Chapter 32
Translator: Dreamscribe
“Department Head. Here is the list of Hong Kong ADRs and hedge funds you requested.”
“These are all related to the German stock market, right?”
“Yes. I picked only the most aggressive bear funds.”
Bear fund.
It refers to a fund that specializes in shorts.
When the overall market is in a bear market, money flows into bear funds, and among them, there are those with an aggressive tendency.
That list was what the employees brought to me after selecting.
“.......”
I carefully examined the list.
How each fund conducts aggressive investments.
How much capital they operate.
Also, which sectors they inject the most capital into, and so on.
I needed to first input the data into my head.
When I keep shoving in information like that,
“!”
There are things that give me a feeling.
After checking the corresponding list, I set the amount.
Deciding the amount was always the same.
I would first write down a random number, then adjust it up and down to find the right amount. Once the work was done, I would hand it back to the employee who brought me the data.
“Please invest in the ones I checked, and use the amounts circled next to them.”
“Yes!”
As one person leaves, the next person comes in immediately.
“Department Head. I brought the U.S. list you instructed last time. It can be linked with prime brokers to divide the capital, and if we match the fair value, leverage up to 2x is possible.”
“Just a moment.”
Currently, the places where we are dividing and spreading investment funds were not only prime brokers.
Domestic ones were also included.
“KS Asset Management currently has a fund that pursues high risk and high return, so I included that product as well.”
“This one is more aggressive than I expected?”
“Yes. Just in time, the area they are dealing with is the European stock market, and it includes the Stummwagen we want to buy.”
Kwangwoon Securities is a company I truly like.
Naturally, because it is my workplace.
So, I’m not jealous of other financial companies, but there is just one thing I envy.
It’s that they have an asset management company.
Asset management companies that are the core of financial groups.
Also known as a fund company.
While a securities firm at most handles 10 to 20 trillion won, once it moves into funds, that scale increases to hundreds of trillions.
“There are surprisingly quite a few aggressive funds among those KS manages. Of course, because of their overly aggressive tendency, the investment money only surged in the beginning and is now dwindling.”
“If we put money in, it might become more active?”
“Yes. Just as stated here, they pursue high risk and high return. There’s a high chance they’ll invest aggressively.”
I see.
Should I get a little help from the number one financial group in our country?
“Then please invest the amounts I checked here.”
“Yes. Understood.”
In that way, I was distributing 700 billion won across dozens of targets.
In truth, there was no need to make it this complicated. It would have been best to go directly into the Frankfurt Stock Exchange and invest.
The problem was, no matter how much Stummwagen had a market cap over 100 billion euros, it wasn’t possible to short 700 billion won all at once.
There were liquidity issues, and if I tried to short a large amount suddenly, Bafin might suspend the trade for disrupting the market.
And most importantly, it was my intuition.
I didn’t get a good feeling about directly investing in the Frankfurt Stock Exchange.
Instead, when I divided the amounts and reviewed various fund lists like this, I kept receiving steady feedback.
So, I kept giving instructions to employees to continue bringing related stocks.
‘But no matter how I look at it, Stummwagen only has good news.’
What on earth is about to happen?
***
Leverage.
What a great system.
To be able to make big trades with a small amount!
But there is one thing to remember.
To use leverage means to borrow money from someone.
Since it's about taking on debt, it’s good if you make a profit, but if you suffer a loss, the damage amount is doubled.
That’s why the government limits leverage for the general public to a maximum of 2x.
Until the subprime mortgage crisis broke out, leverage limits weren’t all that strict.
However, once the financial nuclear bomb exploded, regulations on leverage also became tighter, and limits were imposed not only on ordinary individuals but also on securities firms.
This was to minimize damage in case another major financial crisis like the subprime occurred.
Of course, in exchanges dealing with futures or FX, leverage up to 100x is possible.
“But that leverage becomes practically meaningless once your capital exceeds several hundred billion won, doesn’t it?”
Without someone providing the loan, leverage cannot be executed.
In other words, someone needs to act as a guarantor to establish leverage.
That’s why margin is necessary.
However, once the capital crosses hundreds of billions or trillions, the story changes.
From a few hundred million to tens of billions, leverage can be pulled to some extent, but once it exceeds the risk limit, even banks cannot easily accept it.
That’s when a prime broker becomes necessary.
“Honestly, even if you have a prime broker, who’s going to give you leverage on several hundred billion won? Unless your credit rating is exceptionally good.”
If someone brings in several hundred billion won and tries to pull 10x leverage, no securities firm or bank would accept it.
Even if it’s just 2x, an enormous credit evaluation is required.
