Reborn in Tokyo: From Heiress to Global Tycoon

Chapter 206 Quantitative Legion

Early November 1989.

New York, USA.

The 45th floor of an all-glass office building in Midtown Manhattan.

The metal sign outside the elevator was blank, without any company logo or name. At the end of the corridor, two heavy frosted glass doors were tightly closed.

Inside, the spacious, single-level space had been transformed into a highly secure military command post. Dozens of massive Bloomberg terminals and Quotron quote machines were arranged in a matrix. Cathode ray tube (CRT) monitors emitted a mixture of eerie green and dark orange light, casting a somewhat bizarre glow over the entire hall.

Above the main hall hangs a red LED scrolling display screen, over ten meters long. The glaring red characters glide steadily across the black background, casting flickering light on the tired faces of the traders below— [NKY (Nikkei 225 Average): 35,920.14 ▲] (Early electronic scrolling displays used a symbol after the index to help traders quickly determine trends; "▲" represented an increase in value.)

Each time the dazzling numbers jumped upwards, an extremely dense clatter of keyboard clicks would erupt in the hall, like a torrential downpour pounding on a tin roof, endless and continuous.

Dozens of professional traders, dressed in loose cotton shirts and ties, sat upright in front of their screens. Their eyes were bloodshot as they stared intently at the Far East engine that was frantically sucking up global funds.

One entire side wall of the hall was transformed into a giant whiteboard.

The whiteboard was covered with a dazzling array of Greek letters and complex option pricing formulas (Black-Scholes model). In some places, the ink had been repeatedly wiped away, leaving a blurry shadow.

Frank stood in front of the whiteboard.

The top executive of SA Investment on Wall Street was dressed today in a well-tailored dark striped suit. He had one hand in his pocket and a cup of black coffee in the other. His gaze followed the formulas on the whiteboard and finally landed on the scrolling red screen above.

"Look at these crazy numbers."

David, the chief actuary standing next to him, wiped the cold sweat from his forehead with the back of his hand, which had been seeping out from prolonged mental exertion.

The Jewish elite, who had once served as a senior quantitative analysis director at Salomon Brothers, spoke with an undisguised disbelief.

David picked up a black marker and drew a heavy circle on a set of data at the edge of the whiteboard.

"The Nikkei 225 average broke through 35,900 points this morning. Speculative funds across Asia and Wall Street followers have gone crazy. They are frantically buying up stocks on the Tokyo Stock Exchange, completely irrational."

David turned around and looked Frank straight in the eye.

"Market sentiment is extremely bullish. Speculators around the world are convinced that the Nikkei index will break through the 40,000-point mark, or even the 50,000-point mark, next spring. The price of call options in the options market has been driven sky-high."

"And what about put options?" Frank asked calmly.

David's lips curled into an exaggerated, almost comical smile. He strode to a Bloomberg terminal and his fingers flew across the keyboard, typing several lines of commands.

The screen instantly switched to display a long list of quotes for forward option contracts.

"Puts?" David pointed to the row of green numbers on the screen, his tone tinged with absurdity. "Especially deep out-of-the-money puts (OTM Puts) with expiration dates after 1990, which are contracts betting on a catastrophic crash in the Japanese stock market next year."

He tapped the thick glass screen heavily with his knuckles.

"In the current market, these contracts are worthless. Option premiums are ridiculously low. Market makers are practically dumping them at free prices just to earn a pittance in commissions."

David took a deep breath and adjusted his breathing rhythm.

"Frank, according to our Black-Scholes model, the implied volatility of these deep out-of-the-money put options is currently extremely undervalued. The market perceives a zero probability of a crash. If you were to establish a position at this time..."

"That falls into the category of finding gold in a garbage dump," Frank said, putting down his coffee cup and picking up where David left off.

He straightened the hem of his suit jacket, turned and walked towards the CEO's office, which was separated by double-glazed soundproof glass, at the far end of the hall.

"Keep an eye on the order book. David, have the traders prioritize all interfaces on the Chicago and Singapore stock exchanges."

Frank closed the heavy glass door, completely shutting out the noise from outside.

The office was extremely quiet.

Outside the floor-to-ceiling windows, the skyscrapers of Manhattan appeared somewhat gloomy under the overcast sky.

He walked to the large walnut desk, pulled open the bottom drawer, and took out a brass key.

He turned and walked to the safe in the corner, inserted the key, and turned the complex mechanical combination dial.

