Rohan gloated at his coup. Merely a week after their announcement to go short the Bund, Bill Garza of Hermes Capital followed suit:
<Garza: German 10yr Bunds = The short of a lifetime. Better than the pound in 1992. Only question is Timing / ECB QE>
Selling pressure on the Bund had knocked it off its highs and yields nearly doubled in a matter of weeks. Legion’s trades were returning massive profits. Rohan’s own net worth doubled over that span of time and their success had eliminated, for now, the need for Gavin to use the Ion Cannon. The drastic market move left the central planners with no options but to arrange frantic meetings. The lack of liquidity in the bond market, thanks to their own indiscriminate buying coupled with the dominance of ultrafast trading bots had left the markets vulnerable to crashes. And crash they did.
Pressures mounted and the waterfall effect of rising rates hit the periphery economies hard. Struggling states were faced with another headwind, and equities took a beating globally. Eric fumed at the ECB’s delayed reaction. Their plunge protection teams had just begun to enter the fray, when Jason burst into the office, pregnant with what could only be some new piece of exciting news.
“You’re never going to guess who I just talked to.”
Rohan looked up expectantly from his terminal, eyes bleary from hours of studying forex data.
“You going to tell us or just stand there like a smug asshole?”
“A guy I know on the Citi bond trading desk reached out to me with some interesting information.
Apparently their Investor Desk has been selling central bank trade data to clients. He’s pissed but he’s too scared to blow the whistle; said he saw your interview on TV and decided to call me.”
Eric’s suddenly showed interest, “Are you shitting me? Jason, please don’t tell me you’re joining this band of delinquents in their criminal enterprise.”
“I’m not making any decisions. I got a call and I came here to confer with you guys,” he looked around, “Where’s Gavin?”
“Haven’t seen him in a couple days. Off playing with his gadgets probably. Jason, seriously, if you get involved in this shit, I’m done. I will not run an operation that trades on illegal data.”
Eric got up to leave and paused, expecting them to stop him. Instead Rohan gave him an understanding look.
“You gotta do what you gotta do, man. We can’t keep you here against your will. If that’s your final decision why don’t you take some time off? It’s going to get a little crazy down here, and if you don’t want to get your hands dirty, probably best you stay out completely.”
He slammed the door a little harder than he wanted on his way out, plagued by staircase wit. All the things he wished he’d thought of in time, remained unsaid.
“What does your friend at Citi want in return for the data?” Rohan asked.
“Nothing, he said he was sick of the manipulation and the uneven playing field. He felt we’re the only ones actually doing something about it, thought it would help us to break the ECB.”
“It just could be the straw that breaks the proverbial camel’s back. You sure you’re ready for this Jase?”
“I’ve come along with you guys this far, haven’t I?”
“Yeah you have, hope you’re not beginning to regret it.”
“Not one bit,” he said the words, but was uncertain if he meant them.
“I know this isn’t ideal… I’d love to do everything ethically, but it’s just not the world we live in. We’ve all got to come to grips with that.”
Despondent, Jason replied, “I know, just wish we’d been around when things actually worked the way they were supposed to. Everything is so fucked up these days.”
“It’s always been fucked up man, contrary to what ol’ geezers like Dick Grasso would have you believe. I read what he said about the pace of the market, how it’s just not fair anymore with all the robots doing the trading. But what does he expect? That we go back to the old system? Even back then, it was just a bunch of executives cozying up to money managers, creating information asymmetries that human specialists and the entrenched market making guilds could profit off. Let’s be honest, it’s never been fair. Today it’s just a different kind of unfair.”
“Guess, I should let him know we’re interested in the data.”
“Good call. I’ll let the team know you’re taking over for Eric in the meantime. Run through the CB trades and let me know what you see. If there’s a pattern they rely on, we need to counter it. If we can sell directly onto their book, it’ll deaden the impact of their purchases. Let’s lever up and dump every Bund we can get our hands on. German tax payers won’t stomach the bank’s prop bets forever. I’ll talk to Austin and get a German-language release drafted. I want their public to know the risks the ECB is taking on their behalf.”
