After dinner at the club, He Zhengcheng didn't join their activities, even though a few people there seemed to appreciate him.
But even a homebody knows that entrusting one's fate to others is an extremely irresponsible idea.
Proving himself, proving himself—this was his most urgent task at hand. One was to make his prediction a reality, and the other was to earn his first pot of gold through this prediction.
"I'll head out first. Tomorrow, I need to create a new song with Ge Ge Zhang Guorong, so I need to rest early today," He Zhengcheng said.
"You can write songs too?"
"I used to have a band in college, but it was just for fun. This time, I suddenly got an inspiration, and I happened to meet Ge Ge at the bar. He was very interested, and I also want to perfect this song," He Zhengcheng explained.
"What kind of song?" those who were interested in him asked.
"A song about the Great Sage Equal to Heaven, Sun Wukong!" He Zhengcheng replied.
"Then I'm really looking forward to it! When will you release it to the market?"
"Who knows? Forget it, I won't talk about it anymore, I'm going back first!" He Zhengcheng feigned annoyance.
"I'll give you a ride!" Xu Xin offered.
"Alright! That would be troubling for Sister Xu," He Zhengcheng said.
The two then left the club, chatting and laughing along the way, discussing the unfinished song. He Zhengcheng was like an immature child showing off his toys in front of an adult.
At a fork in the road leading into the garage, Xu Xin stopped.
"Do you have any other ways to exacerbate Long-Term Capital Management's losses?"
"..." He Zhengcheng hesitated, falling silent. Xu Xin didn't press him.
"Could you introduce someone who has connections on Wall Street and can gather all sorts of information about Long-Term Capital Management? We could co-write a paper, arguing for the possibility of Long-Term Capital Management's bankruptcy and its potential impact on the United States," He Zhengcheng suggested.
"Okay!" Xu Xin didn't hesitate.
"Long-Term Capital Management's primary profit methods include credit spread trading, volatility trading, and equity merger arbitrage expansion.
Long-Term Capital Management viewed the gradually increasing market volatility, credit spreads, and tightening market liquidity as good opportunities to earn liquidity premiums.
Long-Term Capital Management believed that the high volatility and credit spreads at the time, which deviated from their historical averages, would soon disappear. Based on this judgment, Long-Term Capital Management increased its illiquid positions: shorting liquidity, shorting credit spreads, in anticipation of profiting from situations such as rising Treasury yields and decreasing stock market volatility.
If Russia's crisis continues, or even defaults, or if funds heavily sell off their fixed-income arbitrage positions and flee to high-quality assets,
this would cause the prices of originally overvalued bonds to continue rising, and the prices of originally undervalued bonds to continue falling: in other words, the spread between the two would not only fail to narrow but would further widen.
Let me put it this way: the more dangerous the world becomes, the safer America becomes, the faster capital flows into America, and the faster Long-Term Capital Management loses money. If Hong Kong surrenders tomorrow, and a large amount of capital flows back to America, Long-Term Capital Management will go bankrupt the day after tomorrow.
We only need to give a push at the critical moment, and it wouldn't even require much capital, to inevitably lead Long-Term Capital Management to bankruptcy," He Zhengcheng explained.
Long-Term Capital Management's profit model is very simple. They believe that the price of Apple should be $2 per kilogram, and no matter how the market changes, it will eventually return to this baseline price of $2.
So, when the price of Apple is higher than $2, they borrow Apple, sell it, and convert it into cash.
When the price of Apple is lower than $2, they borrow cash and buy Apple.
Under normal circumstances, the price of Apple will not deviate too far from the baseline of $2 per kilogram, so Long-Term Capital Management's use of 50x leverage for similar operations is not dangerous.
Now, suppose Long-Term Capital Management borrowed 1000 kg of Apple at a price of $2.2 per kilogram, converting it into $2200.
Long-Term Capital Management's leverage is 50x, which means their principal for purchasing 1000 kg of Apple is $44.
If, after a period, the price of Apple returns to $2, they would have earned $200 with $44.
However, if a market problem arises, such as a natural disaster in a major Apple producing region leading to a sharp drop in output, the price of Apple will inevitably surge.
If the price of Apple rises to $2.5 at this time, 1000 kg of Apple would be worth $2500, and Long-Term Capital Management's loss would exceed $300, far greater than their $44 principal.
Once losses occur, bankruptcy is inevitable. However, if given time, with Apple from overseas markets flooding in, the price of Apple would still return to normal. Therefore, Long-Term Capital Management's crisis is actually a crisis of time.
After He Zhengcheng finished speaking, he turned and left directly, not taking Xu Xin's car.
Back home, after greeting his parents, he returned to his room to organize and dispose of some sensitive information he had written down these days. Then he made some preliminary preparations for the Asian Financial Crisis and Long-Term Capital Management.
To be honest, He Zhengcheng wasn't entirely convinced by some of his previous views, but if he could quickly make his views known to the public, it could at least increase everyone's confidence.
This was equivalent to a pre-war mobilization, giving employees or soldiers a boost, making them believe that the enemy was not invincible. Just like Qi Jiguang tossing a coin before battle to give his soldiers confidence, just like a certain American president said, confidence is more precious than gold.
When the fake is true, the true is also fake; where there is nothing, there is also something. No one in this world can grasp all things, and sometimes even those who personally experience these events find it difficult to summarize the reasons for failure or success.
Irrational things happen from time to time, which is the biggest reason for the uncertainty of this world. Looking from today, the fact that Russia and the United States did not break out into nuclear war does not mean that we, living in that era, could ignore the possibility of nuclear war.
Who knows, going back to the past, if some madman, unable to bear immense pressure, might suddenly erupt... Little people changing history is not without precedent.
Returning to the Asian Financial Crisis, Long-Term Capital Management's losses in this crisis were inevitable. This was because a large amount of capital flowed back to the United States, choosing safer financial assets rather than higher-yielding ones. This irrational behavior caused Long-Term Capital Management's current strategy to incur losses.
Even if Russia didn't default, the company's huge losses would still be unavoidable. In fact, one could say that the faster Hong Kong failed, the greater the likelihood of Long-Term Capital Management's bankruptcy. It's just that Wall Street might not realize it yet!
There's another contradiction: the information that could trigger Long-Term Capital Management's potential bankruptcy would lead foreign capital flowing into America to pursue safer assets, which would indirectly accelerate Long-Term Capital Management's bankruptcy.
As soon as Wall Street banks realize the possibility of Long-Term Capital Management's bankruptcy, they will inevitably tighten their overseas loans, and at the same time, this will cause Soros to lose his previous financial support. This is a classic example of 'besieging Wei to save Zhao,' a transparent strategy.
Of course, if Hong Kong gave up resistance and cooperated with Wall Street capital to resolve the battle without bloodshed, perhaps international capital would not flow back to America. But is it possible to make Great China surrender?