1988 - 1st Quarter (1)
1988 - 1st Quarter (1)
February 9, 1988.
"Hmm—."
I clicked my tongue while looking at the report.
"What's the matter?"
"The market is shallower than I thought."
"Shallow?"
"The volume or trading capital is small."
The grain option trading volume at CBOT (Chicago Board of Trade) was much smaller than I had anticipated.
Even though grain majors anticipating a bumper year were increasing their trading volume.
'No matter how aggressively I gather them, the limit seems to be around 5,000 to 6,000 contracts.'
Is it because the benchmark is in the future?
I've created 100 paper companies, but it looks like the market is so small that I won't even be able to use all of them.
It would be nice to have them for future use, but I feel a bit wasteful.
Matthias must be disappointed too, right?
He worked hard to create them, but they can't even be initiated.
'In this case, should I add futures along with corn?'
If the market is this small, exiting won't be easy either.
How should I liquidate?
"There's still plenty of time. I think I need to look for other investment avenues as well."
I sold gold to create $60.72 million, and used $2 million to open accounts.
The remaining capital is $58 million.
The $720,000 is short-term company operating funds.
But there's actually money left over to invest in grains.
At best, maybe around $40 million could be invested?
Even that is not soybeans, the original target, but corn and futures for two items combined.
"You said you'd buy U.S. Treasuries?"
"That, of course, I have to buy. T-bills around 50%?"
"That would use up all the money."
"U.S. Treasuries will be used as margin."
If we deposit a mix of cash and short-term U.S. Treasuries as margin at the exchange, the interest from the Treasuries comes to us.
A structure where we pay $120,000 in gold interest with roughly $440,000 in Treasury interest.
"Ultimately, $18 million remains......"
What's worth investing in during this period?
"Hmm—."
My gaze turned to the U.S. Treasury chart.
The shape of yields rising from March.
When interest rates rise, prices fall.
'U.S. Treasury futures short?'
Not bad for short-term profit.
Not just the yield itself, but U.S. Treasuries can also absorb large amounts of capital.
Unlike grains, which require busy split buying throughout the month, it's a scale that can be digested without trouble in a day or two.
"Ara."
"Yes."
"Calculate this and send it to Bahamas."
I wrote down the formula for calculating premiums based on strike prices.
Anyway, I can't buy at that exact price.
Grains are American options.
Ara started tapping her engineering calculator to calculate prices one by one.
And not long after, she created a organized table and sent it to Bahamas.
"Finished?"
"Sent everything."
"Then let's go to EXE."
We closed the family office and headed to EXE.
Ring-ring-ring—!
No, we tried to head there.
"BE Holdings."
Ara quickly ran and picked up the phone.
For reference, BE Holdings is the name of the family office.
"Ah, yes. Boss, it's Matthias-ssi."
"Switch to speaker."
- This, what is this?!
"What's the problem?"
- Drought? Drought?!
Matthias screamed almost in despair.
"Didn't you see the report?"
- Were you serious?!
"And?"
- A real drought? I thought you had a huge strategy like with U.S. Treasuries!
"It's a real drought."
- Can't you reconsider? Let's just go into U.S. Treasuries! Drought?!
Seems anxious.
Understandable, perhaps?
Contractually, $8.3 million is guaranteed, but if he thinks he'll only get that much after even moving central banks, it makes sense.
- God damn it! The basis? A real basis, not a fabricated one!
"I saw it."
- Huh?
"I went to the Corn Belt region myself and saw it. It was dried up."
- But spring rain will come soon.
"Then we can liquidate at that time, right? There will be some loss, but."
- .......
Of course, it's bullshit.
I never went myself.
But the drought will come.
Even if my thinking is wrong, there's an exit.
Keeping an escape route in mind is the instinct of Wall Street guys.
And that's not important right now.
"Matthias."
- Yes.
"The investment strategy follows my words 100%. Isn't that written in the contract?"
- That......is correct.
"Why should I explain everything to you?"
It's annoying.
Isn't it to avoid interference from investors that we're using our own capital?
I didn't know Matthias would argue like this.
Was it because it was a simple employment relationship in previous rounds?
Or does everyone become like that when they become an LP?
Or maybe, it's because Matthias is still young.
"You have no veto power. Until you break the contract."
- ......I apologize.
I'm not worried about sabotage.
Even if it's Matthias from his younger days, a direct descendant of the Keller-Roth family wouldn't be that sloppy.
So if he really wants to oppose, there's no way other than breaking the contract.
"What will you do?"
- Understood. I'll prepare.
"I'll let it pass since it's the first time. And wasn't it written that half should buy U.S. Treasuries?"
- Ah! I was going to ask about that too.
I explained the strategy to Matthias.
- Margin with U.S. Treasuries? And receiving interest while doing that?
"Yes. There will be some haircut (discount) and fees, but it can be recognized almost at face value."
- There was such a method.
