America's Road to Fame

Chapter 124 The Building Will Fall

New Century Financial, headquartered in a black glass tower in Avon, California, has grown rapidly. In the past few years, it has become one of the nation's leading issuers of subprime mortgages. HSBC Holdings plc, the big corporations that made subprime loans, was evenly matched.

As of now, this company has become the second largest subprime mortgage institution in the United States.

And this day, for all investors who hold the company's stock, has become "Black Friday". In just one day, affected by the company's negative news, the company's stock price fell by 35%.This incident has also aroused public concern about the future economic situation.

Affected by this, the international gold price fell by 5% that day, but this was only the beginning. If the subsequent situation continues to deteriorate and form a storm, then the relevant financial fields will be affected.

"Boss, you bet right."

After seeing William Chen, John Paulson looked excited, and the first sentence was this:

"You did it, how did you guess it, it's incredible."

After all, in John Paulson's impression, Chen William has always been very resistant to financial leverage. In his previous operations, he rarely superimposed leverage.Therefore, seeing him use 20 times the leverage in one breath yesterday, he still feels the shock in his memory.

That's $18 billion!
Even he couldn't help thinking about the gold price trend afterwards, until he heard the news this morning.

At this time, John Paulson realized that the subprime mortgage crisis was indeed unstoppable. When the crisis broke out, it would affect all financial products. The decline in the price of gold was already a certainty.

However, the current doubt is where this wave of gold decline will touch.After all, at the beginning of the crisis, it was normal for all financial products to fall due to market panic.But if the crisis continues, the Federal Reserve is likely to rescue the market, and the most likely option is to open the floodgates.

In that case, as funds flood into the market, they will definitely choose safe-haven assets for allocation, so if it is safe-haven assets, what can compare to gold?At that time, the price of gold will definitely usher in a rebound.

Therefore, although the first step has been won, the point selection of closing positions is a more important step.

Of course, the fall in the price of gold is just one of the effects of New Century Financial Corporation's sharp stock drop today due to its pre-loss.

"Now that New Century Financial Corporation is about to die, how is the performance of our fund?"

William Chen was also in a good mood, and he began to care about the performance of funds that shorted the real estate market.

"This matter is the first domino to fall, and it is triggering a chain reaction. Among the stocks shorted by our No. 2 Fund, New Century Finance accounts for a very large share. Affected by this news, all subprime loan-related The stocks of many companies have fallen to varying degrees today. By the end of today’s market, the market value of our No. 2 Fund holding short positions has exceeded 15 billion US dollars. With the subsequent overall decline, this number will continue to increase. Bigger."

John Paulson also came prepared. Speaking of this, he looked excited:

"At the same time, stimulus loan bond CDO also fell significantly today. From the end of September to now, the 3A-level CDO bond index has only dropped from 100 to 93.5, but today it has dropped to 80! Fortunately, we have completed the establishment of the No. 3 Fund , now the CDS bonds in the market are hard to find, and even those CDS bonds with high security have been swept away, including Deutsche Bank and Lehman Brothers, which were very active in selling CDS before. , CDS sales have been suspended, and the sales contracts that were negotiated and signed before have been postponed indefinitely, or even cancelled..."

Since the CDS bonds currently held by No. 1 Fund and No. 3 Fund have not yet fully met the redemption conditions, there is no exact figure for the specific profits of these two funds, but William Chen learned from John Paulson that The profits of these two funds have also been very impressive. Only the profits that can be calculated, the No. 1 fund has exceeded 20 billion US dollars, and the No. 3 fund currently has at least 2 million U.S. dollars in profits.

William Chen currently holds a large amount of CDS bonds, that is, credit default swap bonds. It may be said that this is not easy to understand.Because CDS is not a real swap product, but an insurance policy, which is mainly aimed at various bonds in the market.

For example, CDS products for subprime loans generally pay premiums every six months with fixed terms.

