The Last Trade

by James Conway

  “If that,” the bottle girl answers, glancing down at her cleavage. “But you don’t get this in a liquor store.”

  “This is true,” Havens says. Then a voice interrupts. “Hey!” It’s Laslow, Elysian’s bouncer/manager/pimp. In the past three weeks alone Havens has seen Laslow, a white man with a shaved head whose uniform is typically a black leather jacket and biker boots, deliver comp bottles of Dom Pérignon to his table and drag two rowdy men out of the club by their necks, without the assistance of bouncers, like rag dolls. Laslow jerks his head at the girl. Move on from the geek. There’s money to be made elsewhere. As the girl leaves, Havens closes his eyes. He’s tired. This morning he got into work at five, just as he always did. He checked the foreign overnights. Job numbers. Tokyo. Hong Kong. The futures. Credit swaps. European debt. Consumer confidence, or lack thereof. Housing. Then he checked his life’s work, his models. A quantitative analyst designs and implements mathematical models for the pricing of derivatives, assessment of risk, or predicting market movements. There are many kinds of quant, from capital quants who analyze a bank’s credit exposure, to model validation quants who ensure that their employer’s financial strategies are correct, to Havens’s area of expertise: statistical arbitrage quant. A stat-arb quant, most commonly found in a hedge fund, looks for pricing anomalies and future volatility in financial securities, instruments, and sectors—and conjectures their imminent success or failure.

  His professional life’s work has been data mining, extracting trends and patterns and answers to questions about which he’s been rapidly losing interest. Some analysts will also read all the papers and industry publications that they can, the Journal, the Economist, the Financial Times, or the micro-trend-based ramblings of the latest financial blogger on a roll, but Havens avoids all that. He believes that opinions and words are rooted in emotion, and emotion gets in the way of the numbers.

  Words have multiple meanings, manipulate behaviors and bend truths.

  Numbers do not. Numbers are truth.

  For instance, numbers like one hundred grand for another night on the town with a couple of high-net-worth yahoos with a fortune in the fund. The festivities started soon after the markets closed, with drinks at Salvado’s table at Cipriani. Hank Paulson stopped by to slap Salvado’s back. Jamie Dimon from JP Morgan Chase paid tribute with a joke. At the next table was the SEC honcho trying to bring down Raj Rajaratnam, but no one stopped by there to say hello.

  They followed drinks with dinner in a private room at Del Posto in Chelsea, during which they were visited by none other than Molto Mario Batali himself. For dessert, they were served cigars and cognac while a flat screen was rolled out for the gathering to watch and gently heckle Salvado’s appearance earlier this morning on CNBC’s Squawk Box. During his cameo, Salvado’s image was accompanied by the text crawl: Salvado: Still Bullish on America.

  Of course he is. What other choice did the head of a fund called The Rising have? You don’t co-opt a Springsteen song and play off the jingoism of 9/11 and then talk down the American economic future.

  They kiss Salvado’s ass on Squawk Box and just about everywhere else in the financial press these days because, thanks to Havens’s numbers, he was one of the very few to have had foreknowledge (or fore-inklings) of the sub-prime mess and who had the balls to act and make a killing on it.

  And because, as the crawl inferred, he’s still betting all-in on an American economic recovery.

  Havens’s mobile device buzzes. It’s Weiss again. The young quant pup Danny Weiss has been calling Havens for days, raving about the direction of the fund and some broader, potentially more duplicitous concerns that have arisen. After the phone stops buzzing, the text icon pops up. Because he’s bored, and because a few crazed lines from Weiss are better than any of this, Havens opens the message. It reads:

  . . . wilt thou not be brotherly to us?

