unwind.
I showered and just made it to lunch. I munched my way through an exotic Mexican salad, half listening to a Bloomfield Weiss economist drone on about the importance of recent non-farm payroll figures in the deliberations of the Federal Open Market Committee.
The first presentation after lunch was by Hank Duralek of Beart, Duralek and Reynolds, the kings of leveraged buyouts. Their firm had just bought the biggest biscuit manufacturer in the world, for a breathtaking $27 billion, easily the largest deal in history. Duralek was convincing, arguing that it would be easy to make enough cost savings to finance the mountain of debt which the company had taken on. I was intrigued, but I thought I would wait to see what happened to the company over the next year. It was just a little too risky for De Jong's first investment in junk bonds.
Then came an extraordinary presentation from the notorious Marshall Mills. As he himself said, his greatest achievement was to marry an actress a third of his age. He was a short stocky man in his sixties, who breathed heavily as he talked. A handkerchief was never far from his balding brow. But his eyes were tough and beady, full of energy as they darted about his audience. As he began to speak, the atmosphere in the room became electric. The earnest young men polished their glasses, stuck out their jaws and glowered. Mills's audience didn't like him. But he didn't care.
He told us the story of his success. Thirty years ago he had inherited his father's small oil company based in Tulsa, Oklahoma. Over the next couple of decades he had grown the company from a little cluster of nodding donkeys to one of the largest private oil and gas concerns in the state. He had used innovative financing techniques to achieve this growth. 'Innovative financing techniques' was a phrase which reappeared regularly in Mills's talk. I soon realised it meant finding a sucker, and borrowing as much as you could from him, in the hope that whatever you had bought with the money he had given you, went up in price. If it did, you made millions, if it didn't, then the sucker lost. It was a strategy followed successfully by a number of America's great entrepreneurs.
In 1982, after the second oil-price hike, Mills had made his boldest move. He had borrowed several hundred million dollars to finance the development of oil finds in Utah and Colorado. Mills portrayed the episode as a dramatic success. My recollection of events was that the drilling had been left unfinished as oil prices dived below $15, instead of rising above $50 as had been predicted. Somehow Mills's original businesses had ended up with all the cash, whilst the non-recourse subsidiaries held all the debt and a few half-drilled holes in the Rocky Mountains.
He had pulled the same stunt five years later in an attempt to use 'innovative financing techniques' to build a network of gasfields across the south-west of the United States. Once again, it had all ended in tears for Mills's hapless bondholders. The way Mills told it, though, they had been honoured witnesses to one of America's great entrepreneurial successes.
The audience was restless during this self-eulogising. When his speech was over and he asked for questions, a dozen people leapt to their feet. It was clear that a number of them had participated in some of these 'innovative financings'. After the fifth hostile question, Mills's patience wore thin. He interrupted an enquiry about why his refining company had failed to make an interest payment when it had $50 million of cash on its balance sheet, by saying, 'Look, you guys are lucky. You buy my bonds, and you have Marshall Mills working his guts out for you night and day. There are many people who would give their right arms to have Marshall Mills working for them. Now I have something to tell you, which really will give you something to worry about.' Suddenly there was silence in the hall. It gets worse? 'You may not have Marshall Mills working for you much longer.' The wheezing became more pronounced. 'My doctors have diagnosed a heart condition. I could live ten more months or ten more years. But I think it will be prudent for me to retire soon and spend more time with my darling wife.'
The audience cheered up at this. No doubt many of them hoped that the actress would be more comfortable with the notion of repaying debt than Mills was. Two or three people quietly sneaked out of the conference hall. Later, on the way to dinner, I was not in the least surprised to hear that most of Mills's companies' bond issues were up five points.
I joined the two hundred other participants in a huge ballroom dotted with tables laid for dinner. I walked over to my table. Cash was there with Cathy and Waigel, from Bloomfield Weiss. Apart from myself, there were two other clients there.
'Hey, Paul, how're you doing?' Cash yelled across the table. 'Glad you could make it all this way. Let me introduce you. This is Madeleine Jansen from Amalgamated Veterans Life, and this is Jack Salmon from Phoenix Prosperity Savings and Loan. Madeleine, Jack, this is Paul Murray, my best client in London.'
We exchanged smiles and nods. Madeleine Jansen was a small quiet-looking woman. However, as she smiled and said hallo, her eyes displayed a striking intelligence. Jack Salmon was a tall thin man a few years older than myself. He had slightly buck-teeth and fidgeted nervously with his left hand as he shook mine with his right. I found I was seated next to him, with Cathy on my other side.
'I have heard a lot about your institution,' I said to Jack.
'Oh yeah?' he said, clearly pleased. 'I didn't know anyone had heard about us outside Arizona, let alone in London.'
'Ah, but you make quite an impression on the eurobond markets, don't you,' I said, consciously trying to flatter him.
'As a matter of fact we do a lot more in those markets than you would think, for an institution our size,' said Jack.
'Such as in a recent much-maligned deal for a country not a million miles north of Denmark?' I said, putting on a sly smile.
Jack returned it. 'Now you come to mention it, yes. How do you know about that?'
'I make it my business to know,' I said. 'Actually we took a lot of that deal ourselves. I think we and you were about the only investors to buy the deal when it originally came out. It's not often that one gets a chance to clean up like that.'
Jack laughed, 'As Cash would say, 'That was a sweet deal!' I sure enjoyed that one.' He took a large gulp of wine.
Stroking this man's ego was not going to be difficult. 'It's strange for someone based so far away to be so successful in the London markets. How do you do it?' I continued.
'Well, we like to think we are quite cosmopolitan at Phoenix Prosperity. More so than your average investor in the States. I like to keep up with European news and events. I spent three months there when I was at school. And we know Cash Callaghan from way back.'
Ah, the real reason, I thought.
'Do you do much of your business with Cash?' I asked.
'A fair amount,' said Jack. 'He has a very good handle on the markets and comes up with some good analysis. He seems to be able to relate to my ideas.'
I bet he does, I thought. Phoenix Prosperity was an ideal account for Cash. I could imagine him inciting Jack Salmon to buy and sell all manner of bonds all day, whilst he steadily notched up sales commissions. 'Yes, we find him good too,' I said.
'Have you been involved in the junk market for long?' Jack asked.
'No, we are just starting. And you?'
'Oh, we've been doing it for a year or so.'
'How have you found it?'
'It's a blast. But you have got to have balls. If you find a good deal, and it gives you a 16 per cent return, and you are comfortable with the credit, then you have got to buy a lot of it, know what I mean?' Jack gave me a knowing smile.
I nodded. This guy is dangerous, I thought.
'But they won't let me do it,' Jack went on. 'If I buy more than one or two million they panic. I tell you, it makes it hard to make any decent money.'
So there was someone sensible, somewhere, controlling Jack.
'Are there any companies I should look out for tomorrow?'
'Yes, there is one I like. 'Fairway.' I think they have a good story.'
' 'Fairway'?' I said. 'What do they do?'
'They make golf carts. You know, the little buggies you drive around golf courses.'
