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Despite the efforts of the U.S. Treasury Department and the Federal Reserve, after entering 08, the bad news in the market is still coming one after another.

On January 4, the American Banking Association officially announced the number of consumer credit defaults, and the default rate rose to its highest level since 2001.

On January 15, Citigroup, one of the world's largest commercial banks, announced a fourth-quarter loss of $9.83 billion, triggering a decline in global stock markets.

On January 16, the rating agency aimed to predict a loss of at least 47% of the assets of SIV bondholders.

On January 17, the U.S. Department of Housing announced the number of housing starts in December last year, and the figure of 1.006 million units was the lowest in 16 years, down 14.2% from the previous month.

On the same day, Wall Street investment banking giant Merrill Lynch announced in its fourth-quarter earnings report that it had written down its assets by $11.5 billion, bringing its quarterly loss to a staggering $9.91 billion. In the last quarter, Merrill Lynch had just written down more than $7 billion and lost $2.24 billion. Although Wall Street had expected Merrill Lynch's fourth-quarter losses, even the most daring analysts did not guess that Merrill Lynch would lose so badly.

However, the market is not full of bad news, on this day in the market, JPMorgan Chase released its fourth-quarter earnings report, achieving a profit of nearly $3 billion, and on the impact of this news, the New York stock market rose slightly on this day.

Also on this day, the Federal Reserve published the Beige Book on the regular meeting of monetary policy decisions, which said:

“…… From November to December last year, despite several turbulences in the market. But spurred on by the Federal Reserve's steady interest rate cuts, the U.S. economy has maintained moderate growth, albeit at a slower pace than in the previous period......"

“…… We remain committed to sustaining this economic growth for some time to come, and despite the challenges facing the U.S. economy, the Committee is confident that it will be able to adjust the direction of monetary policy at the right time. to give strong support to the U.S. economy......"

From the report, investors interpret the message that the US economy is not in recession, that the Federal Reserve is still in control, which gives them a boost of confidence, and the market's financial, housing and consumer sectors are also getting a boost in some way.

On 22 January, the Fed cut rates by another 75bp to a base rate of 3.50%. And only eight days have passed, on top of the previous rate cut. The Fed announced another 50 basis point rate cut, bringing the base rate to 3.0%.

On January 30, UBS issued a financial announcement, claiming that UBS's loss in the fourth quarter of '07 reached $11.4 billion, the highest in history, due to the loss of subprime mortgages.

……

Although the market is not stormy, the extremely chaotic situation does give many people the opportunity to create zào, and some of the big players in the market have begun to come into contact with them secretly and frequently. They set their sights on one of Wall Street's giants, Bear Stearns. And these people are mainly fund managers of top hedge funds. The day of revenge has come.

"How's it going, this meal is quite satisfying, right?"

After waving his hand for the waiter to clean up the plate, Soros looked at John who was sitting across from him with a smile on his face. Paulson gestured to him with a white wine, then took a small sip.

Lunch was simple, with a main course of sea bass and fruit salad. Served with some French biscuits and white wine, that's all the food for two billionaires. Paulson wiped his mouth and smiled contentedly. In fact, it is a great honor to be invited to dinner by Soros. Who cares what they're eating?

There are several invitations to dinner in the world that Paulson can't refuse, like the president of the United States, Warren Buffett, or the one in front of him. A year ago, Paulson would have dared not think of it, but now he can sit in front of the legend and eat delicious sea bass with all his poise, without the slightest embarrassment or nervousness.

It would be a mistake to say that Soros invited the rising star Paulson to dinner because of his poor performance over the past year, and the two sides discussed their views on the current market. After parting ways with Druckenmiller, Soros outsourced most of his money to fund managers, but last year, he still had a keen sense of smell and sensed the opportunity in the market, and decisively came out again, and the 32% yield reminded the world that this legend is still as strong as ever despite his age.

It's not quite as good as Paulson's 700 percent annual return, but for a large fund with a total capital of $20 billion, it's enough to satisfy all investors.

"John, do you remember Long Term Capital Management?"

Just in John. While Paulson was still thinking about Soros's astonishing returns over the past year, Soros suddenly mentioned an old incident that immediately brought his mind back to '98.

Long-term capital management (LTCM) is a truly elite company. The hedge fund, which brought together top figures such as Meliceser, the father of Wall Street debt arbitrage, Nobel laureates in economics Morton and Scholes, Federal Reserve Vice Chairman Moseley, and Salomon Brothers' head of fixed income, Rosenfeld, collapsed in '98 due to a default on Russian government bonds, which led to a sharp drop in yields in the European bond market, and finally had to be liquidated, becoming a sensational event on Wall Street at the time.

Even after all these years, Paulson still remembers the scene vividly, because it was the first hedge fund giant to fall at that time, and the background was that hedge funds were in the limelight and became the super darling of the capital markets.

"Yes, I remember it very well." Paulson replied, seemingly absent-mindedly, "Didn't Fifteen consortia, including Merrill Lynch and Morgan, each contribute to digest their positions?" Speaking of which, long-term capital management and your quantum fund were equally famous, but I didn't expect it to be only four years old. It's completely on a dead end, it's really embarrassing! After saying that, he couldn't help but shake his head.

In the hedge fund world, Quantum Fund, Tiger Fund, Long-Term Capital Management and Omega Fund were collectively known as the Big Four hedge funds. But now that the waves are sweeping the sand, except for the quantum fund, which is still tenaciously surviving, the other three funds have long disappeared.

He's not reminding himself not to get complacent. Is long-term survival king? The thought that popped into Paulson's mind woke him up. If he had been in the past, he would definitely not be so vigilant, but after a long conversation with Zhong Shi, he realized that his biggest benefactor and the knot in his heart from a few years ago were still untied, although he intellectually reminded himself not to choose to take sides, but emotionally he was still on Zhong Shi's side, so he carefully answered everything that Soros said after thinking and thinking.

