Thomas Hoover - The samurai strategy

As it happens, self-proclaimed ignorance was a crucial ingredient in Henderson's deliberate "country boy" camouflage, designed to disarm the city slickers. I estimated the professional dirt farmer next to me, Armani double-breasted and gold Piaget timepiece, was now worth about forty million, including a chunk of an offshore bank. Yet for it all, he still liked to come across as though he'd just moseyed in and wished somebody would help him through all this fine print.

"Don't bullshit me, Bill." I toyed with my drink. "What you're really saying is you couldn't get anybody else to agree with you."

"Have to admit there were a few trifling differences of opinion about the direction things are headed." He positioned his Dunhill in the ashtray and washed his throat with more Scotch. "You can't cover up the fundamentals with cosmetics. Things like a megabillion trade shortfall, a debt nobody can even count, and a dollar that don't know whether to fish or cut bait. Worst of all, we're still selling the suckers of the world more funny-colored paper than czarist Russia did. There ain't no quick fix for this one." He took another sip, then turned back. "But fuck it. Remember that old saying I used to have about being a lover, not a fighter. I always know when it's time to call in the huntin' dogs and piss on the fire. I'm back in town to stay. I got hold of my boys and they're coming in tomorrow to start getting everything out of mothballs. We're going back on-line."

As anybody who knew Bill was aware, he'd installed a massive computer bank in the converted "maid's quarters" of his Fifth Avenue apartment, hooked to the major futures exchanges and financial markets around the world. Running his operation on a moment-to-moment basis were a couple of young fireballs, his "Georgia Mafia," who did nothing but watch green numbers blink on a CRT screen and buy and sell all day. He and his boys talked a language that had very little to do with English-jargon about comparing the "implied volatility" of options on this currency against the "theoretical volatility" for that one, etc. On any given day they were placing "straddles" on yen options, "butterfly spreads" on pound sterling futures, "reverse option hedges" on deutsche marks, and on and on. Half the time, Einstein couldn't have tracked what they were doing. Add to that, they leveraged the whole thing with breathtaking margins. To stay alive in Henderson's game, you had to be part oracle, part Jimmy the Greek. You also had to have ice water in your veins. It wasn't money to him, it was a video game where the points just happened to have dollar signs in front. The day I dropped in to watch, he was down two million by lunch, after which we casually strolled over to some shit-kicker place on Third Avenue for barbecued ribs and a beer, came back at three, and by happy-hour time he was ahead half a million. In the trade Henderson was part of the breed known as a shooter. Up a million here, down a million there-just your typical day in the salt mines. A week of that and I'd have had an ulcer the size of the San Andreas fault.

He liked to characterize his little trading operation as "a sideline to cover the rent." I happened to know what it really paid was the incidental costs of a lot of expensive ladies. Could be Bill's entertainment fund was in need of a transfusion.

"Back to business?" I asked. "Like the good old days?"

"Bright and early Monday morning. Got a strong hunch the Ruskies'll be in the market buying dollars to cover their September shorts on Australian wheat futures. Might as well bid up the greenback and make the comrades work for their daily bread. Then round about eleven, I figure to unwind that and go long sterling, just before London central figures out what's happening, shits a brick, and has to hit the market for a few hundred million pounds to steady the boat."

Well, I thought, Henderson the Fearless hasn't lost his touch.

"Bill, I want to run a small scenario by you." I sipped at my drink. "Say somebody'd just told you he was taking a massive position in interest-rate futures? What would that suggest?"

"Tells me the man's getting nervous. If he was holding a lot of Treasury paper, for instance, he'd probably figured rates were about to head up and he didn't want to get creamed. See, if you're holding a bond that pays, say, eight percent, and all of a sudden interest rates scoot up to ten, the resale value of that instrument is gonna go down the sewer. But if you've already 'sold' it using a futures contract, whoever bought that contract is the one who's got to eat the loss. You're covered."

"I'm not talking about standard hedging." I was wondering how to approach the specifics. "Say somebody started selling a load of bond futures naked. Nothing underlying."

"Well, thing about that is, the man'd be taking one hell of a risk." He swirled the cubes in his glass. "Anybody does that's bettin' big on something we don't even want to think about. Some kind of panic that'd cause folks to start dumping American debt paper."

I just stood there in silence, examining my glass. That was precisely my reading of Matsuo Noda's move. "But I can't think of any reason why anything like that's in the cards, can you?"

"You tell me. It's hard to imagine. The economy's like a supertanker. Takes it a long time to turn around. But if you want a special Henderson shit-hits-the-fan scenario, then I can give it a shot. Say, for instance, some Monday morning a bunch of those hardworking folks around the world who've been emptying their piggy banks to finance our deficit suddenly up and decided they'd like their money shipped back home. That'd create what's known as a liquidity crisis, which is a fancy way of saying you don't have enough loose quarters in the cookie jar that morning to pay the milkman and the paperboy both. The Federal Reserve would have to jack up interest rates fast to attract some cash. Else roll the printing presses. Or of course"-he grinned-"we could just default, declare bankruptcy, and tell the world to go fuck itself."

"Nobody would possibly let it go that far, right?" I toyed with my Scotch. "Particularly Japan. We owe them more money than anybody."

"Wouldn't look for it to happen. Remember though, right now the U.S. Treasury's out there with a tin cup begging the money to cover its interest payments. If the national debt was on MasterCharge, they'd take back our card. So let some of those Japanese pension funds who're shoveling in money start getting edgy, or the dollar all of a sudden look weak, and you could have a run on the greenback that'd make the bank lines in '29 look like Christmas Club week."

"That's thinking the unthinkable."

"Damned well better be. But don't ever forget, paper money is an act of faith, and we're in uncharted territory here. Never before has the world's reserve currency, the one everybody uses to buy oil and grain and what have you, belonged to its biggest debtor nation. We're bankers for the world and we're ass over elbow in hock. Everybody starts gettin' nervous the same day, and the bankers on this planet could be back to swapping shells and colored beads."

"Offhand I'd say that's pretty implausible."

"And I agree. The system got a pretty good shakeout in the October Massacre of '87 and things held together, if just barely. Stocks crashed but the dollar and the debt markets weathered the storm. Nobody dumped. Japan doesn't want its prime customer to go belly up. Who else is gonna buy all that shiny crap?"

I studied my glass again. If Henderson, who had pulse- feelers around the globe, wasn't worried, then maybe Matsuo Noda was just a nervous, spaced-out old guy. A loony-tune with an itch to gamble. Funny, though, he appeared the very essence of a coolheaded banker.

About then, the two women across the bar waved for their check and began rummaging their purses. Sadly enough, the brunette had done everything but send over an engraved invitation for us to join them. She and I had looked each other over, and we both knew what we saw. The walking wounded.