“Well,” said Toby deliberately, “Theo Spiridakos is not so much Marcus’s pal, as his brother-in-law. Marcus believes the information is 100% reliable.”
Now it was JJ’s turn to have a gulp of malt whisky. “Jesus Christ, Toby,” said JJ after a pause. “There is no fucking way we can unload our Greek bonds by tomorrow lunchtime, even if we have till tomorrow lunchtime, without causing serious, or even fatal, damage to our unrealised profit on those suckers. The market won’t wait till they find out if Tsipras’s plan works. They’ll just beat the holy shit out of the bonds, the euro, equities and whatever else is directly linked to them, the bloody second they smell that any of those PASOKs are going to jump ship. It’s the fucking financial equivalent of shoot first, ask questions later. And if they shoot, we’re dead.”
“I know,” said Toby, feeling a bit worse for wear by now. “That’s why I’m here on your armchair. It can’t wait till tomorrow and I don’t know what to do.”
JJ stood up, walked over to his drinks cabinet and poured himself another whisky and Canada Dry, gesturing to Toby asking if he wanted another one. Toby was flagging at this point and declined. Toby was expecting JJ to say something and sensing this JJ said softly, “I’m thinking, give me a few moments,” and sat back down.
While the Scot’s internal computer was whirring away, Toby was contemplating his potential financial demise. If these Greek bonds went belly up, he’d be getting no bonus and if JJ got the chop because of any debacle then he’d certainly be out as well. In hedge fund world you’re really only as good as your last trade. Reputation takes time to build but a nanosecond to lose. Who’d want to hire a trader whose CV read ‘butt-fucked by a bunch of Greek wankers’. Nobody was the answer.
JJ was contemplating. All that time it took to research the Greek trade, the work with Yves-Jacques on the game tree, the apparently misplaced confidence that there was a 70% probability, at least, that the unrealised massive profit in the bonds was intact. It was all about to go down the toilet because a few Greek politicians couldn’t take the pain of the hair shirt that their own prior mistakes determined that they should don. There was no point greetin’ too much over that now, thought JJ. It’s in the past. If Marcus’s brother-in-law was straight up then by tomorrow afternoon there was going to be a shit-fest of red on all Bloomberg screens. Ironically, as it would be the first Friday of the month, US non-farm payrolls data, the pivotal data statistic of any month, would be released at 1.30pm GMT prompt. These were expected to be good, around 300,000 new jobs created in November if market consensus expectations and Wednesday’s ADP job figures were anything to go by. NFPs were often regarded as the key market data release from the US depicting the health of the economy. From a proper economist’s perspective they had no predictive value. After all, they were out of date and more accurately reflected what the economy was like three to six months ago, but the markets had taken them to be predictive and that was that. In any event, it didn’t matter a monkey’s butt what the US jobs numbers were tomorrow. Greek news, if there was Greek news, would dominate and any asset price linked to a bullish, optimistic view of the world, would in an inkling turn crimson red.
“Toby, are you still awake?” JJ eventually piped up.
“Yes, chief. Do we have a plan?”
“Kind of. Can you make sure that Yves-Jacques gets out of his pit now, or whoever’s pit he’s in, and gets himself into the office. I’m assuming he’s got a twenty-four hour pass?”
“I’ll send him a message right now and if I don’t get a reply in five minutes I’ll hound his Gallic ass till I do,” responded Toby, now feeling somewhat more upbeat as JJ might have a plan, kind of.
“Tell him we’ll meet there in half an hour. The Asian markets are already open but equities are up so far in China and the Nikkei is having a good start, something to do with the weaker yen and plans for more infrastructure public spending by the Abe government. That means there’s been no whisper of Greek drama as yet.”
