Entering July and August, under Andrew's cautious operation, Zhong Yi's account had already established a short position of twenty million US dollars. Although he had been very careful, such a large sum of money still attracted the market's attention.
In fact, the US stock market had been rising since 1982. By December 1986, the New York Dow Jones Industrial Average had reached 1,896 points, a 78% increase from 1982.
Moreover, the US government had relaxed regulations on the financial market and provided tax incentives for stock investments. Under the dual benefits of these policies, a massive amount of international speculative capital flowed into the US stock market, driving stock prices even higher. Among these speculative funds, those from Japanese conglomerates were the most aggressive. In the first nine months of 1987, new funds flowing from Japan into the US stock market alone reached 15 billion US dollars, and stock prices had clearly shown signs of a bubble. In August, the Dow Jones Industrial Average reached a record high of 2,722 points.
At the same time, the real economy supporting the virtual economy did not show the same rapid growth as the stock market. By 1986, the US economy had shifted from high-speed growth to slow growth, and the fear of economic recession loomed over people's minds. Additionally, the US trade deficit and fiscal deficit were growing at an alarming rate. In 1985, the US once again became a net debtor nation, with a debt exceeding 100 billion US dollars, making it the world's largest debtor nation. These debts continued to increase in the following years. In such a situation, the growth of the stock market was illogical.
Indeed, this was the case. Since August, the New York stock market had begun to show significant volatility. After reaching 2,722 points, the Dow Jones Index stopped its upward trend and fluctuated continuously.
...
In Tokyo, Japan, at the trading department of Sakura Bank, Sakata Tarō stood straight, his head bowed low, and he kept saying "Hai."
Sitting in front of him was a middle-aged man in his forties, with a goatee, dressed in traditional Japanese clothing, and wearing wooden clogs, which stood out sharply in the office environment of suits and ties.
This man was Kaga Kaoru, the vice president of Sakura Bank, responsible for international business. He was known for his traditional ways and his strong commitment to Japanese culture, so he wore traditional clothing even at work.
"Sakata, what are your thoughts on this matter?" Kaga Kaoru, kneeling on the tatami mat, picked up his teacup, drank it in one gulp, and then slowly said.
"Yes, this is all my fault, and I will take full responsibility," Sakata Tarō's head nodded like a chicken pecking at rice.
"No, this is not your fault. In fact, without your bold pricing, we would have lost even more," Kaga Kaoru's expression was wooden, and he slowly shook his head, then started to boil water for tea again.
"Yes," Sakata Tarō hurriedly replied, bowing his head even lower. He was now confused about why Kaga Kaoru had summoned him.
After waiting for a while, until the red clay teapot in front of Kaga Kaoru had been steeped three times and the tea had become quite light, Kaga Kaoru finally stopped his actions and called out to Sakata Tarō, "Sit down and talk."
Japanese society is hierarchical, and this is also true in companies. Although superiors and subordinates can sit together in meetings, in such informal settings with only a tatami mat, Sakata Tarō dared not sit down.
"No, I'm fine standing!" Sakata Tarō bowed his head and respectfully replied.
"Very well, let's get to the point. I plan to have you take charge of the futures market, specifically the stock index futures. What do you think?" Kaga Kaoru put down his teacup, his expression serious, and stared at Sakata Tarō, asking solemnly.
Sakata Tarō had studied in the United States and graduated from the prestigious University of California, Los Angeles. After graduation, he worked at the famous Chase Bank. However, with the rapid growth of the Japanese economy in recent years, the demand for such talent has increased. Japanese talent with experience in the US capital markets is highly sought after by Japanese conglomerates.
Sakata was a high-level talent recruited by Sakura Bank from the US. Originally, the bank's senior management wanted him to be the head of the derivatives trading department, but due to the strict hierarchy in Japanese society, he had to start as a junior trader. However, this trader reported directly to the vice president, making him equivalent to a department head. This is why Sakata had significant influence in options pricing.
"Yes, I will do my utmost and dedicate my life to this!" Seeing that he was not punished and was even promoted to a higher department, Sakata Tarō was overjoyed and eagerly agreed.
Unlike the options department, the stock index futures market has a much larger trading volume, with daily operations involving hundreds of millions of dollars. The futures department is also one of the most profitable departments.
Japanese banks operating in the US capital market are not subject to the regulations of the US financial sector. With the appreciation of the yen, Japanese banks holding large amounts of US dollars are actively seeking opportunities in the US capital market.