To give an example, William Chen can buy a 50-year credit default swap product on a $1 million subprime mortgage at a price of $10 per year.Therefore, the total insurance premium he should pay is a total of 10 million U.S. dollars in 500 years. If these subprime mortgages are repaid on time within 10 years and no default occurs, then his 500 million U.S. dollars is equivalent to paying insurance premiums and being lost. Lost.

But if during the 10-year period, there is a default on the subprime mortgage, he will get $1 million in compensation.

Therefore, you can simply regard this as a VS bet. One party believes that these loans will not cause default, and you take out 10 million funds for 500 years to participate in the VS bet. If the other party succeeds, you will pay him $500 million. If the other party Fail and you get $1 million.

Of course, these figures are just examples. In reality, insurance premiums and compensation are priced according to the credit ratings of those subprime loans. The premiums for CDS bonds corresponding to 3A-rated CDO bonds must be very different from those of 3B-rated bonds.

Therefore, it needs to be mentioned again that the value of Chen William's employment of John Paulson is clearly reflected here, because John Paulson has a longer research on this market, so John Paulson can be more profitable. Among the 3A-rated CDS bonds, find the ones with the highest probability of default, so their profits will be higher in the end.

And you should know that these premiums are paid in installments. If the 10-year CDS bond defaults in the first year, then you only need to pay one year’s premium to get the final compensation, so it is expected in advance The exact time of the outbreak of the subprime mortgage crisis is very important for the investment in CDS bonds, because if it is confirmed, you only need to pay the premium for one year, which means that you do not need to leave the money that needs to be paid in the next year, but Go buy more CDS bonds.

For the CDO bonds and CDS bonds held in the hands of Fund No. 1 and Fund No. 3 of Meta Investment Company, it is enough to wait for the price of CDO bonds to fall, and for the subprime loans corresponding to CDS bonds to default and obtain compensation. The final income, Absolutely a terrifying amount.

It has to be said that Wall Street is indeed home to the smartest people in the United States, and they use various well-designed financial products to obtain profits.But at the same time, because they are too smart, those complicated financial products quietly accumulate a large amount of capital investment, and they also accumulate huge risks.

Just like you build a house with building blocks, countless financial products form the largest economic building in the United States and even in the world. Once a certain corner collapses and causes the building to overturn, countless wealth will be evaporated or transferred in an instant, and the world will enter into a downturn. In retrogression.

And William Chen, right next to the collapsing building, opened his cloth bag and waited for the gold bricks to fall one after another. However, his personal strength is limited, and the profit he can obtain in the end may be less than one-thousandth of the entire building. one.

Just when William Chen was in a good mood and was about to go to Paris's place and the two of them celebrated, he received another call from his uncle John Drey.

"William, I'm in New York now, and I'm here with Tom. Come here, and we'll talk about it later."

Since this is the case, William Chen called Paris and said that he would contact her in the evening.Then let the bodyguard drive to Uncle Tom's house.

John Dray came to New York this time entirely for William Chen.

If we say that the 3 million US dollars that the Delray family fund invested in Fund No. 5000 before, it was entirely John Delray's investment to support William Chen's private equity fund.

Well, after the New Century Financial Company disclosed the pre-loss of performance today and admitted that it had suffered heavy losses in subprime mortgages before, so that the stock price plummeted, John Drey realized that William Chen's investment was definitely very important. One right decision.

Moreover, in his position, although some news is easy to be missed or missed, after targeted investigations, relevant feedback can be obtained faster, so especially New Century Financial Company is located in California, the foundation of the Delray family. It is reasonable for him to draw these conclusions faster.

Knowing that William Chen is currently making a lot of money, and that his private equity fund, Fund No. 3, is currently expected to earn more than 100%, John Dray immediately made a decisive decision to add more funds to the Drey Family Fund. 1 million US dollars will be invested in William Chen's No. 3 fund, and he will contact California to help him match up with pension funds, medical insurance funds and other public funds to attract investment from those funds.

John Drey did this not only to help William Chen, but also to consider the interests of the family. If these public funds can make a lot of money from William Chen's private equity funds, it will have a great impact on the support rate of their family in California. important promotion.

　Ask for tickets every day~
　　
　
(End of this chapter)