Chapter 95 The Big Short

March is here, and so is spring in New York.

At this time, if you look down from a high altitude.

You can see that the suburbs of New York are full of green. The large patches of dark green are trees, and the light green are grass.

Looking at the urban area, the well-connected roads are intertwined and extended among the densely packed high-rise buildings.

The quiet Manhattan River sparkles in the sun.

The blue river surrounds Manhattan——

Skyscrapers and cross-water bridges outline the grandeur and magnificence of a metropolis.

It was a pretty pleasant weekend.

This Monday, 9:20 a.m. EST.

Milo arrived at Paladin Investment on time.

After a weekend of preparation, Nelson signed agreements with several banks.

Paladin Investments used $1 billion as collateral.

With 5 times leverage, he acquired stocks of arms companies such as Lockheed Martin, Hinton Ingalls Industries, Boeing Defense, and General Dynamics worth $5 billion.

In the morning, Lockheed Martin opened with a surge of 5.5%, with its share price reaching $245.3, setting a new historical high.

In the trading room, Milo, who had just finished greeting Nelson, paused for a moment and began to give orders: "Start selling Lockheed Martin shares, 1,000 to 5,000 shares at a time, to push down the stock price first."

His margin account against Lockheed Martin was only $200 million.

With five times leverage, the acceptable increase is only 25 points.

For a $1 billion account, the acceptable loss is $140 million. A loss rate of more than 70% will trigger a forced liquidation.

Even if no operation is done, as long as the stock price of Lockheed Martin exceeds US$255.5, the account will be frozen due to insufficient margin.

There is currently a tolerance of about ten dollars, but the higher the risk, the higher the reward.

Suppose he could sell all these stocks at around $240 and cash out around $1 billion.

Then when Lockheed Martin's stock price falls to around $200, he can buy back all the shares with only $830 million.

The $170 million difference in price is Milo's profit.

This is short selling.

Due to the use of leverage, the number of military industry stocks held by Milo at this time actually exceeded 1% of the total number of the entire arms sector.

If the major shareholder does not intervene, he will be the biggest short seller of stocks of several major military industrial companies.

As Milo started to sell his shares and cash in on his chips, the stock price was pushed down little by little.

The stocks of several major arms companies stopped their upward trend almost instantly, a sharp corner appeared at the end of the thin line, and the K-line began to fall.

This move immediately caused an uproar in the market.

After all, in the face of so many good news, short selling against the trend is simply a crime that goes against the will of the world.

It also attracted the attention of Wall Street institutions, when the positive factors for the entire market had not yet arrived.

Suddenly someone shorted against the trend with a very determined attitude, and this behavior interested them very much.

It also made them think, why does this unknown force want to short sell? Is there huge negative news that has not yet been exposed? Wall Street institutions, like puppies that smell sausages, follow the footprints all the way, eager to find out the reason.

It will take some time for other companies to find their way through the funding channels.

Finally, it was found that the short seller was Paladin Investment, and then Paladin Investment noticed Milo.

But the skyscraper where Paladin Investment is located is less than 200 meters away from the headquarters of Morgan Stanley and JPMorgan Chase.

Morgan Stanley, Group 5 of the Marketing Department.

However, they quickly found out who the short sellers were who were going against the current in the market.

It’s not that their intelligence work is so good that it crushes all their colleagues on Wall Street.

But people from the fifth group of Morgan Stanley's market department have been keeping an eye on Paladin Investment.

When Milo made this unusual move, Yu Katona and his subordinates were the first to know about it.

Yu Katona's subordinates notified their superiors immediately.

"Is he going to take on the entire market?" Yu Katona was surprised, but he did not immediately order someone to launch a sniper attack on Milo.

There are no fools on Wall Street. Yo Katona looked at his two men, Hardy and Lewis, and asked, "Or... did this guy receive some inside information? From Washington?"

Otherwise, how could Milo have the courage to short sell when the entire market was rising?

Lewis shook his head. He was in charge of the intelligence work within the group. "We didn't receive any news. Either Washington didn't give us any news, or the company didn't give our group any news."

But this is impossible.

Just kidding, if there is news from Washington one day and Morgan doesn’t receive it first.

The Mogen family, as well as Big Mo and Little Mo, probably no longer exist.

In front of Morgan, the first financial empire in the United States, the so-called Capitol Hill stock god is nothing more than that.

When it comes to insider information about the United States, Morgan Stanley and JPMorgan Chase are absolutely invincible.

Not to mention that Milo's father is just a congressman, even if Milo's father is the President of the United States.

The latest novel is published first on Liu9shuba!

It is impossible to surpass Morgan Stanley and JPMorgan Chase in terms of obtaining news from Washington.

And the company's intelligence department could not possibly hide the truth from them, that would be a serious dereliction of duty.

Yo Katona and others are aware of this.

So Lewis added, "Unless he himself predicts that Washington will choose to show weakness in the confrontation with the other side."

Yu Katona pondered for a moment. He understood what Lewis meant.

The main focus of the stock market is predictable returns.

If everyone thinks that a certain stock is going to rise, then this stock will rise regardless of anything else.

If everyone thinks a certain stock may fall, then no matter how strong the stock is, it will be affected.

Previously, Americans firmly believed that war would break out, or at worst, it would be a proxy war.

Therefore, military industry stocks in the US stock market have been rising wildly.

But a month has passed and there has been much thunder but little rain.

To date, military industry stocks on the market have actually shown signs of fatigue.

The reason why it still looks so high is that many people are pulling it up to prevent it from weakening.

These people do this.

One is a gamble, that there will be a war, and that way they will gain more.

The military industry stocks on the market must at least double or triple in value.

The other is to prepare for the subsequent short selling.

If you want to make more money by short selling, the natural thing is to let the stock price rise as high as possible.

For a large financial institution like Morgan Stanley, all eggs are never put in one basket.

No matter what the deal is, there will always be someone inside doing the hedging.

Like now, the fifth group of the marketing department headed by Yu Katona continues to push up the stock price.

But in other groups, there must be someone responsible and ready to short sell at any time.

Thinking of this, Yo Katona gave an order, "There is still no news from Washington... At the moment, no news is the best news."

"It's been a month since we received the mission, and it's not good that there has been no action so far."

Yo Katona: “Don’t make big moves. Be cautious and trade on margin.”

Although this is a high risk, the return is high if the bet is right. If the bet is wrong, the worst that can happen is that the deposit is lost.

Hardy and Lewis agreed, and they quickly started to act.

(End of this chapter)