Chapter 4
Early Signs of Comfort
Early, 1998, Long Term ka mood relaxed hai, Hilibrand kareeb half
billion ki net worth pr hai, meriwether bhi low hundereds of
millions pr, risk bhi control mein hai, according to their models,
Long Term ek din mein maximum 45m$ hi loose kr skta hai, abhi tk
fund ne sabse kharab month me bhi sirf 2.9 percent hi loose kiya
tha, Statistically, Long Term ko ek saal me saara capital loose krne
ke liye ten sigma event lagega, 1 in 10^24. Partners money loose
krne ke liye anxious nhi hai, woh anxious hai ki unhe enough
investment nhi mil rhi jaha woh profit kr ske, Ek bar toh Hilibrand
Buffett ki firm Berkshire Hathaway ko short kr dete hain, kyonki
unhe yeh overpriced lagi, (jisme unhe 150m$ loss hota hai)(need
check)
Internal Cracks
Scholes warn krte hai positions ki size ke liye, kyoki abhi firm ne
kuch bahut badi trades le rkhi thi jisse exit krne me unhe problem
hui thi, Lekin tab bhi Hilibrand aur Haghani nhi sun rhe, Long Term
ko do senior Trader totally dominate kr rhe, aur yeh partnership
sirf naam ki rah gyi hai.
April Optimism
April mein, Market me positivity hai, Sandy Weill uss time ka sabse
bada financial merger announce krte hai, Travelers aur Citicorp ka,
Spreads sabse kam hai, First quarter flat rhne ke baad Long Term
April mein kareeb 3% earn krta hai,
Russia Crisis Begins
Russia me financial crisis chal rhi thi, Soros jaise speculator
jinhone asia se billions pull kiye hai ab russia ke devalutation ko
speculate kr rhe hai, Lekin Russian Central Bank ke chairman bolte
hai Ruble me koi devaluation nhi hoga, Russia ne interest rates
triple kr diye hai, russia ki economy already weak thi aur ab
collapse ki taraf ja rhi hai, Long Term ke bet kiye hue spreads wide
hone lagte hai, Fund abhi tk ka sabse kharab month dekhta hai
loosing 6.7%, America me bhi slowdown ke signs dikhne lagte hai, IV
27tk pahunch gyi hai, June me fund aur 10% loose krta hai,
Salomon Exit Shock
Salomon ke arbitrage group ko bhi loss ho rhe the, weill announce
krte hai arbitrage group ko close kr diya jayega, salomon ne Long
Term jaisi similar trades le rkhi hai, aur salomon apne assets sell
kr rha hai, jisse Long Term ka portfolio aur negative ja rha hai,
Isse aur bura kya ho skta tha, Salomon Arbitrage se exit kr rha hai
yeh news public ho jati hai, Wall Street pr aur fear fail gya, Lekin
Long Term ko pata tha, aise ek do mahine jarur ayenge losses ke,
long term 134b$ ke assets hold kiye tha jisme woh kuch asset sell kr
deta hai, ab 128B$ ke asset hain, aur leverage pahuch gyi hai 31,
unke model ke according unhe ab risk kam kr liya hai, phle unke
model ke according woh ek din me max 45m$ hi loose kr skte the aur
ab sirf 34m$ hi loose kr skte hai,
Russia Bailout & False Hope
IMF aur other nations, Russia ko 22.6B$ ka conditional bailout dete
hai, jiska bahut saara amount russian mafias ne country ke bahar
transfer kara liya, Investors abhi bhi ek hi cliche maan rhe hai –
'Nuclear power kabhi default nhi krti' Long Term me haghani ko bhi
lag rha hai russia apni currency ko fail nhi krega, Lekin phir bhi
Long Term ko pata tha default ho bhi skta hai lekin professors ke
model ne usko bhi forecast kiya ki uska long term pr kya impact
padega, lekin sawal yeh hai kya sach me itni complex situation ko
forecast kiya ja skta hai, Churchill bolte hai 'I cannot forecast to
you the action of russia, It is a riddle wrapped in a mystery inside
an enigma'
July: Calm Before Storm
July Fund ke liye flat nikla, Short term interest rates 200% tk
pahuch gyi hai, Globally market me kuch na kuch negative ho hi rha
hai, Russia me financial crisis chal rhi hai, asia recent financial
crisis ke baad fir weak ho rha hai, China apni currency ko devalue
kr skta hai US president Clinton ka sex scandal,
August Losses Mount
Long Term August me money loose krne lagta hai, Salomon abhi bhi
apne assests sell kr rha hai, yeh long term ke liye ab headache ban
chuka hai, August 17, Russia finally devaluation announce krta hai
aur apni borrowings pr partial default, lekin market me instant koi
fark nhi pada, chase ke ek official bolte hai 'unhe russia koi jyada
bada issue nhi lagta' jinhe abhi nhi pata ane wale 6 hafto mein
chase ka stock 50 percent se jyada girne wala hai,
Black Friday