"According to the research department's report, the US economic growth has slowed, which is inconsistent with the rapid growth of the capital market, especially the stock market. Therefore, the senior management has decided to allocate an additional 100 million US dollars to the stock index futures market, hoping to achieve significant gains."
Kaga Kaoru nodded and explained his plan to Sakata Tarō in detail. He had full confidence in the respectful Sakata.
In fact, within Sakura Bank, Sakata Tarō's actions two years ago were generally praised, but the appreciation of the yen was far beyond market expectations.
The options trade with Zhong Shi was the largest loss for Sakura Bank in the options market. Although the loss of several billion yen did not severely impact the bank, it became a laughingstock among Japanese conglomerates.
In recent years, Sakura Bank's expansion strategy has been very aggressive, especially in overseas operations, where it has been a leader among Japanese banks. This major setback abroad made other Japanese banks mock them. Therefore, Sakura Bank was determined to make a significant profit in the US financial market to regain its lost face.
"I know what to do!" Sakata Tarō said, "Hai," and seeing that Kaga Kaoru had no further instructions, he quietly left.
...
In July and August, Sakura Bank's account quietly began to accumulate S&P 500 futures. Unlike Zhong Shi, Sakata's direction was to go long, and he took advantage of the rising stock market to make a significant profit in the early stages.
"What? That account is accumulating short positions again, and it's said to have a position of several million US dollars?" Although he had made a lot of money from the market, Sakata did not relax his vigilance. He knew that the market could change in an instant, and risks were always present.
By chance, Sakata noticed an account on the market that quietly accumulated short positions every day. The amount was not large each time, but the position was very firm, and there was never any reduction. Sakata became interested and began to closely monitor this account in his daily trading.
Through some covert means, Sakata discovered that this account belonged to the brokerage firm that had made a large profit from Sakura Bank before, and the funds were said to come from Hong Kong, which matched the transaction that had defeated him!
This discovery greatly excited Sakata. He never expected that they would meet again so soon, and this time in a different market.
However, the daily trading volume in the main contract of the S&P 500 futures market was in the billions, and the daily margin requirement was over 100 million US dollars. Although Sakata had several hundred million US dollars at his disposal, dealing with such a small short position seemed like using a cannon to swat a fly.
Another reason Sakata held back was that, although the account was losing money every day, it did not change its strategy and continued to accumulate short positions firmly. This puzzled him. Could the opponent be a novice who didn't understand the rules of futures trading?
He dismissed this thought. If the opponent was a complete novice, how could they have made such a large profit through hedging?
The opponent must be an expert! This was his conclusion, and it made him cautious. He believed the opponent was waiting for the right moment to strike. The thought of facing this mysterious opponent excited him, and he trembled with anticipation. The opportunity to avenge his humiliation had come!
After the Dow Jones Index reached 2,722 points, it stopped rising and turned downward, which caught many people off guard. Sakata also felt the pressure. He opened short positions to hedge risks and closely monitored the movements of the mysterious account.
Sure enough, after the initial losses, the account's pace of accumulating short positions accelerated in August, opening new short positions at a rate of several million US dollars per day, and the floating profits gradually increased.
"Indeed, an expert!" Sakata thought to himself, but with his substantial funds, he was not afraid.
"Open a long position of 1,000 contracts at 350 and see if anyone takes it," Sakata ordered his trader while watching the numbers on the screen.
According to the margin requirements of the Chicago Exchange, this long position was worth about 4.4 million US dollars, a significant amount.
As expected, the long position remained at the top of the order book, with no interest from other funds. Just as Sakata was about to cancel the order, a message appeared on the screen, and an account quietly took his long position.
"Double open..." Sakata was stunned for a moment, almost disbelieving his eyes. When he recovered, he decisively shouted at the stunned trader, "Open another 3,000 contracts, and see if he takes it!"
(Today, JPMorgan Chase and US regulators reached a preliminary settlement to resolve mortgage-backed securities issues during the financial crisis, with a fine of 13 billion US dollars. These fines will settle all civil lawsuits against JPMorgan Chase, but criminal charges will not be dropped. JPMorgan Chase is accused of defrauding investors during the financial crisis, causing losses of over 20 billion US dollars due to the purchase of mortgage-backed securities (MBS) underwritten by Bear Stearns.)