Vol 6 Chapter 153: Eye of the storm

If you can hear Feng Yiping, someone on Wall Street will follow him and say, "Big brother, we can't hold it long ago!"

The Chinese say that there is a cycle in twelve years. The Americans say that everything has a cycle.

For some people who have been on Wall Street long enough and have experienced several market cycles, they will know that the financial crisis is actually part of a market cycle.

The market always circulates between good times and difficult times.

Including the United States, the economies of all countries in the world have never developed at a uniform speed in history, but have shown natural fluctuations like ocean waves.

Often after a period of prosperous expansion, there will be a tightening cycle due to reasons such as excessive financial leverage caused by credit expansion and excessive supply growth exceeding demand.

The economic crisis is the climax of the tightening cycle.

The Chinese say that blessings come from misfortunes, and the Americans say that there are opportunities in risks, and there are risks in opportunities.

There is no need to look back too long. Just look at the last 20 to 30 years. Based on experience, some people will conclude that the next crisis should be approaching.

In 1987, the US stock market experienced a seven-year surge. On the Black Friday of October 16, there was an unannounced plunge. In the following weeks, panic spread across the global stock market and turned into a global crisis.

By the end of that month, the U.S. stock index had fallen by nearly a quarter.

Ten years later, in 1997, the fast-growing Southeast Asian countries triggered the Asian financial turmoil because of the wrong exchange rate policy and overheated economy.

Although the Asian financial turmoil had little impact on the United States, seven years ago, in 2000, the Internet bubble burst into the sky, the Nasdaq stock index plummeted, and the global high-tech industry entered a two- to three-year winter. .

After that, the U.S. government took a series of measures to successfully recover the U.S. economy.

The current crisis facing Wall Street is precisely related to these successful market stimulus measures.

With the improvement of the economy, Americans' demand for securities investment has increased. In recent years, the securities used for investment have not worried about being sold, only that there are too few stocks, and no one has to buy them.

Therefore, for those on Wall Street, the biggest problem they face is how to design more products.

As a result, some new products that even many people on Wall Street don't actually understand are quickly pushed out, and the most sought-after ones are real estate-related securities.

Because from the perspective of those on Wall Street, Home Ownership is also the wish of the general public in the United States. How many fools are they stupid enough to cut off the house that has also concentrated their lives?

The car supply may still be cut off, because even if the car is taken back by the bank, the life can still be passed, but if there is no house, how will life go?

Do all the children live on the road?

As a result, based on housing loans, a large number of securities were derived and quickly bought by various institutions and investors.

The products that were later proved to have detonated this crisis, guaranteed debt certificates, and CDOs, whether for Wall Street practitioners or for people who wish to invest, were still the darlings of financial innovation before 2007 and were the most popular. One of the most welcome products.

From the rising income of Wall Street practitioners this year, we can intuitively see how hot the relevant situation will be.

According to statistics from the US Revenue Service, in 2006, the average annual income of more than 300,000 Wall Street employees exceeded 300,000 US dollars, which is about seven times the average American income.

And we all know that, in terms of the cost of living in the United States, an annual income of $50,000 is an authentic middle-class family.

It should be said that it is not that no one will have the question of "whether there is a bubble in the current market" after getting such a high income, but these people also believe in the risk pricing evaluation system of Wall Street.

Therefore, there should be no major problems.

This hot situation has undergone some changes this year, and many people still have a lot of goods on hand, but it seems that the price has fallen rapidly.

But at the beginning, no one thought this was a problem. It was just a temporary adjustment of the market, so many people chose to hold it in their hands and refused to make a move. Now, some people finally feel vaguely, ah, this market, Is the whole thing broken?

Wall Street.

The fifth largest investment bank in the United States and a leader in the field of real estate loan-backed securities. In Bear Stearns' office building, a disturbing sentiment is wandering around this company with a history of more than 80 years.

Bear Stearns's former star fund manager, Ralph Theofi, can now be said to be a mess.

Ralph Theofi, in charge of two Bear Stearns funds.

One of them, the Advanced Structured Credit Strategy Fund, or HGF for short, was established in October 2003. It mainly invests in low-risk, high-rated securities-such as CDO funds that are rated "AAA" or "AA" by Standard & Poor's.

Relying on Bear Stearns' influence, this fund easily raised $1.5 billion in assets.

Under the leadership of Saiofi, through the use of leverage tools to invest, in the following three years, this fund has indeed given investors very ideal returns.

The scale of the fund has also expanded rapidly. At its peak, the fund raised exceeded US$10 billion.

Of course, Bear Stearns' own profits are even more impressive, and the performance fees they charge are as high as 20%.

Saiofi, therefore, became a star manager in the eyes of Bear Stearns and users.

But since last year, as the real estate market went down, Saofi’s fund managers have successively received redemption requests from investors when they were ready to build.

Once redemption occurs, the fund must sell part of the securities, and because of the downward adjustment of the real estate market, the market price of the relevant securities is lower than their expectations.

As a result, the performance fee of HGF will be damaged. Later, the loss report may frighten other investors, leading to more redemptions...

At that time, in order to avoid falling into such an unfavorable cycle, in August 2006, Saiofi persuaded the management to agree to establish a new fund, the "Advanced Structure Enhanced Leverage Fund", that is, HGELF.

It is an upgraded version of HGF with higher leverage, but therefore a higher rate of return.

As for the high risks brought by high leverage, “the new fund is relatively safe because we have superb management skills and will do some hedging,” Saiofi told investors at the time.

Out of trust in Bear Stearns and Saiofi, and confidence in the real estate market, or in other words, out of the expectation of high returns, some investors who redeemed funds from HGF ~www.wuxiaspot.com~ turned to Invested in HGELF.

But since then, although there have been some corrections, the U.S. housing market has not seen a significant rise as Saiofi expected.

And because of the use of high leverage, HGELF is very prone to suffer losses when housing prices fall.

If before, Saiofi can continue to keep investors optimistic and call on them to look forward to the improvement of the market. Now, Saiofi himself feels that things can not usher in a turnaround.

Because according to the financial statements he obtained, all the assets of HGELF, which used higher leverage, have been wiped out at this time. HGF's assets are slightly better, but there are also few remaining.

The more critical point is that there are few mile left, and it also contains the $1.6 billion emergency fund he obtained from lobbying the company's management last month.

In a short period of more than a month, such a huge loss was caused. Saiofi, who was once vigorous, was helpless at this time.

He took another look at the latest real estate trend, the trend is still depressing, and there is no miracle he expected.

And the phone on the desk, indicating that there are incoming calls, is constantly flashing, and it must be an investor asking about the status of the fund.

And those investors include some big clients who even Bear Stearns dare not neglect, such as Goldman Sachs, Merrill Lynch, and other well-known Wall Street investment banks.

Saiofi thought for a while, sorted it out, took the relevant information, and walked towards the office of the company's CFO.

This former star manager, at this time, seemed to be a little desolate and easy to be cold, and the strong man was tragic forever.

At this time, he didn't know that he had become the eye of a huge storm, and the lethality of this storm was far beyond his imagination at this time.