Both men finished up their Macallans and JJ texted Gil to see if she could come over and just be there when Cyrus awoke. She was on her way. He popped upstairs and quickly got changed into his work gear; a dark Zegna suit and shirt, black socks and a pair of shiny black leather size ten brogues were the order of the day. No time for a shower, so a quick squirt of Knize Ten. If things went well he might try to pop over to the RAC club in Pall Mall where he was a decade-long member and have a shower later. Same watch as yesterday, the IWC Top Gun Miramar pilot’s watch. Time would be of the essence tomorrow, actually today, but whatever watch he wore wasn’t going to make any difference. Nevertheless it was big and bold and that’s exactly what JJ and his team needed to be for the next few hours. JJ picked up his leather back pack and he was ready. By the time he came back downstairs, Toby had contacted Yves-Jacques and had a response in return. The young Frenchman was in his own bed with his own girlfriend so that worked out well. Toby had Hailo-ed a cab which was now ticking over outside JJ’s house. Yves-Jacques would be at MAM’s offices before them, computer fired up and hot to trot. Game on.
* * *
On arrival at the office, JJ and Toby went straight to the third floor where Yves-Jacques’s open plan desk was situated. The night security guard on reception didn’t really recognise any of them, why would he, none of the band of three had ever before been to the office shortly after midnight. They all had their swipe ID passes with photographs so there was no delay.
“Hi Yves-Jacques,” called JJ as he and Toby marched towards the Frenchman’s dark mop of hair. He didn’t look in too bad a way given that he’d been summoned out of his REM time without as much as a by your leave. His shirt wasn’t fully tucked into his pants, not quite Fathead style but close enough for JJ to hope that this particular style virus wasn’t contagious. JJ’s thought processes often wandered off into the irrelevant when he was under pressure, but he swiftly realised that the time for daydreaming was not now, get back to the point he told himself.
“Thanks for coming in, in the middle of the night, Yves-Jacques,” said JJ. “We’re in a mega bind and over the next few hours the three of us had better prove our worth or we’ll all likely be seeking new employment,” he continued.
“No problem, Mr Darke… I mean JJ. Hi Toby.” The French analyst tried his best to appear normal but inwardly he was startled by JJ’s reference to potential unemployment. He’d only just been employed! He loved it at MAM and he sure didn’t want to be seeking a new job, especially as it was nearly Christmas. No joyeux Noel for him if he was in the dole queue.
JJ and Toby briefly filled in Yves-Jacques about the problem, Toby refrained from too many ‘fuckin’ Popadopadopolases’ insults and JJ didn’t drop the F-bomb once.
“Right,” said JJ in a manner that meant his two colleagues needed to pay attention now. “Here’s the plan. It’s plan A and it’s the entire alphabet plan. We have neither the time nor the luxury of a plan B so we’re going with this one for better or worse. Toby, the face value of our entire holding of Greek bonds is, what, approximately €400 million?” enquired JJ. Toby had a spreadsheet open on his laptop.
“€420 million JJ.”
“How much could we reasonably unload between 8am and 12 noon this morning without markedly moving the price against us and assuming there is no breaking Greek news to our detriment?” continued JJ.
“Well, if I get the guys on the trading desk to help…”
JJ interrupted, “Forget it Toby. It’s just down to us. If you get the guys on the desk to help, they’ll blab whether they know they’re blabbing or not. It’ll be on their BBMs and within twenty minutes it’ll be all over everybody’s BBMs that MAM are dumping Greek bonds. That’ll cause the dealers and brokers to smell a rat and they’ll start digging. Loose lips don’t just sink ships, they torpedo hedge funds as well.”
Toby knew JJ was right. The time between one Bloomberg instant message and then getting the initial message back to you from some random dealer was of
ten no more than twenty minutes.
“OK,” reassessed Toby. “Spread evenly over three or four hours with multiple dealers, I can probably sell around 120 million of the 420 million without triggering chitty-chatty price anxiety amongst the community.”
“Fine,” responded JJ. “Toby, that’s your target and your job. Spend the next half hour or so preparing your call list. Once you’ve done that get a nap on the sofa in my office. You’re going to need to be as sharp as a tack from the off,” instructed JJ. Toby stayed where he was and browsed through his laptop to begin the process of listing the victims he’d try to sell his bonds to.