"Click, click."

The heavy metal door of the safe popped open.

Inside were only a few thick kraft paper file folders sealed with red sealing wax.

The red encrypted phone on the desk suddenly emitted a low buzzing sound.

Frank immediately closed the safe, strode back to his desk, and picked up the receiver.

"Frank".

Executive Director Endo's hoarse and severely weary voice traveled clearly through the undersea fiber optic cable of the Pacific Ocean to Frank's ears.

"Mr. Endo, how's the situation in Tokyo?" Frank sat down in his leather swivel chair.

I heard Endo's heavy breathing through the receiver, as if he was wiping sweat from his forehead with a handkerchief.

"Yoshiaki Tsutsumi has taken the bait." Endo's speech was slightly hurried. "The 'Pink Building' in Akasaka has been successfully completed. In order to appease our so-called 'power-grabbing elders,' the Seibu Group offered an extremely high premium."

"The funds have all been secured." Endo paused, his voice extremely low. "According to the young lady's plan, the huge sum of yen obtained from the sale of the building is currently being submitted to the Ministry of Finance for foreign exchange remittance under the pretext of 'purchasing special extreme ultraviolet heat-insulating glass and large-scale constant temperature and environmental control equipment for the second phase of the Hokkaido Gokurakukan project.'"

"This money will be laundered out of Japan in a completely compliant manner and transferred to the parent fund account in the Cayman Islands within 48 hours."

Frank leaned back in his chair, his fingers unconsciously stroking a sterling silver paper cutter on the table.

"Using the enemy's money to buy a noose to fight the enemy? As expected of a young lady... This physical cover is truly ingenious."

"Those bureaucrats in the Ministry of Finance will only think that we're really stuck in the infrastructure quagmire, relying on selling off ancestral property to fill those extravagant glass domes," Endo added on the other end of the phone, his tone carrying a hint of relief at surviving a disaster.

"However, Mr. Endo."

Frank put down the paper cutter and looked at the red wax-sealed file folder he had just taken from the safe.

"This ill-gotten gain from the sale of the property is merely a thin veneer on the surface of this grand scheme. It's enough to deceive Tokyo."

Frank tore open the kraft paper bag and pulled out a thick stack of offshore fund compilation reports.

This document records all the assets SA Investment accumulated over the past few years through shorting the US dollar via the Plaza Accord and the double whammy of US stock options losses during "Black Monday" in 1987. It also includes the book value increases and rolling dividends generated by the meteoric rise of Silicon Valley tech stocks like Microsoft and Cisco over the past two years.

"I have already checked the general ledger."

Frank's gaze swept over the astronomical sum at the bottom of the report. A sense of oppression, born from facing extreme power and wealth, slowly crept up his spine, causing his fingers to tense slightly.

"We currently have close to five billion US dollars in readily available pure cash reserves in our offshore pools in the Cayman Islands and Luxembourg."

Endo on the other end of the phone gasped.

In the global financial landscape of 1989, five billion US dollars in pure cash liquidity had a destructive power comparable to that of a medium-sized country's sovereign wealth fund. During this period, the outside world only saw the Saionji family's extravagant infrastructure spending spree in Japan, but could not imagine the terrifying fangs this behemoth lurked in the deep seas overseas.

This funding is precisely the source of their confidence in making a full cash acquisition offer to Columbia Pictures in Hollywood some time ago.

"This is our trump card."

Frank laid the report flat on the walnut wood table.

"In the upcoming stranglehold, I plan to use one to two billion dollars of this five billion dollar cash pool as option premiums."

Frank tapped his finger heavily on the table twice.

"By utilizing the extremely cheap deep out-of-the-money put options currently available on the market, the leverage inherent in derivatives can be amplified to the extreme. This principal of a few billion dollars is enough to leverage short contracts with notional principal of tens or even hundreds of billions of dollars."

"Once the bubble bursts and the market reverses, the profits generated by these contracts will devour the entire Seibu Group's assets, skin and bones."

Endo fell into a brief silence on the other end of the phone, with only his heavy breathing coming through the airwaves. Faced with this level of financial nuclear explosion simulation, Endo, with his traditional finance background, still felt waves of trepidation and shudder.

"Understood." Endo's voice regained its composure. "I will continue to maintain the channels for domestic funds to flow out. Please ensure absolute secrecy in the establishment of positions."

