Buck Out

by Ken Benton

  After lunch the carnage in the bond market increased in severity. Stocks were now rallying as panicking bond investors fled to index funds looking for a safe haven, hoping to make up some of their capital losses. Malcolm now held the most profitable open position of his career by miles and miles. An hour before the close, when Ryan was in the bathroom, he did something unthinkable and doubled his position one last time.

  TBT only surged further into the close. Malcolm held on to his entire position.

  “Well, how’d you end up doing?” Ryan said after the closing bell. “Interesting day, huh? You were going to teach me a lesson, remember?” He laughed. “I know you, Malcolm, so I didn’t say anything. You never looked away from TBT. Guess I threw a wrench into your machinery. Sorry about that. I’m guessing you closed the position a long time ago, maybe when I went to Angelo’s. Probably been kicking yourself ever since.”

  Malcolm stared blankly at his computer screen and muttered, “I never closed it.”

  “What? Well, that’s great! Isn’t it?”

  “Yes and no. Wrench in my machinery is right. Ryan, you joined me at a bad time. I can’t trade while this is going on.”

  “While what’s going on? The bond market sell-off?”

  Malcolm looked up. “Yes.”

  “Why is that, all of a sudden?”

  “Hannah,” was all Malcolm could say.

  “Oh. You think this might be that one golden opportunity?”

  Malcolm frowned and glanced at the lampstand.

  Ryan chuckled. “Don’t feel too bad, buddy. I did the same thing.”

  “What? You bought TBT?”

  “Yep. Went all-in, with my entire severance package.”

  “When?”

  “Yesterday.”

  “That was dumb, Ryan.”

  “Maybe. But I have more than enough to pay for a few special projects now.”

  “You mean you would if you exited your position. Never count your chickens before you’re flat.”

  “I sold it all an hour ago, from my cell phone when I was in the bathroom.”

  Moment of silence.

  “You scoundrel,” Malcolm said. “We’re supposed to be a team.”

  “I promise to straighten up and fly right. Mind if I use your land line?”

  “As long as it’s not to call Jean.”

  Ryan stared back.

  “Oh, all right. Go ahead.”

  Malcolm grabbed two beers from the fridge and tried not to listen to Ryan argue with his ex-wife as he poured them into his favorite pint glasses. On one hand, he couldn’t blame the guy. Ryan only wanted to be able to see his kids. Jean was throwing every possible roadblock, and bleeding him to death with legal fees in the process. But Malcolm wished Ryan would show a little more backbone and stop playing into her hand all the time.

  “Any progress?” Malcolm asked as Ryan hung up. He handed him a beer.

  “Every chip of the stone is progress.” Ryan eagerly accepted the glass and took a drink. “Though you don’t necessarily notice them all as they’re occurring.”

  As Ryan wiped the foam from his upper lip, Welcome to the Jungle started playing from his pants. He pulled his cell phone out of his pocket and answered. That conversation seemed to go a lot more pleasantly. When the call ended, Ryan laughed and picked up his beer again, sporting a wide smirk.

  “Good news?” Malcolm asked.

  “That was Barclays. They fired Dianne today, and just offered me her job. Funny what making correct predictions can do for you in this town.”

  “Wow!” Malcolm looked at the workstation he spent three hours setting up for Ryan. “I imagine you accepted it?”

  “Yes, but after a week’s vacation. They agreed.”

  “Congratulations. That’s really something. So, what about tomorrow? Going to spend the day with me again?”

  “No. I’m headed to West Virginia, remember?”

  “Oh, right. Forgot about that. Well, you’re flat—and Fridays are usually boring market days.”

  “Not for you tomorrow,” Ryan said.

  He was right, of course. But Ryan didn’t have a clue as to how much so. Malcolm was in a precarious position, gambling with more money than a responsible person could ever begin to justify. Yes, he was way ahead at the moment, but uncomfortably leveraged. A big gap down for TBT at tomorrow’s open would wipe out all Malcolm’s gains today plus a sizable chunk of his roll. And who knew what the Fed might do overnight?

