1988 - 2nd Quarter (5)
1988 - 2nd Quarter (5)
May 23, 1988.
"Is the basket ready?"
- Sorry. The limit for secretly accumulating off-the-run bonds was 20 billion.
Mickey of Salomon spoke cautiously.
Last time, he confessed that he couldn't fill the target amount and had to tell the desk head.
I had expected that.
If greed led to a setback, I had already prepared to acquire the rest through Goldmun.
"Then, add the rest with on-the-run bonds."
- How much are you planning to purchase overall?
"I plan to invest 70 million dollars."
- That's 21 billion dollars. Can we fill about 1 billion dollars with on-the-run bonds?
"That amount is fine. What's the yield?"
- Set at 9.45%.
"Excellent."
The current on-the-run bond rate is 9.32~35%.
9.45% is practically top-tier merchandise.
US bonds at a cheap price that won't come again.
"There aren't any strips mixed in, right?"
- Of course.
Since a bond's yield can be factored into the discount price, if we intend to purchase using repo for a carry trade, we had to buy at face value as much as possible.
"Then please begin the purchase."
- Understood.
After hanging up, I looked at David.
"Make the deposit."
"Ggeung. Understood."
David, with a grimace, instructed his staff to make the deposit.
"The transfer is complete."
"Then come to my room."
He tucked in his protruding lips and followed me inside.
"It's confidential. Don't go talking about it anywhere. Not even to the staff."
"My mouth is heavy."
"Only when money is involved."
"Kheum!"
I pulled out a sheet of paper and placed it on the table.
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JUL SOYBEAN FUTURES
Feb-88 Long 6,184 @ 6.45
Last 7.83
MTM +$42,669,600
───────────
July soybean futures profit: 42 million dollars.
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JUL CORN FUTURES
Feb-88 Long 7,968 @ 2.08
Last 2.21
MTM +$5,179,200
───────────
July corn futures profit: 5.1 million dollars.
───────────
NOV SOYBEAN CALL OPTIONS (Scale-in)
Total Cost: $4,488,248
Spot 6.45 -> 7.83
Value : $8,639,900
P/L : +$4,151,652
───────────
November soybean options profit: 4.1 million dollars.
───────────
DEC CORN CALL OPTIONS (Scale-in)
Total Cost: $2,902,112
Spot 2.08 -> 2.21
Value : $33,450
P/L : -$2,868,662
───────────
December corn options profit is still a loss.
───────────
TOTAL INITIAL CAPITAL (Margin + Premium): $37,293,760
TOTAL UNREALIZED GAIN: +$49,131,790
TOTAL ACCOUNT EQUITY: $86,425,550
───────────
Thus, the net profit to date is approximately 49 million dollars.
"......That's quite a high profit."
David showed surprise, but not enough to faint.
Well, of course.
The profit from this US bond futures trade exceeded 58 million dollars.
Making 58 million dollars from 18 million dollars versus making 49 million dollars from 40 million dollars.
From his perspective, he probably thinks, "Why bother?"
He likely thinks if that money had gone into US bond futures, we would have made much more.
It's all because I dribbled well.
Honestly, even with the cheat sheet, I picked the timing so well I want to boast about it myself.
"I showed you this because you seemed worried about going in with repo."
"Uhm....... Understood."
Even if we get hit with a margin call on the long-term bonds, the company will survive.
That statement was meant to show that.
"And in just two months, you'll be shocked?"
"Huh?"
The news is chaotic over grains right now.
The spot profit has long exceeded 8.5 dollars per bushel.
The futures price on the statement is currently 7.83 dollars.
Spot prices are skyrocketing while futures are hitting brakes.
"The exchange will lift the price cap limit."
"No way."
"You'll see."
If the underlying commodity jumps like that and the derivative doesn't rise, what reason would there be for futures to exist?
Only grain distributors would be playing.
I guarantee, the price cap limit will be lifted.
If not, before Wall Street speculators, farmers hedging with derivatives will drive their tractors to Washington.