JJ continued. “We’ve still got €300 million of toxic Greek junk even if the first part of the plan works. If Greek yields go from 10% to 20%, which they surely will immediately on the first hint of a parliamentary showdown, we’ll lose €75 to €100 million, potentially more if our information turns out to be right. We can’t do anything about that; we have to hold them, not least of which because liquidity will dry up until the picture is clearer. So Yves-Jacques, here’s your task. This is a multi-faceted game. You need to run your correlation and variance-covariance matrix model programs. We need to have a target of liquid macro assets that are inversely correlated to the price of Greek 10 year bonds. These asset markets need to be open from the first thing this morning till at least the release of US NFPs at 1.30pm our time. We need to have more than one asset available for selection because, again, we don’t want to tip-off the market vultures that there’s something afoot. As you know, every asset has different volatility characteristics. 100 contracts of gold futures are not the same as 100 contracts of silver futures. Once you’ve got the target list, run it through my portfolio optimisation program and that will spew out how much of each asset we need to buy to match the expected loss on the Greek bonds. Got it?” enquired JJ of Yves-Jacques.
“Yes I can do this. It’ll take me an hour or two to run these programs in their entirety,” said the French man awaiting confirmation from JJ that the time needed was alright.
“That’s fine,” said JJ. “It’s 3am now. If all hell breaks loose before our target markets are open then we’re stuffed anyway. We may as well try to do it right. As a starter, Yves-Jacques, make sure you include S&P 500 futures, gold, the yen and one other liquid equity market that we can short. Don’t include any bonds. While there may be a flow into Euro Bunds or US Treasuries out of Greek bonds, the markets will worry about the break-up of the euro, and if the US jobs numbers are good, Treasuries will drop. We should be set up to short the S&P 500 and buy gold and the yen. Once you’ve got the bare numbers let me see them. Toby, you’ll have a bit more to do then, though at least with the target list programme you can involve one or two of the guys on the trading desk.”
So that was the plan. It wasn’t perfect. You can never match the profit/loss on trying to hedge one asset against a selection of other assets. In the financial crash of 2008, risk management tools like VAR (value at risk) and optimisation programs just blew up, they were worthless, as Lehman Brothers discovered. The key to success of JJ’s plan was stealth. The less chatter generated by their selling and buying programmes, the more chance the calculated hedges would hold up, the more chance the targeted assets would remain liquid and, critically, the more chance that Greek bonds wouldn’t go prematurely terminal. The structure of JJ’s plan needed to be robust, Yves-Jacques financial programs needed to be efficient and accurate and Toby’s trading skills needed to be honed to perfection. Black Friday or Golden Friday – who knew? Well, the world would in a few hours one way or the other.
* * *
It was 8am, on Friday, 13th December. The first floor of MAM’s offices was buzzing. This was the trading floor. If you weren’t at your desk by 8am you weren’t important in the scheme of things. The first floor accommodated around a hundred people, about fifty traders, twenty-five or so quants and the balance made up of support staff. It was open plan, with a gazillion screens, moderately less desks, all wooden beige with metallic legs, and lumbar supporting modern chairs. Off in the far corner, Thomas Meltzer, MAM’s chief economist, was giving an early morning interview for CNBC Europe. US jobs data was the main topic. Meltzer was German, about 5ft 11in, with straight blond hair and vivid blue eyes, only partially hidden by his gold rimmed specs. His English was so good he could tell jokes in it.
JJ nodded to Thomas as he sauntered by. He liked the German, his work was more thoughtful than most and he had manfully resisted the modern day temptation to have a view on everything and a ‘sound-bite’ for everybody. JJ was glad Thomas was pontificating on the upcoming US non-farm payroll numbers because that meant that there was no Greek news of note. JJ had already had a brief chat with David Sutherland, the head and founder of MAM. He was well into his sixties now but was still very sharp. His skill was in delegating, a skill never underestimated by Ronald Reagan, in JJ’s view America’s second most effective President of the post World War II era. Sutherland was a little shorter than JJ, less hair, more body mass, but better teeth and clothes. He was old Etonian and Oxford with good political contacts. JJ liked him mainly because he just let him get on with his job. They had little in common apart from a desire to grow MAM from strength to strength. Sutherland was concerned by JJ’s news on Greece but a lot calmer when the Scot had outlined his plan. Now JJ had to discover whether his plan was up and running or not.
