A week later, when all the funds were in place, Zhongshi transferred some of the funds to a commercial bank with extensive operations in South America, and used the funds as collateral to borrow Mexican pesos, Brazilian reals, etc., from the relevant banks.

On January 1, '94, Mexico joined the North American Free Trade Area (NAFTA), which consists of the United States, Canada, and Mexico. The purpose of this free trade zone is to remove trade barriers between them, increase investment opportunities, establish effective mechanisms for implementing agreements and resolving trade disputes, and promote mutual cooperation.

To put it simply, each member state gives each other substantial preferential treatment in terms of import and export tariffs, so as to promote the better circulation of each other's products in each other's markets. Due to Mexico's weak competitiveness in industry, agricultural products, etc., the trade agreement provides for a 10 to 15-year grace period for some industries and a longer transition period for others.

For example, if Mexico's tariffs on chicken exports to the United States have dropped significantly, the price will naturally be more favorable, but if Mexico imports corn and dairy products from the United States in large quantities, it will have a serious impact on the domestic market and the entire production system, so these industries have a relative buffer period.

The problem is that there is a corresponding buffer period for specific real industries, but there is no corresponding buffer period for capital that cannot wait to enter the Mexican market. Because of the huge differences in salaries and benefits between the United States and Mexico, the U.S. manufacturing and banking industries can't wait to use the cheap local labor to reduce costs and increase capital gains.

In this case. The Government of Mexico has announced a strict and flexible fixed exchange rate system pegged to the United States dollar in order to attract foreign capital, especially in United States dollars. However, this fixed exchange rate is not set in stone, and the Central Bank of Mexico is constantly adjusting in response to changes in the market, and the magnitude of the adjustment is within the range that has been set by both sides. At the beginning of '94, 1 dollar was worth 3.106 pesos, and by March, with the continuous expansion of the trade volume between the two sides, it had changed to 3.28 pesos for 1 dollar.

As a result of this constant slight adjustment, on 12/1/94, the immediate exchange rate was 3.436 pesos per dollar. That is, 1 Mexican peso is worth 0.29104 US dollars. The quote in the market is $0.29082 for buying and $029104 for selling. If the exit from the market is too large, the Central Bank of Mexico will intervene to keep the exchange rate at a normal level.

Bell Stone has amassed a total of $9 billion this time. Of that amount, $5 billion was a three-month loan from three commercial banks. The interest rate on the loan is 5%. In addition, there is $4 billion of its own funds, of which $2 billion is the capital of the Tianyu Fund. The other 2 billion is the funds in the accounts of Skyline Financial Company, Skyline Holding Company, etc.

Of this money, $100 million has been transferred to Andrew in South America, where the equivalent of Brazilian real will be invested in the Brazilian stock market. In addition, there is about 400 million US dollars of funds, which are gradually invested in short Mexican pesos in IMMs and short futures and options contracts in Mexican pesos in the over-the-counter market. The remaining $8.5 billion was gradually borrowed through 15 U.S. banks and European banks with branches in Mexico. While these processes were slowly proceeding, a big event occurred on the American side.

"Mr. Zhong, something big has happened, Orange County in Los Angeles, USA, has declared bankruptcy!" On December 6, just as Zhong Shi was checking the preparations in the Tianyu Fund, Maxim suddenly pushed open the door and said excitedly.

Orange County is a county located in California on the west coast of the United States, and it is also quite a wealthy county. The name of this county comes from the main crop of oranges, in fact, there are several more names like Orange County in the United States, but the one in California is the most famous, because the county's public funds lost badly in the derivatives market, and eventually the entire Orange County was declared bankrupt.

Seeing that history was still going according to the original process, Zhong Shi secretly breathed a sigh of relief in his heart, and after pretending to be shocked, he pretended to ask again: "What Orange County is bankrupt?" Mark, you make it clear! ”

Maxim hurriedly walked to Zhong Shi's desk, picked up the paper cup on the table and poured a big mouthful, then gasped and said: "Mr. Zhong, that's right, the news from the United States is that the government fund in Orange County has suffered a huge loss in investing in bond derivatives, and the amount currently revealed is at least $1 billion in losses. Holders of public funds are said to have begun to demand redemption of their shares in November, but the funds have not been able to raise sufficient funds in a timely manner. It is also said that the brokers have also started to ask the fund to call for margins, so the local government has announced that it is seeking bankruptcy protection so that the government has enough time to deal with the matter. ”

It must be noted that if a bankruptcy protection is filed in the United States, then the creditor has no right to continue to collect the debt, and must wait until the appropriate department counts and auctions all the assets of the bankruptcy applicant, and then repays it in accordance with the corresponding procedures and sequences. In this process, if the legal process is followed, there is a high probability that those creditors who are lower in the order will receive nothing.

