“Confused.” Perkins repeated the analyst’s comment with relish, for this was his favorite of all possible market conditions. “People are assuming that the Germans are coming to the rescue. But they aren’t. Why should they clean up France’s mess? They aren’t weaklings, like Greece and Portugal, they’re supposed to be coequals. The French spreads are going to widen. Go tell Cameron we want to short every debt or equity issue that says France. Will you do that? Right now, please.”
Fiona scrambled out of Perkins’s office onto the trading floor, where she found Cameron Cummings, the lead trader in Eurozone markets. He wore blue-framed glasses, which made him look like a model in Men’s Vogue. But he was a killer, like most of the people on the floor.
While Fiona was relaying the boss’s orders, Perkins had thought of a further refinement. He pushed a button on a microphone in front of him, which activated the squawk box; he punched two more buttons, so he was connected directly with Cameron’s desk.
“Do this carefully, please. Don’t scare the market. Do it in small bites this morning, not all at once, so the dealers don’t get it. If people see what we’re doing, they will all want to sell. Can you use a cutout, Cameron?”
“Morgan Stanley owes me. They’ll do the first fifty bucks on their account,” said the man who managed the Euro debt portfolio.
“Brilliant.” Perkins disengaged the squawk box and turned back to his market strategists. “What do we know about the ECB, Dominic? Anything new?”
Dominic Caprezzi, the balding, well-fed analyst who followed the European Central Bank, spoke up.
“I met last week with George Paternoster, the deputy chief economist at the ECB. He didn’t exactly say so, but I think they’re going to start tightening again.”
Perkins shook his head. “Paternoster is getting fired. I have it on good authority. I meant to tell you. What about the German yield curve? Did he say anything about that?”
Heads nodded around the table. German interest rates were one of the big market plays in hedge-fund land right now. Short-term rates had gone up so much recently that the curve was flattening. Many traders were betting that long rates would begin to rise, too, to restore the traditional upward-sloping curve.
“Long rates have to rise,” said Dominic, echoing the conventional wisdom. He got a bit pedantic at that point, reminding everyone that higher long yields were rational, and thus inevitable, because they were the commensurate reward for the risk of holding money for a longer period.
“Nope,” said Perkins, cutting him off. “It’s not going to happen. Here’s the narrative: Flat yield curve; ECB happy with it; wants long-term rates low. End of story. Our bet is a flat yield curve.”
“Are you sure?” asked Dominic warily. Perkins encouraged his analysts to challenge him, though they were never convinced he meant it.
“That is an epistemological question, which I cannot answer. What is certainty? But I think I’m right. And that’s enough.”
He got on the squawk box and called for Cameron again. “Watch your Eurobond maturities, please. And keep buying at these prices, even if everyone else is selling. They’re wrong.”
Perkins turned to Sophie Marx. She had been watching this drill with intense interest-not simply in appreciation of how finely the instrument was tuned, but because she was curious where the information came from: How much was normal market intelligence, how much was guesswork and how much was secret information-telephone and email intercepts, or well-placed agents inside central banks-that had been acquired by U.S. intelligence and passed on to Perkins? It was impossible to know, and that was the point.
“Do you have anything for us, Miss Marx?” he asked. “You’re the new kid, but don’t be bashful.”
“I do have a little something.” She smiled coyly. These people didn’t know her. She was the tryout.
“Delicious. Tell the class, please.” The Pacman’s mouth was open, ready to chomp another new asset before it was time for lunch.
“This would be a good time to buy oil and gas in the commodities markets, raw stocks and futures both.” She spoke slowly in a voice that quavered slightly with the anxiety and uncertainty that a newcomer would feel.
“Do you think so?”
“Yes, sir, and it would also be a good time to short the stocks of Russian oil and gas companies and any foreign majors that market Russian supplies.”
“And why is that?” asked Perkins. She hadn’t briefed him in advance, and he was genuinely curious. “Most people have been going the other way. They think energy prices have peaked for a while. And they like the Russians. Why do you think different?”
“The Russians have pipeline problems.” She spoke so quietly that people at the far end of the table had trouble hearing her.
“Is that so? Well, I haven’t heard anything about them. And I follow the energy market pretty closely.”
“It’s not really public yet, Mr. Perkins. But there was a rupture of the Russian gas pipeline in western Ukraine two days ago. They shut it down yesterday, and it’s going to take quite a while to fix. I think.”
Everyone was silent. This was big, market-moving information if it was true.
“Well, fancy that,” said Perkins. “I like it. In fact, I love it. Let’s do what the new kid says. What say, Ivor?”
Ivor Fyfe, the firm’s chief risk manager, was skeptical. He dealt in probabilities, and it was highly improbable that this new analyst, whom nobody had ever heard of, could come up with such a scoop. He enforced the firm’s self-protective trading rules, which mandated that any trader whose account was down 5 percent be put on watch, and the account of any trader who lost 10 percent be suspended. Now this neophyte, fresh off the street, was proposing to gamble with the capital of a firm she hadn’t yet been invited to join. It offended him.
“Not to rain on the parade,” said Ivor, “but how do you ‘know’ this, Miss Marx? I mean, did a little Russian birdie tell you?”
“I have a friend in Ukraine,” Sophie answered. “He just visited Lviv, near where the pipeline has one of its transit stations. He heard about the problem yesterday. They’re trying to hush it up, but people in the town know about it. He says it’s a big deal.”
Perkins goaded her.
“And why is it such a big deal, please?”
“It’s big because the rupture came just after the point where the two feeder pipelines, Soyuz and Brotherhood, join up and form the Trans-Gas line. I checked this morning. The pipeline throughput into Poland has stopped. They say it’s just routine maintenance. But it isn’t.”
Perkins’s eyes were flashing. He was excited.
“So tell us, Miss Marx: Should we make a big bet here?”
She nodded vigorously. Her ponytail flapped against the back of her neck.
“Ivor? Last chance to be a skunk.”
Fyfe looked glum, but he nodded and said, almost inaudibly, “Okay.”
“Let’s do it, then. Call Stan in here, someone. He can coordinate the trades.”
Stan Ferber was summoned: He followed Russian securities, and he helped plan the trading strategy for the day. They would move decisively, but veil their hand wherever possible, taking positions before the information got out and the markets turned. The oil and gas positions were long; the Russian equity positions were short.
Sophie went back to her desk to watch the action. There was an animal intensity on the trading floor. The whole room seemed to know within sixty seconds that they were about to make some very large bets on the strength of a tip from a newcomer who had just walked in the door.
Perkins ambled over to her desk, amid the controlled pandemonium of the trading preparations.
“I’ve corrupted you,” he said. There was a curious look on his face.
For most of that day, Alphabet Capital got killed in the markets. Gazprom put out a statement that it was conducting routine maintenance in Ukraine and Poland, and most traders accepted it at face value. By noon, the firm was down over two hundred million dollars, on paper, and by early afternoon the losses had risen to over three hundred million and were still increasing.
Ivor Fyfe went to see Perkins at one-thirty. The risk manager’s job was to do just that-limit the firm’s exposure to large market swings-and he didn’t like what was happening. On a typical day, Alphabet Capital made or lost half a percentage point on its portfolio. If it limited its risk to one point a day, it stood to make a solid 16 percent return annually, in good markets and bad. If it risked three percentage points, it could make a much more exciting 48 percent return. But Perkins was blowing out even that risk-reward formula, based on the musings of a
