Comstock Risk was an arb fund, and arb funds invested in two areas, company takeovers—both announced and rumored—and currency plays. It used leverage to double the bets, maybe triple them, but never more than that.
Comstock Newton was a quantitative fund. Frankly, Astor had no idea what its team did, except that they did it with lots of math and sophisticated algorithms that predicted whether stocks or gold or oil, or whatever you might want to bet on, would go up or down. Much of their work involved high-frequency trading, which meant buying and selling stocks hundreds of times an hour. Competition among high-frequency traders to see who got their orders in first had become so intense that the New York Stock Exchange even allowed firms to position their computers in the same building as the Exchange’s, a prisonlike facility in the wilds of New Jersey. Even a delay of a millionth of a second could mean significant losses.
Astor’s quant team didn’t work in Manhattan but in a locked-down bunker in Greenwich, Connecticut, where they could bang out code day and night. Rumor was that from time to time they threw geek orgies, which involved drinking the latest microbrew, gobbling Slim Jims, and formulating new and ever more sophisticated algorithms. All math, all the time.
Together, these three funds managed $2 billion. Quant was doing best this year, boasting a 27 percent return. The Risk fund was faring poorest, returning only 4 percent.
And then there was Comstock Astor, the fund that Astor managed himself. Comstock Astor was a macro fund, which meant that it bet on the bigger picture, specifically the direction of currencies. Since currencies didn’t move very much, the Astor fund relied on leverage to amplify its bets. Borrow enough and a 2 percent move up or down meant a 20 percent gain or loss. Keep borrowing and the gain could become 200 percent. Leverage was a drug. The more you used, the more you wanted to use. Making money…up your leverage and hit a home run. Losing money…borrow more and make your money back.
Traders were never wrong…until they were.
The Astor fund managed $3 billion on its own. As of this morning $1 billion was invested in “the position.”
Finally, at eleven o’clock, there was the weekly Monday review, when Astor’s managers met to discuss the status of their funds, what had gone up, what had gone down, to bitch about the market if things were going badly, and to brag if things were going well.
“Time for the conference to start,” said Shank.
Astor checked the screen. A news feed ran across the bottom: Press conference rescheduled to 0800 Chinese time. “Looks like we’re out of luck.”
“What?” Shank shuffled over and read the banner. “Oh eight hundred Chinese time, that’s nine tonight our time. I’ll have to catch that at—” Shank ended his words midsentence. “Holy crap.”
“What is it?”
Shank stood transfixed in front of the currency monitor. “The position.”
“What about it?”
“6.295,” said Shank. “6.292. The fucker is strengthening.”
Astor rolled his chair closer to the screen. “It can’t move that fast.”
“It” was the Chinese currency, officially named the renminbi but better known as the yuan. And the 6.292 referred to how many yuan it took to buy one American greenback. If the number went down, the yuan was said to be strengthening versus the dollar. Fewer yuan were needed to buy one dollar. (Conversely, the dollar was weakening.) If the number went up, the yuan was weakening. More yuan were needed to buy one dollar. (And conversely, the dollar was strengthening.)
Another screen broadcast the value of Comstock Astor’s investment in the position. One minute earlier, the digits had blazed a healthy black and showed a $50 million gain. The digits were red now. All nine of them.
“Are we down a hundred million?” said Astor.
“Looks like it,” said Shank.
Bobby Astor was betting that the yuan would weaken against the dollar. He was sure that soon it would require more yuan to purchase one dollar. He wanted the number to increase. He had bet $2 billion of his fund’s money that he was right.
And then, before Astor could say another word, before he could blink, the digits turned black again.
6.30.
“We’re back in the black.”
Shank looked at the screen as if it had bit him in the ass. “What just happened?”
“No idea,” said Astor. “But I’m guessing it has to do with why the trade representative rescheduled the press conference.”
“Jeez—ya think?” said Shank.
For the past ten years, China had been allowing the value of the yuan to appreciate versus the dollar. The movements were slow and steady, just 1 or 2 percent a year. Five years ago, it had taken seven yuan to buy one dollar. Today it was only six and a third. This “revaluing” or appreciation of the yuan made Chinese exports more expensive and U.S. imports cheaper. The United States liked this. China did not.