"beep--"

The overseas call was cut off.

Frank put down the receiver.

He stood up, strode open the glass door of his office, and returned to the bustling trading hall.

David was standing in front of a terminal, discussing something in hushed tones with several senior traders. Seeing Frank emerge, David immediately went to greet him.

"Is the funding channel confirmed?" David pushed up his glasses.

"All ammunition in place." Frank walked to the center of the hall, his gaze sweeping over the traders who were on high alert. "Get ready to work."

David's expression turned serious. He picked up a newly printed Chicago Mercantile Exchange in-depth market report.

"Frank, I must issue a warning."

David handed the report to Frank, his fingers tracing over several key data points. The cold sweat on his forehead glistened slightly in the cold light.

"These options are indeed cheap right now, like worthless paper, and the market is extremely shallow in terms of selling pressure."

"If we were to dump billion-dollar buy orders directly into the Chicago Mercantile Exchange or the Singapore International Monetary Exchange (SIMEX), this massive, unusual accumulation of positions would be like a blue whale suddenly crashing into a small pond."

David swallowed hard, his voice urgent.

"This would instantly shatter the current selling liquidity, causing option premiums to skyrocket. Even more critically, such abnormal volatility would not escape the radar of Wall Street quantitative giants like Goldman Sachs, Morgan Stanley, and Salomon Brothers."

"Once they realize that a huge amount of money from an unknown source is frantically accumulating put options, these bloodthirsty sharks will either immediately follow suit and drive up our cost basis, or they will join forces with market makers to carry out an extreme two-way strangulation against us."

The knocking sounds in the hall gradually subsided.

Dozens of traders turned to look at Frank, who stood in the center. In the absolute silence, only the hum of the central air conditioning echoed.

Frank listened quietly to the chief actuary's warning.

He was well aware of the underlying operating logic of Wall Street, and David's concerns were entirely in line with objective laws. In this jungle filled with algorithms and insider information, any rash action would invite the wolves to tear it apart.

"Your warning is very pertinent and professional, David."

Frank handed the betting report back.

He raised his hand, loosened the tie of his dark striped suit, and a cold smile curled at the corner of his mouth.

"Therefore, we will not dump our shares."

Frank surveyed the room, his voice steady and powerful, ensuring that every trader in the hall could clearly receive the instructions.

"Activate the one hundred separate 'Umbrella Trust' accounts that were previously set up."

"Completely fragment the capital pool. In the first round of operations, activate only one-tenth of the accounts. Execute the highest level of micro-position building strategy."

Frank walked up to an unused terminal and hovered his fingers over the keyboard.

"Break each buy order into smaller lots of just a few or a dozen lots. Distribute them across different exchanges, different expiry months, and even different brokerage channels."

"It's like a light drizzle in the Pacific Ocean. I want these buy orders to blend perfectly into the background noise of daily trading by retail investors around the world."

"Let's conduct the first round of probing," Frank gave the final order. "Go and test just how slow the market is to react to this kind of small-scale accumulation."

David let out a long breath. He quickly turned around, faced the hall full of traders, and clapped his hands vigorously.

"Listen carefully! Execute the initial small-scale position-building plan! Closely monitor slippage, with the alert threshold set at 0.5% volatility! Move cautiously, and absolutely do not trigger any institution's quantitative radar!"

The instruction has been issued.

The hall instantly came back to life.

The sound of keyboard tapping began again, as dense as a downpour.

"Account No. 3, buy 20 lots of CME Nikkei December put options, order has been issued."

"Account No. 7, SIMEX forward contract, bought 10 lots, transaction confirmed."

"..."

The monotonous and cold reports came one after another.

Frank stood alone in front of the floor-to-ceiling window in the lobby.

Outside the window, the rain in Manhattan gradually intensified, with countless glistening water droplets clinging to the wide glass curtain wall and meandering down.

Behind them, on the monitor screens flashing with an eerie green light, strings of green numbers representing massive short-selling contracts were being silently swallowed into a hundred secret offshore accounts.

This terrifying force lurking in the deep sea is, in an extremely slow and patient manner, silently throwing the first deadly noose toward that country on the other side of the world amidst the fervent optimism of the world.

crunch--

The rough hemp rope was being stretched and pulled invisibly, and the noose was slowly tightening.

Meanwhile, the person with the noose around their neck is still reveling and singing in the neon-lit depths of the other side of the Pacific Ocean.