Chapter 32
Chapter 32
Translation: Godtl
"Chief, here's the list of Hong Kong ADRs and hedge funds you requested."
"Are all of these related to the German stock market?"
"Yes. I've selected only the most aggressive bear funds."
Bear funds.
These are funds that specialize in short selling.
When the entire market is in a bearish trend, money floods into bear funds—especially those with aggressive tendencies.
The staff had compiled and brought me this list of such funds.
"..."
I carefully examined the list.
How each fund executed aggressive investments.
The scale of capital they managed.
Which sectors they allocated the most funds to, and so on.
I needed to input all this data into my mind first.
As I crammed this information into my head,
"!"
Certain patterns began to emerge.
After checking the relevant items, I finalized the investment amounts.
The process of determining the amounts was always the same.
First, I'd jot down rough figures arbitrarily, then adjust them up and down until arriving at the appropriate sums. Once this work was done, I handed the materials back to the employee who'd brought them.
"Please invest in the checked items, using the circled amounts next to them."
"Yes, sir!"
As one person left, another immediately entered.
"Chief, here's the U.S. list you requested earlier. We can allocate capital through prime brokers, and if we match the appropriate price, we can leverage up to 2x."
"Just a moment."
Currently, we weren't just distributing investment funds through prime brokers.
This applied domestically as well.
"KS Asset Management currently has high-risk, high-return funds available, so I've included those products too."
"These are more aggressive than I expected?"
"Yes. Coincidentally, they specialize in European markets, including Stumbagen, which we're targeting."
Gwangun Securities is a company I particularly like.
Naturally so, since it's my workplace.
While I don't envy other financial firms, there's exactly one thing I do envy about them.
That they have their own asset management companies.
Asset management—the core of any financial group.
Also known as fund companies.
While securities firms typically handle up to 10-20 trillion won at most, the scale expands to hundreds of trillions when you move into funds.
"Surprisingly, KS manages quite a few aggressive funds. Though they're so aggressive that investment money only surged initially and has since dwindled."
"If we inject funds, they might become more active again?"
"Yes. As stated here, they pursue high-risk, high-return strategies. They'll likely invest quite aggressively."
Is that so?
Why don't we get some help from our country's top financial group?
"Then please invest the amounts I've marked here."
"Yes, understood."
And so I was in the process of distributing 700 billion won across dozens of channels.
Truthfully, the simplest approach would be to invest directly through the Frankfurt exchange.
The problem was that no matter how large Stumbagen's market capitalization might be—over 100 billion euros—you couldn't short 700 billion won all at once.
There were liquidity issues to consider, and attempting such a large short position might prompt Bafin to halt trading due to market disruption concerns.
But most importantly, there was my intuition.
I wasn't getting any signals about direct investments through the Frankfurt exchange.
Instead, I kept receiving steady feedback as I divided the capital and reviewed various fund lists.
That's why I'd instructed my team to keep bringing me relevant investment targets.
'But no matter how I look at it, Stumbagen only has positive factors.'
What on earth is about to explode here?
＊＊＊
Leverage.
What a wonderful system it is.
To execute large trades with small amounts!
But there's something you must remember.
Using leverage means borrowing money from someone.
While it's great when you profit from debt, losses become exponentially worse when things go wrong.
That's why the government has set the maximum leverage ratio for retail investors at just 2x.
Before the Subprime Mortgage Crisis hit, leverage restrictions weren't particularly stringent.
But after that financial nuclear bomb exploded, regulations on leverage tightened significantly, imposing limits not just on retail investors but on securities firms as well.
The rationale was to minimize damage should another massive financial crisis like Subprime occur.
Of course, exchanges dealing in futures or FX allow leverage of up to 100x.
"But when capital exceeds hundreds of billions, doesn't that leverage effectively become meaningless?"
Leverage can't exist unless someone is willing to lend.
In other words, you need collateral to establish leverage.
That's why margin is required.
But once capital reaches the hundreds of billions or trillions, the game changes.
While leverage can still be applied to amounts in the hundreds of millions to low billions, once you exceed risk limits, even banks hesitate to accommodate.
That's where prime brokers come in.
"Even with a prime broker, who'd provide leverage in the trillions? Unless your credit rating is exceptionally strong."
If someone walked in with hundreds of billions and demanded 10x leverage, no securities firm or bank would agree.
No—even 2x would require an extraordinary credit assessment.