If the stock price moves contrary to the investor’s expectations, falling or rising, and a margin call occurs and they default, the damage falls entirely on the side that provided the leverage.
There are exceptions.
If the investor is a well-known tycoon or has strong enough capital to minimize losses, then a securities firm or bank might consider it.
However, 99% will reject it.
For them, risk management is more important than life itself.
They had already learned enough about the dangers through 9/11 and the subprime crisis.
“But… why exactly is Jin-ho trying to make contact with prime brokers?”
Prime brokers refer to large securities firms and major banks.
Like those we commonly know, GoldReagan, JP Mason, and so on.
They play a role in facilitating large overseas investments or linking investments like hedge funds.
If leverage is needed, they also provide loans based on their internal credit assessments.
“He’s currently working through prime brokers to link with hedge funds, and he’s also using stock lending services.”
“What? Even stock lending services?”
One of the most core roles of a prime broker.
That is the stock lending service.
Through institutions or pension funds holding large amounts of stock, they borrow the shares of a specific company those entities own and use them to short.
Hedge funds frequently use this kind of stock lending service.
“So you’re saying Jin-ho is splitting the funds left and right right now?”
“Yes. Quite unlike Department Head Jung Jin-ho.”
At this moment, Jung Jin-ho was breaking up 700 billion won and inserting it into various products.
“Is he finally doing split investing?”
From a general perspective, it would look like Jung Jin-ho is diligently dividing the money for diversified investments.
“It’s actually the opposite.”
However, as always, Jung Jin-ho was not someone who followed standard investment strategies.
“You just said he’s splitting the money?”
“Yes. But in the end, all the money is going to the same place. Directly into Stummwagen.”
What the hell does that mean?
After all the effort to break up the capital, the only target ends up being Stummwagen?
CEO Hwang’s mind began turning quickly.
“Come to think of it, if we suddenly shove in 700 billion won, the German financial watchdog would step in. Stummwagen’s stock price recently hit an all-time high, right? Is he trying to ride that momentum by mixing the waters here and there?”
“No.”
“No? Wait a minute. Then all of this is a short?”
“Yes. Just as you said, he’s mixing up the labels and putting all the money into shorts.”
CEO Hwang tilted his head.
Why would someone suddenly short Stummwagen, which is supposedly doing so well?
“Is there some kind of issue with Stummwagen?”
“Nothing has come out so far. On the contrary, only good news keeps piling up, and the current stock price of 250 euros is expected to reach 300 euros next week. Actually, analysts are confident it will definitely go up.”
But Jung Jin-ho placed his bet not on a long, but on a short.
“And he even wiped out Kwangwoon Securities' name from the whole thing.”
“Yes. If Department Head Jung Jin-ho’s investment succeeds, the opponent won’t even know who took their money. It’s all scattered around.”
If it fails, on the other hand.
Just imagining it was chilling.
“To make such an aggressive short on the current hottest auto stock.”
“And in a way that even if it becomes an issue later, Kwangwoon Securities’ name won’t come up.”
If someone tried to pour 700 billion won into a short position on the top-performing stock in the auto sector, they would have been summoned to the CEO’s office and stripped of their title on the spot.
But that someone is Jung Jin-ho.
He bet money on the Swiss franc, the world’s largest safe asset, at a timing no one expected and predicted the removal of the Swiss price cap. He also made a fortune during the China Shock and the Greece default crisis.
He has an uncanny ability to smell money during crises.
“CEO-nim, to be honest… I’m starting to get a little scared every time Department Head Jung Jin-ho makes an investment. I keep wondering what kind of incident is about to explode this time.”
“Haha. Our Jin-ho does have a terrifying insight. I still don’t know what basis he uses to make such decisions, though.”
Judging only by data and figures, Stummwagen is a company that can only go up, not down.
“But if Jin-ho made that decision…”
A heavy silence settled between CEO Hwang and Senior Managing Director Tak.
Their heads told them Jung Jin-ho’s decision must be wrong, but for some reason, their hearts felt convinced.
It was probably because of past experience.
“Ah. Tak. Isn’t your car a Stummwagen?”
“Yes.”
“I don’t know what’s about to happen, but sell it before it turns into junk.”
“I just got it not long ago…”
“Then just hold on to it if you want.”
“Ugh.”
It looked like he’d have to start looking for a new car tomorrow.
***
It’s the same in other industries, but the auto market is particularly competitive.
Siyota held firmly onto the number one spot with overwhelming sales, but they were increasingly bothered by Stummwagen, which was rising fast.
Where does technological advancement begin?
It starts with reverse engineering.
They dismantle competing cars and examine what kind of technology was used.