  Deep down, though, Malcolm knew he’d been waiting for something like this. The risk/reward ratio was good, and the potential catalyst for greatness existed. It was something a market legend like Jesse Livermore might do. Get rich or go broke trying. This was no longer day trading. Malcolm abandoned that early in the session when Ryan first left the room to make coffee.

  Malcolm was now involved in an all-out plunge to try to win his wife back.

  And Ryan was the one who steered him to the catalyst. He seemed to be the only person on Wall Street who was tuned into it. Malcolm gazed up at his tall friend, who was now acting like he was about to finish his beer and leave. Had anyone given Ryan’s doomsday predictions the least bit of consideration? It was beginning to look like they deserved some respect. Upper management at Barclays apparently reached the same conclusion. If Ryan was right, there was a potential fortune to be made—especially if one already had a head start.

  “All right, Ryan. Sit back down, please. I’m finally ready to listen. And I’m sorry for brushing you off before. Explain to me exactly what you think is happening in the bond market, and where all this is headed.”

  Chapter Four

  Federal Reserve Chair Jill Younger waited an irritatingly long time on hold, especially considering it was the middle of the night her time. When a voice finally spoke, it was the wrong one.

  “Sorry to make you hold, Chair Younger. This is Minister Li Jang. I am honored by your call.”

  “I was holding for Zhang Chun,” Jill said coldly.

  “Yes, I apologize. Governor Chun is unavailable. So I took it upon myself to handle your call personally.”

  As if that was anything to be star-struck over. But Jill wasn’t surprised. She expected the Chinese Central Bank Governor to be the last person on the planet who would take her call under the current circumstances. The Chinese President would be easier to get through to than him right now. Not that Jill cared to speak to him, either. Well, she was going to have her say even if she was stuck with the Minister of Finance.

  “Is Zhang Chun too busy dumping United States Treasuries to come to the phone?”

  “What do you mean, dumping?” Li Jang said.

  “Please, Li, let’s not play games. We know what you’re up to. It’s obvious. In another 48 hours it will become obvious to the entire world, if you don’t stop. Just be honest with me. What is it you want?”

  “We have no requests, Chair Younger. We hope you are well, and that all goes prosperously in the American economy. You are, after all, our largest customer.”

  “Then why are you doing this?”

  “Doing what?”

  “Flooding our bond market.”

  “Flooding?”

  “This is why I wanted to talk to Governor Chun, Li. He talks straight to me, and doesn’t attempt to insult my intelligence.”

  There was a short pause before the Chinese Finance Minister spoke again, this time in a lowered tone.

  “If we choose to rearrange our portfolio of international debt, we do so purely for reasons of our own financial assessment. International securities exchanges are free marketplaces, the kind Americans are so fond of. As such, there will occasionally be periods of increased supply, especially when larger customers decide to lighten their position.”

  “Obviously,” Jill snapped. “But when the two largest holders of U.S. Treasuries—who collectively own more than 25% of our outstanding debt—both decide to unload large blocks at the same time, it does more than simply increase the supply.
You know this. You and Japan are flooding the market, much more than what we can keep up with. Interest rates are jumping through the roof over here. We can’t handle it. This is evidently a coordinated action between you and Japan, and it doesn’t take a sleuth to figure out who initiated it. Rest assured you have our attention. Please, tell me what you want. I have a lot of pull with the President, so I’m sure we can find a satisfactory solution for whatever needs you currently have.”

  “We have no needs, Chair Younger. No requests. I greatly appreciate your hospitality, though, and will pass it on to my President. We shall not forget your gracious offer.”

  An alarm went off inside Jill’s head. He sounded serious. That just couldn’t be.

  Jill softened her tone.

  “Minister Jang, please listen. You’re killing us. If you’ve truly decided to lighten your U.S. Treasury position, for whatever reason, this can be accomplished in an orderly manner. We can buy them back from you privately, in manageable chunks, until you’ve reach your desired level. Without upsetting the marketplace and driving our bond prices into the gutter. It will be much better for everyone.”