Eric’s troubles only grew. He’d invested nearly all he had outside of Legion with Bill. It was probably a minor blip on Hermes’ 13F Filing but for Eric this was a disaster of epic proportions. He had wildly underestimated the lack of liquidity in the markets that left them so vulnerable. With the crooked advantage Jason was preparing, there was no telling what the outcome would be.
A week later, he received a call from Bill, no pleasantries were exchanged.
“Range bound my ass! I’m taking a bath on your proposed trade, Eric. What are you guys doing over there? I’ve received every assurance from my folks at Barclays that the ECB is working to counter. Why isn’t it fucking working!?”
“Listen, Bill, I know you’re upsest—“
“Upset? Fucking upset? Eric, you’ve made me look like an idiot! You get me to publicly support your trade and now I’m caught with my goddamn pants down. I don’t give a shit about the money; you’ve made me the laughingstock of the industry. You read what they said in The Journal: Bill Garza, too clever for his own good. It’s a fucking embarrassment!”
“If you’ll let me talk, I’ll explain. The reason we’re blowing through all the resistance is that Jason has an insider at Citi. He’s getting the ECB’s trade data, it’s almost sad how predictable they are. There’s no creativity. We’re just matching all our sell orders to coincide with their usual purchase patterns. That’s why they’re bloating their balance sheet with nothing to show for it. Yields have barely fallen from their highs this month.”
There was silence on the line as Bill’s mind raced.
“Eric, I’m going to speak slowly so you understand how serious I am about this. I need a name and I need it now.”
“Bill, I don’t know who it is. I just know he’s in New York, but I’ll try to find out.”
“Do better than try, Eric.”
Legion continued its daily bouts of selling, slowly turning market participants against the ECB. As the market began to lose faith in the central bank, pressure mounted on the Eurozone economies. The ECB was forced to use its most cost-effective weapon. An emergency press conference was announced, leading the gang to immediately double down on their trades. They had to defend any momentum the ECB could steal away with the flapping of their botoxed lips. Within days the ECB accnounced that it would ‘do whatever it takes.’ Their effort was admirable.
Every day the team watched extreme price movements rock massive funds like barges caught in a tropical storm. The interventions steadily grew in size, and at the end of each trading session the team sat back in relief as the ECB’s trades hit a wall of unrelenting market forces. Their vulnerabilities were finally on display, front and center.
On one of the rare days that Gavin was in the office, Eric decided he’d had enough.
“So what do you say we reign in the dogs, boys? It’s only a matter of time before the ECB launches a new round of QE. They have no other options. We can’t get too greedy. We should take our winnings and see how things shake out.”
Gavin laughed, “Tired of the show already, Eric? But we’ve barely just begun. So we scared some talking heads on CNBC, but what have we actually accomplished? Have we done anything that would be considered catastrophic? Disastrous? Until I hear those adjectives all over the news, we are most definitely not finished.”
“Gavin, Eric has a point,” Rohan intervened. “We’ve made some waves, we’ve shown the world we can rock the boat. We’ve cost them billions and more importantly, their credibility. Debt auctions across the continent are ruined. Anything could set this tinder box ablaze. But what happens from here is just too unpredictable, we need to step away and consolidate our holdings. We’re in uncharted waters. Let’s live to fight another day.”
“Thanks for your opinion Rohan, I’ll most definitely consider it. But in the meantime, when I say we’re not finished, we’re not finished. Is that clear?”
Jason took his turn, “Gavin, listen, the game isn’t over, but we really gotta to sit out a few turns. We can’t wager everything we’ve made on one hand. We’ve gotta pull back, man. We’ve taken on an enormous amount of risk. A move like the central banks have been jawboning, could wipe us out. We’re stretched thin Gavin, we have to think long term.”
“I don’t think you guys understood me, so let me reiterate. I want to double down. Everything we’ve got. I’ll unload all our bitcoin holdings if I have to so do not fuck with me on this. Everything we’ve got goes short the Bund.”
He didn’t wait for a response before walking out of the room.