The Last Trade (2 page)

 

MONDAY,OCTOBER 17, 2011

1

New York City

E
ven now, more than three years later, after everything, numbers are his affliction and his salvation.

Even here, surrounded by beauty and greed and power and the pulse and swagger of a celebrity-studded Monday night in Manhattan, it's the numbers that make the difference, the numbers that guide and haunt and make him unlike anyone else in the room.

Drew Havens planned on quitting his job soon, perhaps within a month or so. He knew that to quit sooner, before bonuses came out, would be folly, even though he's reached the breaking point and is financially set for years and by its own high standards the fund has had an off year. An off year at a hedge like The Rising is something that 99 percent of the other funds would kill for. But thanks to nights like this, years of them, it's getting harder to stick around.

The bottle girl struts across the floor holding a sparkler with one hand and a tray of the latest round of Cristal and Grey Goose in the other. She bends at the waist and presses her breasts against the shoulder of his suit, apparently to better listen to his question. Havens always has questions and they almost always revolve around numbers. What's safe or high-risk? What circumstances created the past and what will determine what's next? What's right and wrong? What multiples can be unpacked to reveal some sort of truth (if there is such a thing)? Though his question for the bottle girl is numbers-based, this time it's merely rhetorical. Whatever she answers won't matter, because he already knows it's over. He knows he's done with finance, with excess, with the hedge life, with client parties, with the media, with the bloated ego, outlandish behavior, and out-of-control proclamations of his boss Rick Salvado. And with looking the other way when confronted with situations like this:

“Between us, 'cause I can get in trouble,” explains the bottle girl in response to his question, “just for these two bottles, forty-five hundred. And you guys've had like what, seven? Then toss in another ten-k just for the table, and who knows what else you'll add on before you leave, and then you're deep into the land of six figures. Of course, gratuity not included.”

“Of course.” Havens nods, then looks around the corner table, an eight – by twelve-foot piece of temporary real estate that cost his firm ten thousand dollars for the night. Celebrities get these tables for free, but hedge guys, whales in money suits like them—like us, he thinks—have to pay. He considers the two other quants from the firm sitting across from him, a safe distance away from his cynicism and disgust, his burned-out soul, both relatively new, both eating it up as he once did. Then he considers the two good ole boy clients from Texas who made a fortune with them the last time around, more than a hundred million based almost entirely on his numbers, which foretold the coming sub-prime debacle, back in '08.

Finally, he looks at his boss, the street smart and chronically tele-genic Rick Salvado.

Salvado and the rest of the group are surrounded by an equally large gathering of provocatively dressed young women. Their beauty ranges from just-missed runway model to girl next door to contract-girl porn star. Havens is certain that each of these young women would be miles away from here, or at least at the next-best-paying table, if they hadn't been dispatched by their VIP host/pimp and weren't bought and paid for by a bona fide Wall Street money whale like Salvado.

The numbers that the waitress just shared are disturbing, to be sure, but even more disturbing to Havens is how long he's tolerated this kind of thing. Perhaps it's because it's never been a puzzle, or a priority. They were numbers without an equation or a goal, so, until now, they were ignored. But he knows that's not true. He's always known and until now he's always looked away. “In a liquor store,” Havens says to the young woman, “two bottles would run you something like a hundred bucks, right?”

“If that,” the bottle girl answers, glancing down at her cleavage. “But you don't get this in a liquor store.”

“This is true,” Havens says. Then a voice interrupts. “Hey!” It's Laslow, Elysian's bouncer/manager/pimp. In the past three weeks alone Havens has seen Laslow, a white man with a shaved head whose uniform is typically a black leather jacket and biker boots, deliver comp bottles of Dom Pérignon to his table and drag two rowdy men out of the club by their necks, without the assistance of bouncers, like rag dolls. Laslow jerks his head at the girl. Move on from the geek. There's money to be made elsewhere. As the girl leaves, Havens closes his eyes. He's tired. This morning he got into work at five, just as he always did. He checked the foreign overnights. Job numbers. Tokyo. Hong Kong. The futures. Credit swaps. European debt. Consumer confidence, or lack thereof. Housing. Then he checked his life's work, his models. A quantitative analyst designs and implements mathematical models for the pricing of derivatives, assessment of risk, or predicting market movements. There are many kinds of quant, from capital quants who analyze a bank's credit exposure, to model validation quants who ensure that their employer's financial strategies are correct, to Havens's area of expertise: statistical arbitrage quant. A stat-arb quant, most commonly found in a hedge fund, looks for pricing anomalies and future volatility in financial securities, instruments, and sectors—and conjectures their imminent success or failure.

