It had been Dearborne who suggested the wager, “to make it interesting.” Charlie was hopeless at golf. He’d always thought it a sport for wankers, and he’d never really learned to play; but he knew this was a test, so he flailed his clubs with a will until at last the horrible afternoon was over and he could relax in the clubhouse with Boodles and tonic.
And he could whip out his pen and write Dearborne a check for four hundred and thirty-two dollars, and hand it over with a smile.
Dearborne’s eyes had gleamed, then. Just as they were gleaming now.
The conclusion that Charlie had drawn was that Dearborne liked a fling, but was only happy with a sure thing. Before Charlie’s arrival on the scene, Dearborne’s idea of a fling had been to spread some money on the Cotton Exchange.
Charlie played golf with Dearborne on a regular basis now. And regularly wrote him checks afterward. He considered it a form of investment.
An investment that he hoped was about to pay off.
“Since those straddles,” Charlie said, “you know I’ve played it safe, no flyers. Too many conflicting signals, mate. Too much vega in the market, right?”
“Vega.” Dearborne repeated, the gleam in his eyes fading, going a little abstract. “You mean volatility.”
“Almost. Vega is the impact of changes in volatility,” Charlie said. Too much jargon only confused the man. “I’ve made a nice profit for you, but it was nickel-and-diming, a little bit here, a little bit there. I wasn’t taking any flyers—I was, as you say, risk-averse.”
Dearborne nodded.
“I was waiting for a clear signal.” Charlie grinned, twisted the diamond ring on his finger. “This morning, just as the markets opened, Carpe Diem gave me the signal.”
“Ah.” The gleam returned to Dearborne’s eyes. “Your new program,” he said. The convoluted business of trading options required a lot of calculations, and traders depended on sophisticated computer programs to mash the numbers and spew out the complex answers they needed to make their trades. The programs had names like Iron Butterfly and Jellyroll, and they could assemble raw data at lightning speed and configure awesomely complex combinations of options. Carpe Diem was of the next generation of trading programs. A trading whiz Charlie knew from his days at Salomon’s had slipped Charlie a beta test version of the program. His program was ahead of the market. And he planned for his purchasing to be ahead as well.
“What’s Carpe Diem telling us?” Dearborne asked.
“The economy’s going to tilt into recession,” Charlie said.
“People have predicted that for years.”
“Everyone knew it would happen sooner or later,” Charlie said. “The question is when. Carpe Diem says it’s going to happen now. And because this last boom has lasted so long, I think the recession’s going to be a big one.”
He raised a stub-fingered hand and ticked off the points on his fingers. “Unemployment is down and wages are up, which means a season of inflation unless the Fed acts to cool the economy. Consumer price rises were only point-one percent in April, but that comes off a big rise over the holidays. The visible trade deficit went up over the holiday season, like always, but it hasn’t dropped much in the months since.”
“The Dow is up,” Dearborne offered.
Charlie flashed his grin again. “Those blokes are always the last to know,” he said. “Here’s the two factors that Carpe Diem thought were significant.”
He ticked off numbers on his fingers again. “There’s a debt bomb about to go off in Europe. Public debt is out of control in the old East Bloc—well, that’s normal—and it’s normal for Belgium and Italy, too. But in Germany? Public debt is over sixty-five percent of GDP. Britain’s at over fifty percent. And even the Dutch, for God’s sake, have been on a spending spree.” Charlie dropped his hands, leaned forward, gave Dearborne a look from his baby blues. “It can’t last, and when the European economy slows, the effects are going to be worldwide.”
“Secondly,” Charlie said, “Carpe Diem noticed a lot of action on certain commodities—copper and other strategic minerals, because China is sucking up titanic amounts of raw materials as they modernize. And there’s a lot of volatility on foodstuffs, because those floods in Iowa are making people nervous. But what Carpe Diem is really interested in is this weird speculative trend on certain fringy areas of the commodities market. Coffee—why speculate in coffee when there’s stable supply and demand? Also natural gas, food-stuffs, certain petroleum products. Which means the money is moving out of the market’s center, as it were, possibly because people are getting uneasy about it.” Dearborne looked worried. “You’re not suggesting that we speculate in these commodities ourselves, are you?”
“No way, guv,” Charlie said.
He knew Dearborne liked it when he called him “guv.”
“If I studied the way those commodities were moving,” Charlie said, “I reckon I could make you some money, but it wouldn’t be worth the aggravation. Those trades are powered by insecurity and ignorance, which means that you can’t predict them, and if you can’t predict what’s going to happen, that’s not investment, that’s gambling.” Charlie flashed his brilliant capped teeth again. “That’s why we’ve got tools like Carpe Diem—to help reduce the risk.”
Dearborne was reassured. “Does Carpe Diem have any other points to make?”
“The Chinese have the world’s largest supply of foreign currency reserves, but they’re going to have to sell in order to pay for their economic expansion. So will the Taiwanese, because their economies are linked to the Chinese. I expect that the Japanese will begin to sell as well, to finance the amount of debt they’ve acquired as a result of the bailouts they’ve indulged in.”
“Dollar down.” Dearborne nodded, absorbing this lesson.
“Which would normally be good for exports, except that due to the other problems I’ve mentioned, the world won’t be able to afford so very many of our exports in the next few years.” Leather creaked as Dearborne leaned back in his chair. The gleam in his eyes burned with a new intensity. “So what are you planning to do?”
“I’m positioned nicely in T-bonds, which I expect to rise soon and make us a packet. But that’s the short run.”
“Long-term?”
“Well.” Charlie grinned. “There’s that risk I was telling you about.”
“Ahh,” Dearborne said.
“Once the rest of the world catches up to Carpe Diem—and that won’t be long, perhaps even hours—I expect the markets are going to take a tumble. Which is fine as far as we’re concerned—we can make some nice profits right then. But the best course, the way interest rates are running right now, is to sell the market short, and not lose our nerve.”