  Havens stares at the small screen and shakes his head. It’s perplexing, but he can’t be angry. After all, he’s the one who started this, asking Weiss to take a thorough look into the fund’s holdings because as much as he wants them to, the positions currently held by The Rising make no sense to Havens. Part of him hoped Weiss would come back and alleviate his concerns and tell him that, after careful consideration, he can say that Rick Salvado’s investment philosophy is backed by sound numbers and models and the Rising Fund is poised to have a killer fourth quarter. But instead Weiss quickly went off the deep end and insisted—without anything of substance to back it up—that things are far, far worse than Havens had thought. Havens told him to dig deeper and Weiss hasn’t stopped, which is fine. But texts such as this . . .

  . . . wilt thou not be brotherly to us?

  . . . have Havens worried, not just about the future of the fund, but about the psychological condition of the sharp young guy he hired, and one of the few in this business he actually likes.

  He lowers his head and rubs his eyes. From Del Posto ($11,600) they took two limos and Salvado’s Bentley to this place. Last year they would have gone to 1Oak or Provocateur, or the less subtly named Boom Boom Room. Tonight, at least until a more freshly decadent establishment bumps it off the Venue of the Moment map, it’s this place: Elysian. On the way in, as they were led past the crowd of wannabes outside the velvet rope, Havens quipped to his group, “Welcome to Elysian, the final resting place of the heroic and virtuous,” but either no one picked up on his mythological reference, or they pretended not to hear him.

  For Havens the lack of response was one more piece in a mounting pile of evidence that his time with Rick Salvado has reached its expiration date. Havens has been the prized quant for Salvado’s already legendary Rising Fund for four years, but as one slightly older analyst recently told him, “Four years at a hedge is like four hundred in human years.”

  This is the tradeoff when you are a CUNY-educated nobody, a socially challenged numbers freak who was given a chance to make millions before the age of thirty, plucked seemingly without reason from a going-nowhere back office job in Long Island City crunching derivatives for Citi, and dropped in the role of a trusted quant, an advisor to a genuine master of the universe. It’s also what happens when you have a God-given gift for turning numbers into gold.

  Havens’s phone buzzes. He checks the screen, thinking that it might be Miranda, his former wife. But it’s not. It’s Danny Weiss again. When Havens made it big they moved him up, farther from the numbers and into a spotlight he does not covet. He was told to hire replacements. Protégés. The only must-hire was Weiss. Havens would like to think it was because he saw something of himself in the young, outgoing, and passionate kid. But it’s really because he saw the person he wished he could be. Again he doesn’t answer but again reads the text. Even Weiss’s most cryptic and scatological notes are preferable to his present company.

  This time the text reads:

  Berlin. 12.42-6

  Please, Havens thinks, keep it together for me, Weiss.

  2

  New York City

  Danny Weiss is having a hard time separating world-changing truth from amphetamine-fueled, sleep-deprived hallucination. A deadly and complex global conspiracy or a fraying string of bizarre coincidences?

  Spending three sleepless days holed up in an Upper East Side one-bedroom apartment, hunched over a PC, piecing together a growing web of information while consuming massive amounts of highly caffeinated soft drinks and an ex-girlfriend’s diet pills will do that to a mind. Yet for the first time one of his paranoid global conspiracy theories seems to be making sense. Exactly how much sense and how bad this might be is hard to tell because the evidence is far from complete, and he’s exhausted and wired.

  But still. It’s not as if he’s an unemployed eccentric. He’s a young, highly trained desk quant employed by one of the world’s leading hedge funds. And he’s certain: The Hong Kong activity that�
�s been coming over the wires is not a hallucination.

  If anything, coupled with the growing collection of quotes and symbols and models he’s been building, gathering, and holding up against the positions of the firm, it is a validation and a confirmation, the first of the series of trades that he’s convinced will end in catastrophe. What level of catastrophe he’s not sure. But the clues and the chatter, the scatter plot results, the mean and median correlations, the linear progression, and yes, the vibe (which, he admits, very well might be speed-related) all seem to validate his operational and predictive models and portend something on a historically disastrous scale. Starting now and, best he can tell, culminating this Friday. And while he hasn’t quite put together all of the pieces he’s certain that somehow The Rising, the fund he works for, is directly linked to it all.