For example, if a listed company goes bankrupt, then the funds obtained from the auction of their assets will be given to employees, guilds, banks, etc. in the legal order, so that it may be the turn of investors to buy their shares.

Now that Orange County has declared bankruptcy, it is for this reason that it now takes time for both the Orange County government and their public funds to deal with the debt.

"What the hell did they invest in, and how did they lose so much?" Zhong Shi was not interested in bankruptcy protection, and what attracted him most about the whole thing was how this government fund could lose so much. It stands to reason that the strategy of the general public fund is very sound, because the nature of the funds determines their investment style, and the aggressive and risky style is definitely not in their interest.

Although Zhong Shi had also heard the news of the bankruptcy of Orange County before he was reincarnated, he did not study this kind of news too deeply at that time, firstly, the broker of this public fund was Merrill Lynch, one of their rivals, and the whole Da Mo at that time looked at this matter with a joke mentality. On the other hand, he was a low-level employee in the fixed income department at the time, and he was responsible for a different area than the more traditional bond trading department, so it was not surprising that he was not aware of the situation.

"I heard that it's something called an anti-interest rate bond, and this public fund also uses high leverage, which is said to have more than doubled, and a total of nearly $20 billion in bond positions." Maxim finally recovered from his extreme state of euphoria, and after taking another sip of water, he said unhurriedly.

"Anti-interest rate bonds?" Zhong Shi suddenly felt that this name was a little familiar, as if he had seen it somewhere, he frowned and thought about it, and finally knew that he had also come into contact with a contract with a rebate rate bond, and that contract was also promoted by Merrill Lynch's broker, but he didn't buy it at that time, "There have also been people who have promoted this kind of bond to our fund before." ”

Maxim was immediately stunned, and opened his mouth wide for a long time unable to speak. Seeing him like this, Zhong Shi still didn't understand what he was thinking, he couldn't help but smile faintly, and patted his chest a little proudly: "Of course I didn't buy it, otherwise we would have gone bankrupt by now!" ”

Maxim, who had told Zhong Shi about his thoughts, laughed for a while, scratched his head embarrassedly, and covered up his embarrassment before asking, "Mr. Zhong, how do you think things will develop?" ”

"It's hard to tell!" Zhong Shi's face immediately became serious, "If I am not mistaken, this public fund has fallen into the trap of others, and I believe that they have other conditions attached to the contract of the anti-interest rate bond, and it is this additional condition that caused the bankruptcy of the Orange County government, otherwise a mere loss of $1 billion would not have made a wealthy county government declare that it is seeking bankruptcy protection." ”

In fact, after experiencing huge losses, the manager of this public fund found that the contract signed with the broker had an automatic two-year rollover, and in that year, the public fund had lost more than $2.2 billion.

Maxim discussed with Zhong Shi for a while before saying goodbye and leaving, and he also had to analyze the impact of this incident on the US financial system, as well as the impact on the business of certain brokers, which meant a lot of short opportunities.

After Maxim left, Zhong Shi thought about it carefully, and finally came to a conclusion that made him feel very frightened, that is, the investment must maximize the use of its own funds, and try to avoid high leverage, especially when the broker strongly advocates lending, the leverage ratio should not exceed a certain coefficient, and this coefficient is best 2. Because in this way, even if you lose money, you will eventually be able to pay off the debts of the broker.

For a public fund like Orange County, if it weren't for the pitfalls in the treaty, plus the brokerage company no longer provides liquidity and requires more additional margin, this public fund would not have fallen into a situation of extreme illiquidity. And there is no shortage of liquidity, so this fund has the possibility of a comeback, instead of being chased by investors for redemption as it is now, and brokerage companies have also taken the opportunity to fall into the trap and acquire the current portfolio with conditions far below the valuation.

Keeping your cash flow up at all times is king! (To be continued......)

PS: Special thanks to the 2 monthly passes of the Demon Dragon Battle Ghost and xiexie for their continued support of this book!