His professional life's work has been data mining, extracting trends and patterns and answers to questions about which he's been rapidly losing interest. Some analysts will also read all the papers and industry publications that they can, the
Journal
, the
Economist
, the
Financial Times
, or the micro-trend-based ramblings of the latest financial blogger on a roll, but Havens avoids all that. He believes that opinions and words are rooted in emotion, and emotion gets in the way of the numbers.

Words have multiple meanings, manipulate behaviors and bend truths.

Numbers do not. Numbers are truth.

For instance, numbers like one hundred grand for another night on the town with a couple of high-net-worth yahoos with a fortune in the fund. The festivities started soon after the markets closed, with drinks at Salvado's table at Cipriani. Hank Paulson stopped by to slap Salvado's back. Jamie Dimon from JP Morgan Chase paid tribute with a joke. At the next table was the SEC honcho trying to bring down Raj Rajaratnam, but no one stopped by there to say hello.

They followed drinks with dinner in a private room at Del Posto in Chelsea, during which they were visited by none other than Molto Mario Batali himself. For dessert, they were served cigars and cognac while a flat screen was rolled out for the gathering to watch and gently heckle Salvado's appearance earlier this morning on CNBC's
Squawk Box
. During his cameo, Salvado's image was accompanied by the text crawl:
Salvado: Still Bullish on America
.

Of course he is. What other choice did the head of a fund called The Rising have? You don't co-opt a Springsteen song and play off the jingoism of 9/11 and then talk down the American economic future.

They kiss Salvado's ass on
Squawk Box
and just about everywhere else in the financial press these days because, thanks to Havens's numbers, he was one of the very few to have had foreknowledge (or fore-inklings) of the sub-prime mess and who had the balls to act and make a killing on it.

And because, as the crawl inferred, he's still betting all-in on an American economic recovery.

Havens's mobile device buzzes. It's Weiss again. The young quant pup Danny Weiss has been calling Havens for days, raving about the direction of the fund and some broader, potentially more duplicitous concerns that have arisen. After the phone stops buzzing, the text icon pops up. Because he's bored, and because a few crazed lines from Weiss are better than any of this, Havens opens the message. It reads:

 

. . . wilt thou not be brotherly to us?

Havens stares at the small screen and shakes his head. It's perplexing, but he can't be angry. After all, he's the one who started this, asking Weiss to take a thorough look into the fund's holdings because as much as he wants them to, the positions currently held by The Rising make no sense to Havens. Part of him hoped Weiss would come back and alleviate his concerns and tell him that, after careful consideration, he can say that Rick Salvado's investment philosophy is backed by sound numbers and models and the Rising Fund is poised to have a killer fourth quarter. But instead Weiss quickly went off the deep end and insisted—without anything of substance to back it up—that things are far, far worse than Havens had thought. Havens told him to dig deeper and Weiss hasn't stopped, which is fine. But texts such as this . . .

 

. . . wilt thou not be brotherly to us?

. . . have Havens worried, not just about the future of the fund, but about the psychological condition of the sharp young guy he hired, and one of the few in this business he actually likes.

He lowers his head and rubs his eyes. From Del Posto ($11,600) they took two limos and Salvado's Bentley to this place. Last year they would have gone to 1Oak or Provocateur, or the less subtly named Boom Boom Room. Tonight, at least until a more freshly decadent establishment bumps it off the Venue of the Moment map, it's this place: Elysian. On the way in, as they were led past the crowd of wannabes outside the velvet rope, Havens quipped to his group, “Welcome to Elysian, the final resting place of the heroic and virtuous,” but either no one picked up on his mythological reference, or they pretended not to hear him.

For Havens the lack of response was one more piece in a mounting pile of evidence that his time with Rick Salvado has reached its expiration date. Havens has been the prized quant for Salvado's already legendary Rising Fund for four years, but as one slightly older analyst recently told him, “Four years at a hedge is like four hundred in human years.”

This is the tradeoff when you are a CUNY-educated nobody, a socially challenged numbers freak who was given a chance to make millions before the age of thirty, plucked seemingly without reason from a going-nowhere back office job in Long Island City crunching derivatives for Citi, and dropped in the role of a trusted quant, an advisor to a genuine master of the universe. It's also what happens when you have a God-given gift for turning numbers into gold.

Havens's phone buzzes. He checks the screen, thinking that it might be Miranda, his former wife. But it's not. It's Danny Weiss again. When Havens made it big they moved him up, farther from the numbers and into a spotlight he does not covet. He was told to hire replacements. Protégés. The only must-hire was Weiss. Havens would like to think it was because he saw something of himself in the young, outgoing, and passionate kid. But it's really because he saw the person he wished he could be. Again he doesn't answer but again reads the text. Even Weiss's most cryptic and scatological notes are preferable to his present company.

This time the text reads:

 

Berlin. 12.42-6

Please, Havens thinks, keep it together for me, Weiss.