Because if the stock moves contrary to expectations—whether up or down—triggering margin calls and losses, the party providing the leverage bears the brunt.
There are exceptions, of course.
If the counterparty is a renowned tycoon or has robust capital to mitigate losses, securities firms and banks might consider it.
But 99% of the time, they refuse.
Risk management is more critical to them than life itself.
Haven't they learned enough from 9/11 and Subprime about the dangers?
"But... why is Jin-ho trying to contact prime brokers?"
Prime brokers refer to major securities firms and banks—Goldman Sachs, J.P. Morgan, and the like.
They facilitate large-scale overseas investments or hedge fund operations.
If leverage is needed, they provide loans based on their own credit assessments.
"He's already linked with hedge funds through prime brokers and is using securities lending services."
"What? Securities lending too?"
One of the prime brokers' core functions.
Stock lending.
They source shares from institutions or pension funds holding large positions in specific companies, enabling short selling.
Hedge funds frequently use this service.
"So Jin-ho is aggressively splitting his capital?"
"Yes. Quite unlike Deputy Director Jeong Jin-ho."
Jeong Jin-ho was currently slicing and dicing his 700 billion won, dispersing it across various products.
"Finally diversifying his investments?"
To the average observer, it might look like he was diligently allocating funds across multiple investments.
"Actually, the opposite."
But as always, Jeong Jin-ho wasn't one for conventional strategies.
"You said he's splitting the money?"
"Yes. But ultimately, it's all flowing to the same destination: Stumbagen."
What kind of nonsense is this?
After all that effort to divide the capital, the target is just Stumbagen?
CEO Hwang's mind raced.
"Well, dumping 700 billion in all at once would trigger sanctions from German financial regulators. Stumbagen's stock is at an all-time high, right? Is he trying to ride the wave by mixing funds through different channels?"
"No."
"No? Wait—so this is all short positions?"
"Correct. Just as you said, sir. He's mixing labels left and right, but every last won is going into shorting."
President Hwang tilted his head in confusion.
Why would anyone suddenly short Stumbagen, of all companies—the one currently thriving?
"Is there some issue with Stumbagen that I'm not aware of?"
"Nothing has surfaced yet. On the contrary, it's flooded with positive news. The stock price, currently at 250 euros, is projected to hit 300 euros next week. No—analysts are absolutely certain it will rise."
Yet Jeong Jin-ho had bet on a short, not a long.
"And he did it after completely scrubbing Gwangun Securities' name from the transaction."
"That's right. If Deputy Manager Jeong's investment actually succeeds, the losing side won't even know who took their money. It's all too scattered to trace."
But if it fails—
Just the thought made his head spin.
"To take such an aggressive short position on the hottest auto stock right now—"
"And in a way that ensures Gwangun Securities' name never surfaces, even if things go south."
If anyone else had tried pouring 700 billion into shorting the top-performing stock in the auto sector, they'd have been dragged into the CEO's office and stripped of their position on the spot.
But that "anyone" was Jeong Jin-ho.
The man who, at the most unexpected timing, had bet on the Swiss Franc—the world's safest asset—predicting the collapse of the Swiss cap system. The same man who had raked in fortunes during the China Shock and the Greek Default.
He had an uncanny ability to sniff out money in the midst of crisis.
"Honestly, sir... I'll be frank. Every time Deputy Manager Jeong makes an investment now, it scares me a little. I can't help but wonder—what disaster is he anticipating this time?"
"Keh keh. Our Jin-ho does have a terrifyingly sharp eye. Though I still have no idea what logic drives these decisions of his."
By every metric and data point, Stumbagen was a stock that could only go up—never down.
"But if Jin-ho made that call······."
A heavy silence settled between President Hwang and Executive Director Tak.
Logically, Jeong Jin-ho's judgment seemed flawed. Yet, strangely, their instincts told them to trust it.
Perhaps it was because of everything they'd witnessed until now.
"Ah, Executive Director Tak. Isn't your car a Stumbagen?"
"Yes."
"No clue what's about to happen, but sell it before it becomes scrap metal."
"But I just bought it—"
"Then hold onto it and see what happens."
"Ugh."
Looks like he'd be car shopping tomorrow.
＊＊＊
The auto industry was fiercely competitive—more so than most sectors.
Shiyota held the undisputed top spot with overwhelming sales, but they couldn't ignore Stumbagen's rapid ascent.
Where does technological progress begin?
Reverse engineering.