It's even more efficient in this era where U.S. Treasuries are treated almost like cash.
"And one more thing. Grains have upper limits and lower limits."
- Upper limit? Lower limit?
"It means there's a daily rise and fall limit. No matter how much it falls, maximum 3%. Normally within 1%."
- ......Is that so.
"Do you understand what that means? Grains allow you to track the price and cut off at an appropriate line for a stop-loss."
- I apologize.......
"If you understand, proceed."
- Yes. Really sorry.
I hung up the phone.
Honestly, I felt a bit offended.
Should I call it trauma?
The Madoff Securities employees who nagged when investing in CDS, the investors who cursed when buying AMC and IBN, the public who rushed foaming at the mouth when shorting SpaceZ.
I still regret it.
The days when I reduced my positions prematurely, intimidated by their reactions.
"Let's go."
"Are you okay?"
"Don't worry. Rather, aren't you worried?"
Isn't Ara more desperate than Matthias?
"Well, me."
She shrugged her shoulders and pointed to the documents placed on the desk.
It was the position statement sent from Gold Moon.
───────────
NIKKEI 225 FUTURES
22-Jan Long 165 @ 23,000
Last 23,801
MTM +$514,924
───────────
A $510,000 profit from Nikkei futures.
───────────
FETHERATED 6M CALL SCALE-IN (0%~30% LADDER)
Total Cost: $500,000
Spot 35.875 -> 59.125
Value : $5,298,000
P/L : +$4,798,000
───────────
A whopping $4.79 million profit from Featherated call options.
───────────
FIRESTUN 6M CALL SCALE-IN (0%~30% LADDER)
Total Cost: $500,000
Spot c.29.00 (-)[15 Days Elapsed]
Value : $470,000
P/L : -$30,000
───────────
Firestone is sideways, eating away at time value.
───────────
TOTAL ACCOUNT EQUITY: $7,782,924
TOTAL UNREALIZED GAIN: +$5,282,924
───────────
Thus, the total asset value of the family office is $7.78 million.
A return rate of 211%.
A figure achieved in barely half a month.
"I may not know stocks well, but I know this is an incredible number."
"Is that so."
Well.
Even to me, it's a somewhat astonishing performance.
A few days ago, the Canadian company Camp declared acquisition of Featherated, causing profits to sharply rise.
Truly fitting for the era of insane LBOs.
Wake up and the digit changes.
"If you're not worried, that's fine."
Anyway, it's fortunate she has no complaints.
"Let's go."
"Right."
Ara turned off the office lights and stuck close to me.
"$18 million?"
"Yes."
EXE's CEO, David, tilted his head.
He hastily prepared a drought report, and now suddenly going into U.S. Treasuries, it's understandable.
"It wasn't a full bet on grains?"
"Grains hit their limit quickly."
"Embarrassingly, I don't know the commodities side well. Does it fill up that fast?"
"Yes. Roughly 100 to 200 contracts?"
"Extremely tight."
Well, being a trader doesn't mean knowing all product characteristics.
It's a fact ordinary people don't know well, but all futures positions are managed that way.
Even index futures.
In the distant future, most people probably don't know if Nasdaq index futures or S&P 500 futures have buying limits.
"Grains, especially soybeans, corn, and wheat, unless for physical hedging, you can't hold large positions."
Commodities are particularly strict.
Oil and gold are a bit exceptional, but silver, copper, iron, aluminum, etc. are the same.
"So I'll split and enter using Switzerland's omnibus accounts."
"Then we don't need to worry about it."
"Right."
That, Swiss boutique banks will handle on their own.
So what EXE needs to do is just entering short positions in U.S. Treasury futures.
"Short means selling, right?"
"Correct."
At Ara's words, I nodded.
Long is buying, short is selling.
Wasn't that in economics books?
It seems too basic.
"Understood. I already received the instruction sheet, though."
"Then let's buy short-term bonds first with $9 million."
At my words, David immediately nodded and shouted.
"Buy T-bills by bank! Half each!"
K&M's trading banks total eleven.
Some are still hard to call tier 1, and there are tier 1 banks we passed.
Decided that way considering future work.
"Understood!"
Employees overflowing with enthusiasm shouted in unison and began work.
Anyway, at IB, short-term U.S. Treasuries are overflowing, so a few calls will finish it.
While employees each called banks, I examined the terminal.
'93, 95, 94.......'
The previous day's record for U.S. Treasury 30-year futures.
Opening 93.69, high 95.56, closing 94.94.
'If I match this with the 30-year chart.......'
Almost unchanged.
I can use the previous day's high as a benchmark.
"Enter immediately when the market opens?"
"No. Start buying when it touches 95-00. Follow as it rises and buy split."
"Understood."
Finally starting proper investment.
Seems like it took a long time, yet also started quickly.
'First target is $1 billion.'
Macro or large trades in offshore funds, microeconomics in the family office.
Before 1988 ends, creating $1 billion in net assets was the first goal.