2

New York City

D
anny Weiss is having a hard time separating world-changing truth from amphetamine-fueled, sleep-deprived hallucination. A deadly and complex global conspiracy or a fraying string of bizarre coincidences?

Spending three sleepless days holed up in an Upper East Side one-bedroom apartment, hunched over a PC, piecing together a growing web of information while consuming massive amounts of highly caffeinated soft drinks and an ex-girlfriend's diet pills will do that to a mind. Yet for the first time one of his paranoid global conspiracy theories seems to be making sense. Exactly how much sense and how bad this might be is hard to tell because the evidence is far from complete, and he's exhausted and wired.

But still. It's not as if he's an unemployed eccentric. He's a young, highly trained desk quant employed by one of the world's leading hedge funds. And he's certain: The Hong Kong activity that's been coming over the wires is not a hallucination.

If anything, coupled with the growing collection of quotes and symbols and models he's been building, gathering, and holding up against the positions of the firm, it is a validation and a confirmation, the first of the series of trades that he's convinced will end in catastrophe. What level of catastrophe he's not sure. But the clues and the chatter, the scatter plot results, the mean and median correlations, the linear progression, and yes, the vibe (which, he admits, very well might be speed-related) all seem to validate his operational and predictive models and portend something on a historically disastrous scale. Starting now and, best he can tell, culminating this Friday. And while he hasn't quite put together all of the pieces he's certain that somehow The Rising, the fund he works for, is directly linked to it all.

And this conclusion isn't simply deduced from the algorithm of some black box, data-crunching computer model. He employed logic, reason, and intuition, at least to the extent that any of the three exists in the financial world these days. He probed beyond margins and yields and index spread over benchmark and considered the human aspect of the questionable moves. The broader societal shifts, the management teams in place at the securities, their competitive advantage, and the political climate—he tried not just to calculate the numbers, but also to understand them. And still, they make no sense. Unless you're the sociopath behind them.

He steps away from his desktop, stretches, and looks at his phone. Havens, his boss, mentor, and only friend at the Rising Fund, still hasn't answered any of his calls or texts. This doesn't surprise him. Havens is notoriously tech-averse and hard to reach outside the office, not that that has ever stopped Weiss from trying. He's tempted to go down to Del Posto or Elysian or whatever decadent club they're at tonight and drag Havens out by his collar, but he knows such a drastic move could backfire with a low-key guy like Havens. Several times in the past he's cried wolf and been wrong with Havens, and this time he wants to be right before he makes another scene. Havens is the only person who would believe him and the only one he trusts. Plus he's the one who put him on this path, so Weiss doesn't want to blow it.

He sits back down, puts on his headphones—the neighbors shut down the big speakers months ago—and goes back to work and listening to the Clash. Lately his musical choices have been all late-seventies punk all the time. He's deemed it the official soundtrack of overthrowing institutions. The problem, he realizes, is no one hears it quite that way anymore.

He decides that the best way to get Havens to listen is to remain calm and not harass him. He tells himself he needs to chill and continue to discover the truth. He shuts down the Bloomberg software terminal and clicks on the flash drive icon on his screen. Two weeks ago he procured a proprietary piece of highly sophisticated tracking software from the hacker friend of a hacker friend. Two days ago, while tracking activity involving the securities in the Rising Fund at the behest of Drew Havens, he came upon a number sequence dispatched by a server in Berlin that eventually took him behind the firewall at Hang Seng Bank in Hong Kong. And now today, a massive series of trades of American securities is going down at Hang Seng that is taking the exact opposite short positions to the Rising Fund's longs on the same stocks. As he watches it unfold, he's even able to find out the name of the Hang Seng broker executing them: Patrick Lau.

His next click, prompted by the number sequence out of Berlin, takes him to another series of trades, all shorts, just like in Hong Kong, commencing out of Dubai and, curiously, also the mirror opposite of positions held by The Rising. As he leans closer, his screen blinks on and off. When it comes back up, the Dubai page is gone and a Spyware warning briefly flashes in the upper left part of the screen. Wired or not, he knows that this isn't a hallucination and that it's entirely possible that someone out there might be tracking him, tracking them.

He grabs a red flash drive on the right side of the desk and plugs it into port. Because he won't look into any of this on the office computers, everything he has is on this big, clunky desktop. In case he has to run, he wants to have some kind of backup, and to at least have a copy to give to Havens.

While the files are loading, he switches back to Bloomberg and keeps an eye on the Berlin numbers and tries to formulate a model or theory that might make sense of them. What do these transactions have to do with the Rising Fund, and who in Berlin is behind them?

He's still staring at the screen when a new message appears at the bottom of the Berlin page. He reads it, then does a search. After a few moments the software generates two slightly different variations on a response, both of which roughly translate to

 

kill Patrick Lau