Bloodmoney (24 page)

Perkins rose from his desk and moved to the conference table. He introduced his team of analysts to the new tryout on the energy desk, Sophie Marx. She was appropriately nervous. She had spent a day preparing for the meeting, tutored by Jeffrey Gertz, who wanted her to make a splash her first day. She still wasn’t sure she could pull it off; mercifully, she didn’t have to go first.

Marx looked at her notes. Gertz had arranged for her to do some quick “energy research” with Janko Spellman, a Serbian with a shaved head and big ears who had been a CIA asset during the Kosovo War. He traveled Eastern Europe now, picking up information for Gertz as if it were so much lint on a blue serge suit. He had just returned from a particularly useful trip to Ukraine.

“Talk to Janko,” Gertz had said. “He has the goodies.”

“I don’t like this,” Marx had answered.

“Too late for that. Second-guessing is for losers.”

And he was right. If you wanted a job where you only did things you knew were right, you should look for another line of work.

Perkins clanged his water glass with his pen as if it were the opening bell on Wall Street; it was time to make some money.

“What’s happening in the debt markets?” he began. “It feels like time to sell anything French. Banks are weak, GDP growth is weak. Their bonds haven’t been downgraded yet, but I bet they will be soon. Sell France. Am I right, Fiona?”

Perkins turned to a British woman in her mid-thirties, who was one of his banking analysts. Fiona was wearing thick glasses, and her hair was in a bun. She looked ferocious.

“
La chute
,” she said. “The spread between LIBOR and the French interbank rate has been widening for a week. But the market is confused. The spread was forty basis points as of this morning, down five basis points from yesterday.”

“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 pretty new analyst, and Ivor wasn’t happy.

After the risk manager’s visit, Perkins summoned Sophie to his office. The losses were still mounting, and the whole firm watched her travel the floor, as if she were a prisoner heading for the hangman’s noose. But she walked out several minutes later with a big smile, and Perkins followed her a few moments after that and instructed his traders to double down their bets. A jokester in the back of the room sent an IM to his friends:
office pool: did miss energy just give the boss (a) a blow job, (b) a rim job, (c) a spanking?

The markets began to turn that afternoon, just after two-thirty when the New York exchanges opened. Word was out that Alphabet was making some large bets, and traders were spinning rumors. A little after three o’clock, Bloomberg carried a story saying there were reports that the Russian pipeline problem might be more than regular maintenance. At four, the first story appeared citing rumors that the pipeline had ruptured. Gazprom still wasn’t commenting, but anything Russian was getting pounded now, as the markets began to bet the rumors might be real.

Gazprom issued a statement at eight forty-five p.m., London time, as the New York markets were about to close, confirming that its main supply pipeline to Europe had ruptured. Full repairs might take three weeks to a month. There was a global trading frenzy. Alphabet’s positions, which at midday had been down three hundred million dollars, were now up by nearly three times that amount.

Sophie Marx had just made Alphabet Capital nearly a billion dollars. Stan Ferber, the chief Russia trader, went over to Marx’s desk with a bottle of champagne after the Gazprom announcement moved on the wires. He poured a glass for his new energy analyst, to applause from the traders nearby.

While Sophie was drinking her champagne, Perkins emerged from his office. People thought he had come to join in the celebration, but his face was tight. When he reached Sophie’s desk, he spoke into her ear and asked if she might be free for dinner that night, as soon as the closing bell rang in New York. He looked oddly glum. Ferber and the others pulled back and returned to their desks.

“What’s wrong?” she asked. “You’re a winner.”

“This used to be more fun when we were making real bets,” Perkins said quietly. “It’s too easy playing with a marked deck.”

“So quit,” she said.

He stared at her for a long moment, as if he didn’t think that were possible.

LONDON

Perkins wanted to get
out of London. He proposed flying to Paris in his G5 for a late dinner. He would call Jean-Marie at Taillevent, who would hold a table for them. Sophie thought he was joking, but she didn’t understand: She had just made Perkins’s firm a billion dollars. If she spent a million dollars a day, five days a week, it would take nearly four years to work through that stash. Why shouldn’t she fly on a private jet to Paris for dinner? Money truly didn’t matter when there was so much of it. That was unnerving for Sophie, who had grown up wishing for the things that money could buy. But as she was packing her overnight bag in her room at the Dorchester, her phone rang. It was Perkins.

“It’s too late,” he said. She wasn’t sure at first what he meant. “My pilot says we can’t get a landing slot in Paris until tomorrow morning. He thought I was daft.”

They settled on the River Café, which was outside central London, but only barely. It was a stylish place on the Thames, up near Hammersmith. The interior was shades of blue, a sea-bright carpet and an aquamarine wall, set against the gleaming stainless steel of the open kitchen. Perkins was a regular; he went to places he liked, where risk of a bad meal was low.

Perkins took off his jacket and rolled up his sleeves, and in the low light of the restaurant he didn’t look quite so much like the Pacman. Sophie had been wearing a tight, tailored jacket over a blue blouse. She threw her jacket over a chair, too. One thing about being rich, momentarily, was that you could afford to be untidy. She was a handsome woman: supple, bright-eyed, her face always on the verge of a mischievous smile. And on this evening, relaxing in the afterglow of a successful day, he was a handsome man: shy in the way that famous people are, looking for the things in life that didn’t have a price tag.