Dismantling rival vehicles to study their tech—
to pinpoint where they outperformed Shiyota's models, then meticulously dissecting and mastering those innovations.
"But no matter how we look at it, our emissions control tech is far superior, isn't it?"
One of Stumbagen's current selling points was its drastically reduced exhaust emissions.
Which was odd.
Because Stumbagen wasn't known for eco-friendly R&D.
Weren't they just slapping premium branding on cars and pushing aggressive marketing to boost sales?
"Yet their tests all passed?"
"They did. But real-world driving emissions seem different."
After relentless testing, their engineers spotted the discrepancy.
"It's different. Emissions during testing versus actual driving—they're definitely not the same."
No matter how many times they ran the tests, real-world results didn't match.
There was only one explanation.
"Don't tell me Stumbagen rigged the software—"
They'd programmed the system to behave differently during testing versus real driving.
"Those sons of bitches?"
＊＊＊
"Hard to put into words... but this feels surreal."
Since working under Deputy Manager Jeong, this was the first time he'd seen money scattered in so many directions.
That was precisely why his attempts at diversified investment had never exceeded three or four positions at most.
But now, a capital of 700 billion won was spread across dozens of different assets.
Our department head is doing diversified investment?!
"Still, isn't it hard to call this true diversification? The end goal is still singular."
"That's true. But the funds the department head picked are definitely aggressive. These guys don't even have enough shares to borrow—they've already secured loans and are going all-in on shorting."
"They're bear funds, after all. And he specifically chose the most vicious ones."
Funds each had their own distinct personalities.
While some pursued stable returns, others—like the ones selected now—charged forward with extreme aggression.
Win big, or lose everything.
He had poured money only into funds that offered no middle ground.
Which meant there was no direct control to be had here.
"Even with this much shorting, the price still won't budge downward?"
"By now, word must have spread among those German retail investors too. That someone's opened a short position and is lying in wait. The backlash effect might even drive the price up."
Which institution had shorted which stock wasn't public information.
Because revealing that would be no different from begging to be killed.
But short-selling volume and its proportion were trackable.
Though you couldn't pinpoint who had shorted a stock, a sudden surge in short positions was detectable, and by comparing recent trading volumes, you could deduce where shorting had concentrated.
Retail investors weren't fools.
So whispers must have already begun circulating in their communities.
That some disgraceful forces had dared to short Stumbagen, currently on a steep upward trajectory.
And once resentment flared, they'd pile into buying, driving the price even higher.
If this escalated further, wolves from all over the world would gather to pump the stock, then bury the short-sellers alive.
Some might do it for profit, sure.
But others would pool money just for the sheer thrill of slaughtering shorts—even if there was no gain in it.
The stock market was that kind of place.
Emotion trumped reason.
Which was why the department staff watched, hands trembling, as Stumbagen's price climbed day after day—along with the buying volume.
At this rate, the 700 billion could evaporate into thin air.
They spent days on edge like this—until—
"D-Did everyone see the news?!"
"Yes. We just saw it too."
As usual, the employees who had arrived by 6 a.m. were all seated at their monitors.
California had just dropped a bombshell.
[Stumbagen manipulated its software to produce nitrogen oxide emissions dozens of times higher in real-world driving than in test mode, exceeding U.S. environmental standards by 40-fold. This is a blatant violation of the law, and in cooperation with the U.S. government, Stumbagen vehicle sales will be suspended indefinitely.]
The German automotive giant had done the unthinkable.
They'd rigged their software to falsify emissions output.
By forty times, no less!
"What the— Did they really think they wouldn't get caught?"
"According to the report, they've been hiding it for quite a while."
"The ones who pulled it off are insane, but the countries that fell for it are just as wild."
"Who could've imagined Stumbagen would resort to manipulation?"
Wait.
This wasn't the time for that.
With a shock announcement like this, there was no way Stumbagen's stock would remain unscathed.
"Has the German market opened yet? What about the positions we've spread our money into? We need to check fast and move the funds—"
Section Chief Seo, scrambling into action, abruptly locked eyes with Department Head Jeong Jin-ho, who had just arrived.
"Oh—Department Head!"
"Calm down, Section Chief. There's nothing we need to do right now, is there?"
"Huh?"
Nothing we need to do?
What did that mean?
As Section Chief Seo mulled over Department Head Jeong's words while the man walked past, he suddenly clapped his hands together.
"Ah—right."
We're on auto-hunt right now, aren't we?