"Not bad!" Soros didn't seem to notice Paulson's somewhat embarrassed face. Still said to himself, "John, maybe you don't know that in the process of rescuing long-term capital management, the Treasury Department took the lead in finding Bear Stearns, the number one giant on Wall Street at that time, but do you know how Bear Stearns answered? ”

At this point, he paused deliberately. Looking at John with interest. Paulson, see how much truth this rising star can guess.

For the list of those involved in the rescue. Paulson, of course, knew it well, and after a moment's thought, he replied, "Bear Stearns didn't come to the rescue." Maybe they didn't think the long-term capital management position was worth the help, or maybe they were in a financial problem at the time. To be honest, George, I really don't know about this part of the story, I was still a nobody at that time! ”

He decided not to offend Bear Stearns. and secretly held Soros a little.

For his tactfulness, Soros laughed, he naturally knew that what the other party said was the truth, and he stopped beating around the bend at the moment, and said bluntly: "Bear Stearns didn't have any financial problems at that time. They do think that long-term capital management is not worth the rescue, but the reason is very funny, that is, long-term capital management is not good, and they don't even bother to implement liquidation, so they don't even plan to listen to the Ministry of Finance's greetings. Earlier, in '94, they had also brought down a capital management company called Askin, suddenly raised their margin positions to force the other party to liquidate, and finally swallowed a large amount of their assets. ”

Isn't this the law of the jungle? Is there anyone on Wall Street who doesn't know this cruel rule? Paulson was unimpressed, but on the surface he still looked respectful and obedient. He knew that Soros must have something to follow.

Soros was very satisfied with Paulson's attitude, and continued to bewitch: "So, John, you should also be clear." The relationship between the investment bank and us is only a cooperative relationship, and that's more than that. In fact, there is still a strict competition between us and them in a big way, let's see, how many tricks they have done over the years, the establishment of hedge funds internally, private wealth management business, all of which are competing with us for the market. Damn, these guys have taken over the investment banking business, and they've taken half of the fixed income business, and now they're eating away at our hedge fund space, and they're really a bunch of insatiable guys. ”

Paulson has a deep understanding of the content of Soros's complaints, but these things belong to the regulators to consider, and he still hasn't figured out what Soros wants to say. But he is not in a hurry, because Soros always says.

Although he was "complaining", Soros had been observing Paulson's cousin on the other side, and seeing that the other party still hadn't shown even a trace of curiosity or resentment, he couldn't help but secretly admire that this guy was really able to calm down.

"So ......"

Then it was time to test the patience of both sides, Paulson did not speak, Soros did not continue, the two were silent for a full five minutes, and finally Paulson scratched his head and asked a little uncertainly.

"John, you still don't understand what I've said so much?" Soros deliberately pretended to be shocked, and asked rhetorically, "We, hedge funds, can't be bullied like this by investment banks forever." That's all I'm trying to say, haven't you heard it yet? Should we give them a lesson, a lesson that will never be forgotten? ”

When Soros said these words, Paulson finally understood that the last sentence was the point, and everything that had been done before was foreshadowing. For the stocks of short investment banks, he has also made similar investments before, so after Soros said it, he just subconsciously nodded in agreement, and casually responded: "If you are short, in addition to looking at the fundamentals, you also need to look at the ......."

"Short?" Soros's voice of disbelief immediately sounded again, this time Soros's face was full of shock, and it didn't look like a fake, "John, do you understand what I said?" I mean give them a lesson, a lesson that will never be forgotten, to let them know that we are not in the hedge fund world that they can manipulate at will! ”

Seeing Soros's expression, Paulson's heart was full of chuckles, and a thought that he had never thought of suddenly popped up. Oh my God, what a crazy guy it would have to be to come up with! Paulson shuddered with shock, but soon the horror turned into excitement, yes, excitement.

The lesson Soros said was not to short the stock of an investment bank, but to bring the company down completely, and to short it until he went out of business!

Paulson is not a man of all his life, otherwise he would not have been able to bet his entire money on the CDO market, or he would not have been able to achieve a staggering 700% yield. So after thoroughly understanding what Soros meant, he was indeed a little shocked at first, but soon this shock turned into excitement, the kind of excitement after making money.

"Just the two of us?" Soon, Paulson spotted a problem. Although the total scale of their funds under management is as much as three to four billion dollars, these funds have been invested in the market, and if there are no accidents, it will be difficult to realize them in the short term, so if they want to force an investment bank to go bankrupt, they may not have enough liquidity.

"Of course not you and me!" Soros regained his old god's presence, shook the glass in his hand gracefully, and said one name after another that surprised Paulson, "And Julian. Robertson, Jim. Chanos, Kenneth. Griffin. Well, if that's the case, it should be enough! ”

Giants, all giants in the market. Paulson shouted in his heart, these people are together, I'm afraid there are not many things they can't do in this world. He doesn't know how Soros persuaded others, but he knows very well that Soros's claim that the hedge fund industry has taught the investment industry a lesson is pure nonsense, at least in his opinion.

"Last question, what are we aiming for?" After thinking about it in his heart for a long time, Paulson decided to follow Soros to do this vote.

Soros didn't answer immediately, and after drinking the wine in the glass, he replied disdainfully: "John, didn't I sue you a long time ago?" ”

Paulson was dumbfounded! (The novel "The Son of Finance of the Great Era" will have more fresh content on the official WeChat platform, and there will also be a 100% lottery gift for everyone!) Open WeChat now, click on the "+" sign in the upper right corner to "add friends", search for the official account "qdread" and follow, hurry up! (To be continued......)

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