Free to Trade

by Michael Ridpath

  ‘I envy people like you. Where do you get all that drive from?’

  ‘Oh I don’t know,’ I said. But I did know. There was a reason for those bitter hours of self-inflicted pain I had suffered as an adolescent, that single-mindedness which Debbie said she envied, and which had cut me off from the carefree enjoyment of life that I saw in other ‘normal’ people. But I wasn’t going to tell Debbie or anyone else at De Jong what that reason was.

  Debbie was looking at me intently. Then her face creased into a broad smile. ‘You’re weird. No you’re not, you’re nuts. You should see a psychiatrist immediately before you end up as a Hamilton Mark II. You are the one with an attitude problem.’

  She stood up and wiped the grass off her dress. ‘Anyway, I have got to go back to the office to polish my nails and you have got to charge into battle for your lord and master. Let’s go.’

  We walked back to the office in much better spirits. It was difficult for Debbie to be depressed for long.

  I stopped at the coffee machine to replenish my caffeine level. As the gritty brown liquid flowed into my plastic cup, Rob came up beside me. ‘Did you see Reuters?’

  ‘No,’ I said, my curiosity aroused.

  ‘Have a look.’ He grinned at me. Bad news I thought.

  I returned to my desk and looked. There was a message on the screen that Congress was considering a change in the United States’s double-taxation treaty with the Netherlands Antilles, a favourite tax haven and domicile for entities which issued bonds. IBM, General Electric and AT&T had all issued bonds through their Netherlands Antilles subsidiaries, as had a lot of less well-known borrowers.

  I sighed. We would have to analyse these tax changes. Someone would have to go through the prospectus of every Netherlands Antilles issuer in our portfolio. It was a pig of a job.

  ‘Debbie? A very interesting situation has just arisen …’

  Debbie interrupted. With her legal background, and the time she had spent in De Jong’s administration department, she was uniquely qualified, and she knew it. ‘I know what you want me to do. You want me to read every Netherlands Antilles prospectus ever printed.’

  ‘Well, er …’

  ‘Don’t deny it. The things I do for this firm. Morons like you blow bucketfuls of money on silly trades, and I get left to do the really glamorous stuff.’

  But she seemed in good humour as she set off to collect the prospectuses.

  Rob had followed me to my desk and perched himself on it, cup of coffee in hand. He grinned at Debbie’s retreating figure, and began idly leafing through some of the research which had accumulated on my desk. Boring stuff. He had his own pile to go through, should he be so inclined.

  ‘Can I help you?’ I asked.

  ‘No. Oh no. Just looking.’ Rob said.

  After a minute or so, he said, ‘Up to anything?’

  ‘Not really. This and that. And you?’

  ‘Nothing much.’

  ‘Are you doing anything interesting today?’ he asked.

  ‘Just the usual.’ I wasn’t going to help him.

  Silence. More leafing through pages. Rob coughed slightly. ‘Did I hear you say Cash Callaghan was coming in with his sidekick today?’ he asked.

  So that was it. ‘Yes,’ I answered.

  ‘By “his sidekick”, do you mean Cathy Lasenby?’

  ‘I think that was her name. Why do you ask?’ I smiled. I could guess very well why Rob asked. He had an intense passion for women. It was not the sort of passion that lies inside most young single men. It was not at all physical. Rob was always in love. The more unattainable the object of his love, the better. In fact, whenever he got too near to consummating his desire, his ardour would cool, and he would find someone new. He had only just recovered from Claire Duhamel. Having finally persuaded her to have dinner with him, he had been driven wild with jealousy by her constant references to a boyfriend in Paris. She had told him that Gaston was the only man for her. He had been inconsolable for two weeks.

  He carried his energy and enthusiasm into areas other than his love life. He was a very emotional trader. He had a ‘feel’ for a market. He would claim his views were based on logic, but that was just rationalisation on his part. He either loved the market or he hated it. He was by no means always right, and when he got it wrong the world was a very dark place. However, like Gordon our chartist, he got it right more often than he got it wrong, which was the important thing.