3 din baad default ke markets weak dikhne lagi, Thursday ko kuch
markets me impact dikha, lekin agle din 21st August, Friday, Stock
markets asia mein europe mein har jagah gir rhi hai, har jagah logo
ko ab safe investment chaiye, bonds ke spread bhi wide hone lagte
hain, Long Term ke bet ka opposite, Merger Arb me bhi fund uss din
150m$ ka loss hota hai, jaha partners ne calculate kiya tha ki woh
maximum 35m$ se jyada loose nhi kr skte ek din mein, uss din fund
553m$ loose krta hai,
Emergency Meeting
Partners around the globe vacations pr the, unhe call kiya tha hai,
Sunday ko emergency meeting rkhi jati hai, Meriwether saari
positions ka overview lete hai, Ab meriwether ke pass do options
hai, phla assets ko sell krke risk kam krle, lekin trader unhe
report krte hai ki woh market ko bina move kiye sell nhi kr skte,
mtlb ki agr asset ka part bhi sell kiya toh overall assets ki prices
aur kam ho jayegi jisse aur loss hoga, dusra, raise new capital,
jisse ko ek cusion milega jab tak trade normal nhi ho jati tab tak,
Lekin fir bhi leverage bahut jyada badh gyi hai isko kam krne ke
liye kuch toh sell krna padega, lekin kya? Ek possible area hai
merger arbitrage ke portfolio ko sell kiya ja skta hai, jo ki abhi
tk 5B$ tk pahuch gya hai, jisme Long term 500m$ tk loose kr skta hai
aur capital loose nhi afford krta fund ab, (need check)
Buffett Approach
Same Sunday night Rosenfeld, Buffett ke ghr omaha fly krte hai,
Kyoki buffett se better koi nhi ho skta iss deal ke liye, jisko itni
badi size me deal krna aur merger arbitrage phle kiya ho, aur prices
bhi ab attractive ho gyi hai buffett ke liye, Buffett rosenfeld ko
sunte hai lekin buffett batate hai, unhe kafi time ho gya hai merger
arbitrage kiye aur abhi woh updated nhi hai isse toh deal nhi hui,
Fund ko 1B$ raise krna hai.
Dialing for Dollars
Agle din(24 Aug), Partners started dialing for dollars, Meriwether
George Soros se breakfast pr 1B$ raise krne ka proposal rkhte hai,
Sorors jinko ek aur naam se bhi jana jata hai 'The Man who broke the
bank of england' Soros bolte hai, woh 500m$ invest krne ke liye
ready hai agr waki ke $500m Long Term kahi aur se raise kr paye, woh
bhi August end ke phle, Rosenfeld Morgan me call krte hain, Morgan
do team Greenwich bhejta hai, ek bonds ki book dekhne ke liye dusri
equities ki ki, Morgan ke chairman batate hai woh 200m$ Morgan se
dila skte hai, ab sirf 300m$ hi Long Term ko aur chaiye, Fund ki
equity 2.7B$ pahuch gyi hai (25th Aug)
More Rejections
Meriwether Merill Lynch ke president Herb Allison ko call lagate
hai, woh batate hai ki woh capital raise kr rhe hai aur bhi bade
investor deal me aa rhe hai agr merill bhi 300-500m$ invest kr ske
toh, Allsion sochte hai yeh bahut bada amount hai ek hafte me raise
ke liye woh decline kr dete hain, Goldman Long Term ko finance kr
rha tha, Goldman ke head meriwether ko warn krte hai 'tum log enough
information nhi de rhe ho, isse tumari credit lines damage ho skti
hai' Aur bhi banks Long Term ko aur information ke liye push krne
lage, jisse uski positions dhere dheere leak hone lagi,
Global Freefall
27th August, Global Markets me freefall ho rha hai, Tokyo (-3) 12yr
Low Russia (-17) -84YTD London (-5) Spain (-6) Brazil (-10) Dow (-4)
Fund -277m loose krta hai, ab capital 2.2B rah gyi hai, Bankruptcy
de dar se meriwether apni property wife ke naam tranfer kr dete
hain,
Brief Relief
28th Aug, Surprisingly Friday ko Long Term 128m$ earn krta hai,
Last Resort Calls
29th Aug, Meriwether Dutsche Bank me contact krte hai capital ke
liye lekin yaha se bhi unhe kuch nhi milta, Meriwether ke contacts
khatam ho rhe hai, Bahut se senior log jo Long Term ki madad kr skte
woh summer ki wajah se vacations pr hain, 'When you need money, Wall
Street is a heartless place'
The Final Collapse
31st Aug, Hong Kong Monetary Authority jo ki local shareds ko buy kr
rhi thi, Monday ko support krne ke liye, Monday ko woh bhi buying
band kr deti hai, ek aur safety net tut gya, local bourse 7% girta
hai, wall street pr aur loss trigger hote hain, Dow 6% crash hota
hai, Bond Market me koi liquidity nhi hai, trading jaise ruk si gyi
hai, Soros ka offer bhi gya ab, Ab Long term ki capital 2.28B$ rah
gyi hai aur 125B$ ke assets abhi bhi hold hai, Leverage kareeb 55tk
pahuch gyi hai, Incredible amount of risk.