And the next election will be George's.
Well, if there were a way to control grain prices, maybe.
Some president might try to plunder from Argentina.
But that president doesn't exist yet, so there's no way.
Lunchtime.
The relaxed EXE employees were all having a proper lunch together.
Apart from company operating funds, everything was parked in US bonds, and grains weren't their business anyway.
To provide welfare as well, recently they've been calling catering to provide a buffet.
Satisfaction is quite high.
Most Wall Street firms tell you to buy lunch yourself.
"Oh, God damn."
David, watching the news, gaped.
The employees all looked at him, but he couldn't even pay attention, focused solely on the TV.
[Amid expectations of a grain crisis due to drought, the Chicago Board of Trade announced today it will lift the futures price cap limit.]
"Really, the price cap was really lifted?"
"I told you."
"No! The government and congressmen were holding hearings and making a fuss saying they'd control grain prices!"
Does holding hearings make El Niño disappear?
And the reserves aren't sufficient either.
Grain silos have storage limits.
It might be enough for processed foods.
"Well, then we should slowly prepare for the next investment."
"You're already planning to liquidate grains?"
"No. Soybeans will be liquidated at the end of June, corn in July."
"But then we have no money."
"We need to get a new loan."
"Again?"
"Of course, after repaying the previous loan."
At my words, Ara tilted her head.
"We don't have money? Apart from company operating funds, we purchased all the US 30-year bonds."
"We get interest."
"......Huh?"
"The net profit from our US bond position is 59.39 million dollars per year."
The interest from the 30-year bonds is 198,450,000 dollars.
The interest to be paid as repo borrowing cost is 139,055,000 dollars.
So the net profit is 59.39 million dollars per year.
"Wow......."
"When it was 10 million dollars, it wasn't easy to understand?"
"Goodness. 60 million dollars comes in steadily every year?"
"It could come in more. If the base interest rate drops."
Unlike Ara's astonishment, David still seems dissatisfied.
"There's the issue of potentially being liquidated at any time. Ara-yang, all profits in the world carry corresponding risks."
I shrugged my shoulders.
If I told him that with the money made from the drought, we'll go into US 30-year bonds again in August, and this time with a larger position, he'd faint.
I'll tell him later.
"Anyway, you can consider it as a setup where about 5 million dollars comes in fixed monthly, so there's no reason to lack money."
"Haa-. The Advisor must have everything planned. So where's the next investment target?"
"RJR Nabisco."
"An LBO?"
Right on cue.
At this time on Wall Street, there's no human who isn't paying attention to LBOs.
"I won't ask about the source of information."
"Good."
Even if asked, I couldn't answer.
Nabisco's LBO started quite impulsively, and it blew up big due to ego fights in the middle.
I can't explain that, nor need to.
We just put money in and take money out.
"But you said we're getting a loan."
"We're pulling in the interest."
"......Wow......."
Ara stuck out her tongue as if disgusted.
Originally, investing with your own money is what ants do.
The foundation of a company is built on loans.
"I've already finished the loan contract, so it should come in around tomorrow."
"Do we have to repay it?"
"No. Matthias will handle it."
"So how much is coming in?"
"50 million dollars."
"That much?"
The gold borrowing is set to roll over.
We plan to repay only the 10 million dollar credit loan, and use the rest as investment funds.
"When that comes in, quietly accumulate Nabisco and Kraft stock."
"Stock? Not call options?"
"It's too big. Could get caught for insider trading."
"......."
David closed his mouth.
He seems to think my information itself was obtained through insider trading.
Of course, we'll do options trading too.
Not at EXE, but at BE.
Individual stock options are too small for EXE to accumulate.
"Well, shall we go slowly?"
"Yes."
"Where are you going?"
"To buy an airplane."
"......Hehe......."
I think we'll slowly need a private jet too.
I've made a reservation to secure a private jet.
It won't be a very good one, since I'll only use it until the A380 comes out.