  Looking at him, you would never have guessed that he was tormented by such strong emotions. He looked very ordinary; light brown to fair hair, a chubby face, a little under medium height. But the frankness with which he displayed his passions had a certain charm. Women found him ‘sweet’ and seemed to be drawn to him, at least at first. I must admit that over the last few months I had found myself developing quite an affection for him. He was fun when he was making money, and I had learned to avoid him when he wasn’t. I am afraid to say I often found his romantic tussles amusing, there was always a new crisis to hear about.

  Rob ignored my expression. ‘I’ve always been fascinated by junk bonds. It sounds as though it will be an interesting meeting. Do you mind if I join?’

  I laughed. ‘No, of course not. It’s at three o’clock. Plenty of time to get to the flower shop across the road.’

  Rob scowled at that, but couldn’t prevent his scowl spreading into a grin as he walked away. I was looking forward to the meeting. Partly I was eager to be getting my teeth into some credit analysis again. Partly I was curious to see the woman who had aroused so much interest in Rob.

  * * *

  They arrived at three on the dot. It was difficult to imagine two more different people. Cash led the way, bustling his short, slightly overweight frame through the door of the conference room and bellowing hallos in his hoarse, loud Brooklyn voice. Cash Callaghan, originally Charles Callaghan, had established a reputation in New York that he had built upon since he had moved to London. He was the ‘top producer’ in Bloomfield Weiss, meaning he sold more bonds than any of the other hundred or so salesmen at the firm. His life style matched this success. The name ‘Cash’ reflected the large amounts of cash he earned, and the large amounts he so obviously spent. If ever anyone was larger than life, it was he. His personality seemed to fill any room he was in. His good humour and his throaty chuckle drew people towards him. He made you feel that you were a special friend of his, and that it was an honour to be a friend of someone so popular, who had so many other friends who were not quite as important to him as you. You wanted to please him, show him you appreciated his friendship. You did business with him.

  Everyone felt this pull, myself included. I did my best to fight it. I didn’t trust him. Partly it was because his small, blue piggy eyes seemed totally detached from his wide grin and bright white teeth. When he and everyone around him were smiling and laughing, those hard little eyes would be darting around, weighing up those around him, looking for opportunities to make the sale. Partly it was because I had suspected him of trying to pull one over on me once or twice. No doubt he succeeded with other clients, and no doubt they were still drawn back to doing business with him.

  Behind this rush of energy came Cathy. She was tall and walked into the room with an awkward, angular grace. Her dark hair was tied tightly back behind her neck. She wore a crisp white blouse under an expensive looking blue suit, with a delicate set of small pearl earrings. She had a figure designed to wear elegant clothes, slim with sharp edges. But I couldn’t help noticing her eyes; large and brown, they carefully avoided contact with anyone in the room. I could see what Rob meant. She had a mixture of untouchable beauty and vulnerability that must have been giving him all sorts of problems.

  As we sat down, Cash began, ‘Paul, I’d like you to meet my new colleague Cathy Lasenby. Cathy, this is Paul Murray, one of our more successful clients.’ With this a broad grin in my direction. ‘Rob, I believe you have met before.’

  Cathy gave us both a thin smile, barely
twitching the corners of her mouth. I nodded to her, and Rob smiled inanely and mumbled something incomprehensible in her direction.

  ‘It’s not many of our customers who are able to spot opportunities as good as the recent Swedish deal, and have the balls to make as much out of it as Paul here did,’ Cash continued.

  ‘Even the foolhardy get it right sometimes,’ I said. ‘There was that other customer, the American who bought fifty million. He must have made good money. I wonder who that was.’

  ‘Oh that was a small savings and loan from Phoenix, Arizona,’ Cathy answered. She had a clear, throaty, slightly haughty voice, betraying an expensive education. I have a weakness for voices like that, hers struck me as remarkably sexy. ‘He often takes that sort of risk. Actually, he is quite good at it.’

