be called whatever kind of genius you want: Mad. Evil. Whatever.”
Havens smiled. Fair enough.
Salvado continued, “So, I was impressed by your thoughts on the housing market. You really think it’s gonna tank?”
“To say definitively, I’d have to dig much broader and deeper.”
“But your gut tells you it’s a bubble—and a big one?”
“Scary big.”
“Good enough,” Salvado said. “I want you to hunker down here in your quant cave and eat, breathe, and sleep the data. I want you to put together the pieces, test the hypotheses. Model the fuck out of it. Do not come back to me until you have a verdict. I wanna know the total circumference and volume of this bubble and, more importantly, the precise nanosecond it’s gonna burst.”
Havens dove in. He lived for that kind of work. For some in finance, numbers quantify risk and reward. For Havens, they quantified the mysteries of life. “My Quant in Captivity,” Salvado began to call him, and Havens did not have a problem with it.
Three months later Havens emerged from the data cave and told his boss that his hunch was valid. The sub-prime mortgage situation in the U.S. housing market was worse than he had thought possible. Worse than anyone had imagined.
“In other words,” Salvado replied that afternoon, “it’s better than we ever could have hoped for.”
Havens didn’t have an answer. He’d never thought of it that way.
* * *
Havens checks his watch. He promised Miranda he’d call an hour ago. He wants to hear all about the baby’s day and to get away from the others. He feels as if he’s done more socializing in the past twentyfour hours than he’s done in the previous twenty-eight years. But it’s been almost impossible to get away from Salvado, Rourke, and company.
“So, this is quite the change from working in the back office for Citi out in fucking Queens, ain’t it, egghead?”
On the dance floor two of the three women with Salvado have taken off their tops. The third is trying to take off Salvado’s. As bizarre and excessive as this is, Havens can’t help but feel proud. After a lifetime being called an antisocial nerd and an egghead, it’s nice to get a bit of respect. “Yeah,” he concedes. “I couldn’t have predicted this in a million years.”
“But the funny thing is,” Rourke says, “you did.”
MONDAY,OCTOBER 17, 2011
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New York City
Even now, more than three years later, after everything, numbers are his affliction and his salvation.
Even here, surrounded by beauty and greed and power and the pulse and swagger of a celebrity-studded Monday night in Manhattan, it’s the numbers that make the difference, the numbers that guide and haunt and make him unlike anyone else in the room.
Drew Havens planned on quitting his job soon, perhaps within a month or so. He knew that to quit sooner, before bonuses came out, would be folly, even though he’s reached the breaking point and is financially set for years and by its own high standards the fund has had an off year. An off year at a hedge like The Rising is something that 99 percent of the other funds would kill for. But thanks to nights like this, years of them, it’s getting harder to stick around.
The bottle girl struts across the floor holding a sparkler with one hand and a tray of the latest round of Cristal and Grey Goose in the other. She bends at the waist and presses her breasts against the shoulder of his suit, apparently to better listen to his question. Havens always has questions and they almost always revolve around numbers. What’s safe or high-risk? What circumstances created the past and what will determine what’s next? What’s right and wrong? What multiples can be unpacked to reveal some sort of truth (if there is such a thing)? Though his q
uestion for the bottle girl is numbers-based, this time it’s merely rhetorical. Whatever she answers won’t matter, because he already knows it’s over. He knows he’s done with finance, with excess, with the hedge life, with client parties, with the media, with the bloated ego, outlandish behavior, and out-of-control proclamations of his boss Rick Salvado. And with looking the other way when confronted with situations like this:
“Between us, ’cause I can get in trouble,” explains the bottle girl in response to his question, “just for these two bottles, forty-five hundred. And you guys’ve had like what, seven? Then toss in another ten-k just for the table, and who knows what else you’ll add on before you leave, and then you’re deep into the land of six figures. Of course, gratuity not included.”
“Of course.” Havens nods, then looks around the corner table, an eight – by twelve-foot piece of temporary real estate that cost his firm ten thousand dollars for the night. Celebrities get these tables for free, but hedge guys, whales in money suits like them—like us, he thinks—have to pay. He considers the two other quants from the firm sitting across from him, a safe distance away from his cynicism and disgust, his burned-out soul, both relatively new, both eating it up as he once did. Then he considers the two good ole boy clients from Texas who made a fortune with them the last time around, more than a hundred million based almost entirely on his numbers, which foretold the coming sub-prime debacle, back in ’08.
Finally, he looks at his boss, the street smart and chronically tele-genic Rick Salvado.
Salvado and the rest of the group are surrounded by an equally large gathering of provocatively dressed young women. Their beauty ranges from just-missed runway model to girl next door to contract-girl porn star. Havens is certain that each of these young women would be miles away from here, or at least at the next-best-paying table, if they hadn’t been dispatched by their VIP host/pimp and weren’t bought and paid for by a bona fide Wall Street money whale like Salvado.
The numbers that the waitress just shared are disturbing, to be sure, but even more disturbing to Havens is how long he’s tolerated this kind of thing. Perhaps it’s because it’s never been a puzzle, or a priority. They were numbers without an equation or a goal, so, until now, they were ignored. But he knows that’s not true. He’s always known and until now he’s always looked away. “In a liquor store,” Havens says to the young woman, “two bottles would run you something like a hundred bucks, right?”