Toby’s desk was at the far end of the trading floor, near the quants. He liked it there mainly because he had a good view over St. James’s Square from the floor to ceiling windows, one of the few non-original aspects of the building’s fascia. JJ walked slowly towards him, hoping to create an atmosphere of casual intent rather than alarm if he had rushed up to the head FX and commodities trader.
“How’s it going, Fathead?” asked JJ. He thought it would further add to the casualness if he called Toby by his nickname.
Toby looked up. He wasn’t surprised to see JJ there. He was on the phone to one of the dealers so put up his arm with one finger raised, not the middle one of course, to signal that he’d be with JJ in a moment. Phone call over. “It’s going well,” said Toby in a voice low enough that neighbours could not hear any detail above the office hubbub. JJ had a small smile as he sipped on his take-away Starbucks double espresso macchiato.
“I’ve sold more than two-thirds of the €120 million bonds, but I need to pause for a bit. A couple of the more alert dealers asked me if anything was up. I just said we were doing a bit of portfolio rebalancing before year end but that we were maintaining our core holding.” The truth in fact but not spirit thought JJ. “There is one thing, though,” Toby said. “I haven’t seen Yves-Jacques or his list of assets to buy. Have you got it?”
JJ’s smile was a tad smaller now. He had seen Yves-Jacques about an hour ago and they had agreed the target buy list. Toby should have had it by now. “Give him a ring, Toby, and ask him to hotfoot it down here no matter what he’s doing. It’s 8.30am and the clock’s ticking. We’d better be too.”
Within two or three minutes, Yves-Jacques could be seen scuttling across the trading floor heading for JJ and Toby. Without being obvious about it JJ signalled to the young Frenchman to slow down. Stealth was still the order of the day.
“Yves-Jacques, where’s our list, Toby needs to get cracking?” asked JJ without too much urgency in case it freaked out the young analyst.
“I’ve got it here,” he replied, clutching a few pages of hand written instructions. “I was delayed because I decided to re-run your optimisation model program JJ as it might not have been properly set up for relative value trades.”
JJ nodded, he was a good mathematician and econometrician but it’s possible that analytics had progressed since he designed MAM’s portfolio optimisation program three short years ago. “Go on,” said JJ.
“Well, last night or early this morning you mentioned that we should include one other liquid equity market to short as well as the S&P 500. If we had done that
in the size we needed to do it, it would have breached the fund’s internal risk rules.”
JJ realised they didn’t have time to get down to the nitty gritty of the program’s details now so it was whether or not he trusted Yves-Jacques and whether or not he had a solution to this glitch. “I take it from the fact that you’ve not disintegrated into a greasy spot Yves-Jacques that you’re confident you’re right and that you have a recommendation to keep us on track,” said JJ.
“Yes, JJ, I do,” replied Yves-Jacques, confidently, seemingly comfortable enough with no more ‘Mr Darke’ as he addressed JJ. “If we put on a relative value equity trade, in particular we go long the SMI (Swiss Market Index) and short the MIB (Milano Italia Borsa) we reduce our overall risk, break no rules and we can do it in the same size as before.”
JJ contemplated this recommendation for a few seconds. Switzerland wasn’t in the EU or the euro. As such its equities tended to fare a lot better when Eurozone troubles popped up. Italy, by contrast, was in the euro, albeit crying a lot about being in it now and the shares on their stock market, the MIB, would get hammered if the Greek drama unfolded the way Marcus Whyte had warned.
“OK Yves-Jacques, sounds good,” said JJ. “Give your list to Toby. Toby you get cracking with your guys and let me know how it’s going. No emails or BBMs. Use your personal mobiles or come and see me if anything significant is happening different to our plan.”
Toby nodded and turned back to his screens and headset. Time to give J-K a call he thought. Those two boys better not have stayed at Nobu too long.
“Yves-Jacques,” said JJ. “You come with me. Let’s look at my flawed optimisation model.” Yves-Jacques smiled. He knew he was right and he knew JJ wouldn’t mind if he was. After all, he had passed the augmented Norman Tebbit test.
Darke Mission Page 4