  And this conclusion isn’t simply deduced from the algorithm of some black box, data-crunching computer model. He employed logic, reason, and intuition, at least to the extent that any of the three exists in the financial world these days. He probed beyond margins and yields and index spread over benchmark and considered the human aspect of the questionable moves. The broader societal shifts, the management teams in place at the securities, their competitive advantage, and the political climate—he tried not just to calculate the numbers, but also to understand them. And still, they make no sense. Unless you’re the sociopath behind them.

  He steps away from his desktop, stretches, and looks at his phone. Havens, his boss, mentor, and only friend at the Rising Fund, still hasn’t answered any of his calls or texts. This doesn’t surprise him. Havens is notoriously tech-averse and hard to reach outside the office, not that that has ever stopped Weiss from trying. He’s tempted to go down to Del Posto or Elysian or whatever decadent club they’re at tonight and drag Havens out by his collar, but he knows such a drastic move could backfire with a low-key guy like Havens. Several times in the past he’s cried wolf and been wrong with Havens, and this time he wants to be right before he makes another scene. Havens is the only person who would believe him and the only one he trusts. Plus he’s the one who put him on this path, so Weiss doesn’t want to blow it.

  He sits back down, puts on his headphones—the neighbors shut down the big speakers months ago—and goes back to work and listening to the Clash. Lately his musical choices have been all late-seventies punk all the time. He’s deemed it the official soundtrack of overthrowing institutions. The problem, he realizes, is no one hears it quite that way anymore.

  He decides that the best way to get Havens to listen is to remain calm and not harass him. He tells himself he needs to chill and continue to discover the truth. He shuts down the Bloomberg software terminal and clicks on the flash drive icon on his screen. Two weeks ago he procured a proprietary piece of highly sophisticated tracking software from the hacker friend of a hacker friend. Two days ago, while tracking activity involving the securities in the Rising Fund at the behest of Drew Havens, he came upon a number sequence dispatched by a server in Berlin that eventually took him behind the firewall at Hang Seng Bank in Hong Kong. And now today, a massive series of trades of American securities is going down at Hang Seng that is taking the exact opposite short positions to the Rising Fund’s longs on the same stocks. As he watches it unfold, he’s even able to find out the name of the Hang Seng broker executing them: Patrick Lau.

  His next click, prompted by the number sequence out of Berlin, takes him to another series of trades, all shorts, just like in Hong Kong, commencing out of Dubai and, curiously, also the mirror opposite of positions held by The Rising. As he leans closer, his screen blinks on and off. When it comes back up, the Dubai page is gone and a Spyware warning briefly flashes in the upper left part of the screen. Wired or not, he knows that this isn’t a hallucination and that it’s entirely possible that someone out there might be tracking him, tracking them.

  He grabs a red flash drive on the right side of the desk and plugs it into port. Because he won’t look into any of this on the office computers, everything he has is on this big, clunky desktop. In case he has to run, he wants to have some kind of backup, and to at least have a copy to give to Havens.

  While the files are loading, he switches back to Bloomberg and keeps an eye on the Berlin numbers and tries to formulate a model or theory that might make sense of them. What do these transactions have to do with the Rising Fund, and who in Berlin is behind them?

  He’s still staring at the screen when a new message appears at the bottom of the Berlin page. He reads it, then does a search. After a few moments the software generates two slightly different variations on a response, both of which roughly translate to

  kill Patrick Lau

  3

  New York City

  Havens puts his phone back in his pocket as Salvado stands. Salvado straightens his tie and shouts over the house music, over the bluster of the men, the cackles of the play-for-pay women, and the primal roar of the dance floor below, “A toast!” He raises his just-filled flute of Cristal, and the rest of the table joins him, including the young, blond, Russian “model” who’s been pawing at him since she was brought to the table. Watching the model, Havens can’t help but think of Salvado’s soon-to-be-ex-wife and kids and the speech that Salvado gave to him when he first started at The Rising, about the firm’s unwavering commitment to fidelity and loyalty, to work and family.