  “Again, I thank you for your gracious offer, Chair Younger. We desire no special services, and are content to handle our business on the international exchanges.”

  “Why won’t you agree to sell to us directly, in private transactions? It’ll be faster, and you’ll get a better price. Your actions make no sense, unless they are economically malicious.”

  “Accept direct payments from you in U.S. Dollars?” Li Jang’s voice became stern. “That hardly seems efficient. Some numbers will change on your computers that represent what? Another frivolous increase in the supply of U.S. Dollars? And we’ll receive some numbers on our computers in exchange, that we’ll have to exchange again for yet another set of computer digits finally representing more Yuan in our own accounts. No, we prefer to handle this in our own way. And since we legitimately own the assets we choose to sell, how we go about it is our own affair.”

  Jill’s heart rate increased. Those sons of bitches were really doing it.

  “Minister Jang, please. I’m begging you now. If your country continues with this action, you’ll very likely crash our currency and our economy. Your largest customer could vanish overnight. Then what will happen to your own economy as a result? Have you thought this through? You can’t possibly believe the repercussions in Asia will be light.”

  “I pray that will not happen, Chair Younger. It is my sincere desire that we all prosper together. But the People’s Republic of China must look after itself first and foremost. I thank you for your call. I must go now, as I have other business to attend to today. Let’s talk again soon.”

  “Li, please, no…”

  The next sound Jill heard was a dial tone. She hung the receiver up, and then hung her head on her desk.

  Jill’s intercom crackled. Her secretary, having seen the phone line light go off, talked through the speaker.

  “Are we done, Ms. Younger? I’d like to go home and get a few hours’ sleep.”

  Jill looked up. The world map on the wall caught her eye.

  “Not just yet, Claire. Thanks for staying so late with me. This is important, for everyone. Please attempt to get the Japanese Central Bank Governor on the phone for me.”

  * * *

  Malcolm wasn’t used to sweating the opening bell. Holding overnight positions was something he swore off of early in his trading career, before he started making any real money. He had quickly learned it was a gamble that didn’t usually go his way.

  This morning was different. He wasn’t gambling on some routine position that would affect him one or two thousand dollars. He had his life bet on this one.

  Malcolm hadn’t slept much, and he wasn’t hungry. He didn’t bother making juice or coffee. He just sat there at his desk in shorts and t-shirt—unshaven, unshowered, and unsettled. The TV was tuned to CNBC with the volume up loud. Screw it. He wanted to hear the business news today.

  Yes, he could have lightened his position some in the afterhours market. But not by much. American bonds were all over the place in the overseas markets. So were bond futures in the 23-hour Chicago market. Nothing was steady, and nothing was known. The world now waited on the opening of the New York Stock Exchange to decide what would happen to every securities market on the planet—even those seemingly not connected to stocks. The innate knowledge that Fridays were often negative days for stocks, and had, in fact, set the stage for the worst “Black Monday” crashes in history, hung over the opening bell like a dark cloud no one wanted to acknowledge.

  Malcolm’s right hand tapped on his desk an inch from the mouse as 9:30 approached. Usually, he waited out the chaos of the opening as a disinterested observer. He might not have that luxury today. If bond prices rebounded hard out the gate, he would have to get out before he took too much of a hit. Then he supposed he could stop this nonsense and get back to business as usual.

  Couldn’t he? Malcolm looked at Ryan’s empty chair and found himself wishing for company. That was new. Malcolm usually appreciated solitude while trading. But his house had become too empty for too long. After Hannah stopped coming home in the evenings, Malcolm took to walking around the city at night. Sometimes he would go to the gym, other times he popped into a pub or coffee shop and ate alone. Not having dinner with Hannah left a painful hole in his life. Malcolm found moments of pure joy difficult to come by these days, especially after market hours.

  “The question on everyone’s mind is the bond market,” the CNBC anchor said. “After yesterday’s severe sell-off, the country’s largest mortgage lenders have halted issuing loan commitments until interest rates settle. Jim Cramer is here to tell us the sky is not falling.”