  For a moment Cash frowned in evident disapproval. Customers are not supposed to know what other customers are doing. In theory this is supposed to protect client confidentiality. In practice, I suspected that it was to prevent them ganging up on the investment bank in the middle. Cathy had shown her inexperience by breaking this rule.

  She noticed Cash’s disapproval and reddened. ‘But I am sure you can keep that to yourself,’ she added, glancing towards, but not quite at, me.

  ‘Oh, of course,’ I said.

  Cash’s grin returned to his lips. He cleared his throat. ‘As you know, we have come here today to talk about the new high yield bond issue we are going to launch for the Tahiti Hotel. Cathy will outline the details of the deal to you. Before she starts, I just want you to know that we at Bloomfield Weiss think that this is a great deal. It’s going to be oversubscribed several times. This’ll be a blow-out. There’s a lot of money to be made here for the smart guys who can decide fast.’

  I wondered if there were ever any deals Cash sold that were not ‘blow-outs’. ‘Please go on,’ I said.

  Cathy began. ‘You may be wondering what can be riskier than investing in a casino. You’ve heard about “the man who broke the bank at Monte Carlo”. Why should you finance an operation that can be bankrupted by any lucky punter coming off the street?

  ‘Well, when you are on the side of the house at the gaming tables, then your winnings no longer depend on luck, they depend on reliable percentages. Over the long run, the proportion of total bets placed that is won by the casino is remarkably constant. Different games have different percentages. Slot machines are a high-volume, low-margin business. The biggest profits are made from the high-rollers, the top thousand or so gamblers in the world, who bet, and lose, large amounts of money.

  ‘So the secret to running a very profitable casino is to make sure that, when the high-rollers come to town, they spend as much time in your casino as possible. It is with this in mind that the Tahiti was conceived and built. It will be the most exciting and luxurious hotel and gaming complex in Las Vegas. The hotel has a South Sea theme with palm trees, lagoons and a specially regulated indoor climate that adds to the effect.’

  She handed Rob and me a folder with glossy photographs of models of the new casino. The building did look impressive. Its two most distinctive features were a tall white tower, and a large glass atrium filled with trees and water. Rob, I noticed, scarcely looked at the folder, but kept his eyes firmly on Cathy.

  ‘A good location is important to ensure that the casino attracts as many of the casual passers-by as possible,’ she went on, handing us maps of Las Vegas. ‘The Tahiti is located on the “Strip”, between The Sands and Caesar’s Palace. These are two of the most popular casinos in Las Vegas, and we expect that many visitors to these locations will want to step into the Tahiti to see what it is like.

  ‘The casino has two thousand five hundred hotel rooms, including twelve luxury Imperial suites which will be made available free to the target list of the biggest high-rollers in the world. There is also parking space for four thousand cars and a one-thousand-seat showroom, where famous entertainers will perform every night. The aim of all this is not to make money, but rather to attract people to the tables.

  ‘The whole complex will cost three hundred million dollars. It is just being completed now and is due to open at the beginning of September. I would like you to look at the financial forecasts I have here.’ Cathy passed Rob and me two documents. ‘As you can see, the casino’s cash flow is expected to be twice as high as its interest costs in the first year. As you look further into the future, you will see that this ratio rises as the casino becomes more profitable.

  ‘The new bonds will have a coupon of 14 per cent and a maturity of ten years. They will be secured with a first mortgage on the casino, so that if it does not make enough money to pay back debt, then you will become owners of a very attractive property.

  ‘Any questions?’ The haughtiness in Cathy’s voice rose a notch as she threw this out like a challenge.

  There was silence for a minute whilst I quickly looked over the numbers in front of me. The deal did look as though it might be interesting, but there was a lot more I would have to find out.

  ‘I have to admit that I don’t know very much about the casino business,’ I said. ‘And there is a lot more research which I will have to do. But I do have a couple of initial questions. Firstly, what happens to these wonderful forecasts if there is a recession?’