  “A toast to the long and the short of it. But . . . ,” Salvado pauses, “. . . but this time around, especially the god damn long!”

  They drink and cheer, but Salvado, not yet finished, hushes them. “This has been one of our most difficult years. Many clients who have prospered greatly from our advice in the past have begun to grow skittish. Many more have publicly doubted us. Our confidence. But we have not wavered from our path and our vision. We have not let opinion dissuade us from doing what is right and what will ultimately be beneficial for us all. We’re on an epic journey, an epic tale that is still being written, and when it’s all over, it will be remembered as one of the great ones. To those who have stuck with us, and are poised to reap those rewards—sooner than later, I promise!—I salute you!”

  After the cheers rise and fall, Salvado raises his hand to make one last salutation. “And finally I’d like to make a special shout-out, a toast to the man who a few years back got right what 99.9 percent of the financial world got wrong. The man who immersed himself in the data and saw the potential to make billions on the sub-prime misery of the masses and walked into my office one day with the numbers to prove it. This is the man who is getting it right all over again, readying us for another major event, guiding us to zig while the rest of the street zags: the Nostradamus of Numbers, the King of the Quants, and my pal, give it up for Mister Personality, Andrew Havens!”

  Havens raises his glass, fakes a sip, and grimaces more than grins along with the applause. As he bends to sit back down, he knocks over his drink and the others laugh at his social ineptitude. While he reaches for a napkin to clean up his mess, his phone buzzes again.

  This text reads:

  Murder @ Hang Seng

  4

  Hong Kong

  The financial world does not like Mondays.

  Especially in the autumn. See Monday, October 28, 1929, October 19, 1987, and, of course, September 29, 2008.

  No one is more aware of this than Patrick Lau, a twenty-nine-year-old trader who lost everything and then some in the fall of 2008. He lost his client’s money, his employer’s money, and, of course, his own. There had been warnings, but as is the case with so many people who have only enjoyed success, even in 2008 Lau felt that he was immune to failure. After the crash, he downsized his lifestyle, sold what he could, started over, and tried to hang on.

  Up until a few hours ago even that was in question. When he left for work this morning, he was fairly sure that he’d have to move out of his
apartment and perhaps leave Hong Kong and the financial services industry altogether. But now that all seems to be changing for the better.

  Autumn Mondays and overwhelming personal debt be damned.

  It’s amazing how a random phone call from a complete stranger can change everything. Lau can’t move beyond this thought as he walks through the door of a seventeenth-floor condominium in the Wanchai District of Hong Kong, a condo that he will not have to abandon after all. Amazing how one call from someone whose name he still doesn’t and may never know can change a life, a career, and, in Lau’s case, save the ass of a broker on the precipice of bankruptcy.

  He glances out the living room window and thinks of the prospect of a born-again, amazing life as dusk falls upon the city. In the distance he can still make out the silhouette of Victoria Peak, and in every direction the rooftop lights of the towers that rim the harbor have begun flashing, illuminating the world beneath in a neon, Technicolor rainbow.

  After so many bad ones, this has been a good day for Lau. Indeed, after a brutal couple of years it seems as if things are finally beginning to turn around. Of course, nothing like the millennial boom times with the coke and the raves and the spontaneous junkets to Bali and Phuket. But definitely better, especially on his small piece of real estate on the U.S. trading desk. Especially today.

  Just after noon Lau received a phone call from a man at a firm called Siren Securities in Berlin, representing an American investor interested in taking a short position on a series of American-based tech stocks. Lau didn’t typically take this kind of call seriously. Every day, especially since the crash, he’s received similar inquiries from eccentrics and loons and amateurs without the funds or credentials to back up their claims. But there was something about this caller, the authority of the man’s voice and the specificity of his intentions, that piqued Lau’s curiosity.