  “That’s right,” Jim Cramer said in his usual energetic manner. “The bond market is years overdue for a correction. Years, I tell you! Did you really think banks would be paying zero interest on savings accounts forever? And that fixed rate mortgages could stay under 5%? Take a look at history—that’s insanity! This environment has overextended itself far too long, and the Fed knows it. It’s unfortunate we have to get the correction in such a jarring manner, and that borrowers with home loans in process may lose them as a result. But that’s what you get when you allow politics to meddle with the economy more than necessary. The free market always wins in the end. The more you prolong that, the more shocking the snap back to reality will be. When all this settles down, expect an environment that rewards savers more and borrowers less going forward. That means there should be some good picks in the financial sector right now. Tune into Mad Money tonight and I’ll give you a few of my favorites.”

  “That sounds refreshingly optimistic, Jim. We’ll be sure to see what opportunities you’ve identified for us later today. And now we take you to the floor of the New York Stock Exchange for the opening bell.”

  Malcolm leaned forward and placed his hand on the mouse. His primary trading account was open on the screen, showing his current positions next to the chart for TBT. He also had a bond futures chart open. His broker’s phone number was the first speed-dial number on his phone, in case the internet went down. Power outages were one thing he didn’t need to worry about, as all his computer equipment was patched through a back-up power supply unit.

  Showtime. The opening bell rang. Stocks started trading. A deluge of opening orders was dumped on the market for everything interest-rate related. The volume on TBT shot off the chart. The price, unfortunately, didn’t.

  But neither did it drop much. What it did do was dance like a teenage punk-rock fan at a concert. Twice the price fell far enough to almost make Malcolm hit the button for a market-order sell.

  Almost.

  Then TBT shot up. Away from yesterday’s close into new territory. It began trading sideways from there. Malcolm leaned back in his chair. That gave him some breathing room. He lived through the first fifteen minutes.

  “The Federal Reserve has just
issued a new statement,” a voice on the television said. “According to Chair Jill Younger, the current selling pressure on the bond market has become too severe, and the Fed is once again stepping in to aggressively buy back Treasuries in an effort to prevent runaway interest rates…”

  Malcolm stopped listening and leaned forward, grabbing the mouse again. That was it. Game over. This is why he normally refused to trade bonds. It wasn’t truly a free market. Not when one huge player had unlimited buying power.

  Something was wrong with Malcolm’s hand. His index finger wouldn’t obey the order from his brain to click the sell button. Dammit! This was no time for conflict. His bankroll was at stake. The jig was up, man. The Fed was stepping in and killing the party. And look—TBT is falling back from its new range. That was the top. Get out! Click the button, you stupid finger!

  Ryan’s voice suddenly echoed through Malcolm’s mind. What he said last night—about the Fed desperately buying back bonds with everything they had for the last two weeks and still being unable to make a dent in the sudden glut of supply. The statement Younger just issued might be a bluff. If Ryan was right, it was likely a desperate last-ditch attempt to prevent a potential economic nightmare. Malcolm eased his hand away from the mouse.

  TBT’s retreat was sharp, but brief. Ten minutes later it not only climbed back to the recent range, but surged past it. Ryan was right—and the market now knew it, too. Thank you, finger! Malcolm had nearly been shaken out with the suckers.

  A beam of sunlight sparkled off the gold frame on the bookshelf that held Malcolm’s favorite wedding photo. Malcolm looked up. Hannah smiled back at him with a love too genuine to ever fully subside.

  Malcolm started thinking about Ryan’s other predictions. Quickly, he pulled up a chart on GLD, the largest exchange-traded gold fund. The price was mostly sideways on the daily chart, but starting to staircase up on the hourly.

  Malcolm opened the options chain and found a far out-of-the-money call with a six-week expiration. There was a decent supply for sale at ten cents, or $10 per 100-share contract. Malcolm checked the equity in his account, and then hit the offer. He wiped out a good chunk of the supply for sale. He entered another order and hit the button again. There went the rest of his cash balance, into highly speculative gold options.