  ‘It’s well known that the industry does not suffer in a recession,’ said Cathy. ‘In fact, occupancy rates increased in the recession of the early eighties. The reason is that people actually like to gamble more when times are hard.’ She looked at me, daring me to contradict her.

  I looked steadily back at her, and didn’t say anything for a moment or two. I don’t like being patronised, however good-looking the patroniser may be. I wasn’t going to let her put me off. ‘I can see that may be true,’ I said. ‘But hasn’t much of the development in Las Vegas in recent years been aimed at making it a destination for the family holiday?’

  ‘Yes. In fact, in addition to attracting wealthy gamblers, the Tahiti is expected to be one of the top destinations for families in the next decade.’

  ‘Little junior has got to learn his poker game somewhere,’ said Cash with a laugh.

  ‘I see,’ I said. ‘But isn’t the family holiday one of the first things to be cut back in difficult times?’

  ‘Perhaps.’

  ‘In that case, won’t there be fewer people coming to Las Vegas in a recession, and won’t profits fall sharply?’

  There was a short silence as Cathy shuffled the numbers in front of her nervously. ‘As you yourself mentioned, you are new to this business. Analysts are unanimous that the effect of a recession on the gaming industry would be negligible. It is well known that during the depression of the 1930s, gambling actually increased.’

  She was floundering, but she clearly wasn’t going to concede my point, so I let it drop. ‘I have a second question. Whenever you are lending money to someone, no matter what business they are in, it is important to know something about them. Who owns the Tahiti?’

  Cathy was quick to answer, on surer ground again. ‘A man named Irwin Piper. He is a well-known investor on Wall Street. He is generally recognised as a winner, his purchase of Merton Electronics ten years ago was one of the great successes of the eighties; he quadrupled his money in three years. He has also been involved in a number of leisure projects in the past, and he has made money out of them. He is a good man to back, believe me.’

  ‘I see.’ I asked another question, ‘Doesn’t Las Vegas have a reputation for attracting organised crime? How do I know this man is clean?’

  ‘Just because he owns a casino, it doesn’t mean he is a crook,’ said Cathy sniffily. ‘It’s true that there were cases of organised crime in Las Vegas in the fifties and sixties, but nowadays the Nevada Gaming Commission runs very strict checks on people before granting them licences to own or manage a casino. If an applicant has ever been involved, or even been suspected of involvement, in any criminal activities at all, then the Commission won’t grant a licence.
I can assure you Irwin Piper is clean.’

  ‘Nevertheless, I feel uncomfortable lending someone money if I have never met them,’ I said.

  ‘Look, if the Nevada Gaming Commission’s thorough investigations aren’t good enough for you, then you will never be satisfied,’ Cathy snapped.

  This was getting seriously annoying. After all, I was the customer. And I wasn’t going to buy these bonds until I could get completely comfortable with the owner, his casino, and the industry.

  Cash sensed this. He had not become Bloomfield Weiss’s top salesman by bludgeoning alone. New junk bond issues carry the highest sales commission, and he was prepared to go a long way to try to land a sale, even if there was only a half-chance of success.

  ‘Look, Paul. If we can get satisfactory answers to your questions, will you buy these bonds?’

  ‘Well, I would need to think about it some more. But there is a good chance I would, yes,’ I said.

  ‘OK. Let me suggest two things. First, Irwin Piper is passing through London in a couple of weeks’ time. I’ve met him. He’s a great guy. I may be able to fix for you to meet him. Have an informal drink. How does that sound?’

  ‘That would be very helpful. Thank you.’

  ‘OK, I’ll call you tomorrow to tell you where and when. The other thing I wanted to mention was our annual High Yield Bond Conference. It will be in Phoenix at the beginning of September. There will be an opportunity to visit the Tahiti in Las Vegas at the end of the conference. You will also get a chance to see the management of a number of other companies that issue high yield bonds. Would you like to come? It should be fun. Cathy and I will be going.’

  ‘Well, thank you very much,’ I said. ‘I will have to check with Hamilton first, but that does sound interesting. I suppose I will get a chance to see the savings and loan Cathy mentioned earlier.’