What areas were better than Siyota’s models?
They closely analyze and try to understand the technology.
“But no matter how you look at it, we seem to have far superior emissions technology, don’t we?”
One of the reasons Stummwagen’s vehicles were receiving rave reviews was because they had drastically reduced exhaust emissions.
That part felt a little off.
Stummwagen was not known for developing eco-friendly technologies.
They were simply pumping out luxury brands and focusing on aggressive marketing to drive up sales.
“But didn’t they pass all the tests?”
“They did. But it seems the actual emissions during real driving are different.”
After persistently studying the vehicle,
The engineers were able to find a difference.
“It’s different. The emissions during actual driving are clearly different from those during test conditions.”
No matter how many times they tested, the results during actual driving didn’t match.
It all pointed to one thing.
“Don’t tell me those Stummwagen bastards used software…”
They had manipulated the software so that the car would perform differently during test mode and during real driving.
“Those sons of bitches?”
***
“This is… hard to get used to.”
Ever since working under Department Head Jung Jin-ho, it was the first time he’d seen money split up and spread out like this.
That’s because, up until now, even when he did diversify his investments, it was only into three or four areas at most.
But now, 700 billion won in capital was spread across dozens of products.
Our Department Head is diversifying his investments?
“But isn’t it hard to really call this diversification? The target is still just one in the end.”
“That’s true. But the funds he selected are certainly aggressive. Since they don’t have much volume, they’re already borrowing shares and shorting everything.”
“They’re bear funds. And he only picked the really vicious ones.”
Each fund has its own distinct personality.
Some aim for stable returns, while others, like now, charge in with extreme aggression.
If it works, it’s a jackpot.
If it doesn’t, it’s total ruin.
He only put money into those kinds of funds, ones that yield only two outcomes.
It meant there was nothing he could directly control from here.
“Even with all this shorting, the price doesn’t seem to want to go down?”
“By now, that rumor must’ve reached the German retail investors too. That someone’s shorting and licking their lips. That kind of backlash can actually push the price up.”
It’s not publicly disclosed which institution shorted which stock.
Because having that be known is basically the same as screaming, “Kill me.”
However, the volume and ratio of short selling can be seen.
You can’t tell exactly who shorted what, but you can see if the short volume on a particular stock has suddenly surged, and from that, compare it with recent trading activity and infer where the shorts are concentrated.
Retail investors aren’t fools.
Which is why talk had likely already started circulating in their communities.
That some shady force dared to short Stummwagen, which was currently on a steep upward trend.
That would trigger a backlash sentiment, leading to even more buying and pushing the price higher.
If things got worse from there, wolves from all around the world would gather, pump up the stock price, and bury the short sellers in their graves.
Some do it for profit.
Others well, they gather capital just for the sheer fun of crushing short sellers, even if it doesn’t benefit them.
That’s what the stock market is.
Emotion comes before reason.
That’s why our department’s staff were trembling as Stummwagen’s price rose day by day, along with the buy volume.
If things kept going like this, 700 billion won might just vanish into thin air.
And so, they spent a few nerve-wracking days.
“D-Did you all see the news!?”
“Yes. We just saw it too.”
As usual, the employees who came into work at 6 a.m. were already seated in front of their monitors.
It was because shocking news had just broken from California.
[Stummwagen manipulated its software to produce drastically lower nitrogen oxide emissions in test mode compared to actual driving, with emissions exceeding U.S. environmental limits by 40 times. This is a clear violation of the law, and the U.S. government will cooperate in temporarily banning all sales of Stummwagen vehicles.]
Unbelievable behavior from Germany’s number one automaker.
They had tampered with the software to deceive emissions output.
And by a whopping factor of 40!
“What, did they actually think they wouldn’t get caught?”
“According to the report, they were doing it for quite a while.”
“Unbelievable, both the ones who pulled it off and the countries that got fooled.”
“No one could’ve imagined Stummwagen would do something like that.”
Wait a second.
This isn’t the time to be sitting around.
With such shocking news breaking, there’s no way Stummwagen’s stock price would stay intact.
“Is the German stock market open yet? What about the places we put money into? We need to check quickly and move funds.”
Just as Manager Seo rushed around, he locked eyes with Department Head Jung Jin-ho, who had just arrived.
“Oh-Department Head.”
“Calm down, Manager Seo. There’s nothing we need to do right now, is there?”
“Pardon?”
Nothing we need to do?
What does he mean by that?
Manager Seo replayed Jung Jin-ho’s words in his head while walking back inside, and then clapped his hands.
"Ah. Right."
We’re auto-hunting right now, aren’t we?
*****
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