Trader Jack -The Story of Jack Miner (The Story of Jack Miner Series) (25 page)

'OK Pearl, you're right. I'm being unreasonable. We think that . . .'

I was about to tell her, when my mobile rang. It was Danny on the phone.

'Jack, how are you? Feeling better?'

'Yeah, thanks Danny. Nice of you to phone.'

'Maffie's been trying to get hold of you. She can't get through. Wants you to phone her as soon as possible.'

'Really?'

'Yes. Where are you?'

'Lying in a boat on Central Park Lake. With Pearl. Fantastic day.'

'Jack, put the handset close to your ear. I want to tell you something.'

'What?'

'It's about Pearl . . .'

The phone went dead. I banged it. Tried to phone back Danny. Couldn't get a signal.

'What's going on Jack?' asked Pearl.

I was a bit confused. What was Danny trying to tell me about her? I stood up in the boat and nearly capsized it.

'What does he want, Jack?' insisted Pearl.

'He's worried about the wheat and corn markets,' I lied.

'You were going to talk to me about coffee.'

'Will have to do that later. I have to sort out our grain positions.'

Back in the hotel when Pearl was changing for dinner, I sneaked out of the room, found a discrete place in the reception area and phoned Maffie. 'Hi Maffie. Any news?'

'Yep, Sergio called. The weather's beginning to turn in Brazil. The temperature is falling fast. He thinks there could be a frost.'

'Have you started buying?'

'No. He called after the market closed. You must be here tomorrow. Can you make it?'

'I'll do my best to get the last flight. I'll have to break the news to Pearl.'

'What are you going to say?'

'That you're ill and there's a big problem with the fund.'

Pearl was livid when I told her that I had to fly out that Wednesday night.

'Why are you going, when I need you Jack? It's them, always them. What about me?'

She was so angry that she gave me a punch on the arm, so hard that there was a flaming red mark.

'We were supposed to spend the weekend together.'

'Sorry Pearl, I have to go.'

'You were going to help me understand the coffee market.'

'Haven't got time, Pearl. Will tell you in London,' I said.

She looked hurt. Seriously upset. Had to say something, anything, but despite my feelings and guilt, couldn't tell her what was really going on.

'OK, I'll break our rules for you. We think that the coffee and other commodities are weak and that prices could fall.'

'What am I going to do here by myself?' she wailed.

'Why don't you fly to Washington? See your parents. You haven't seen them for ages.'

'My mother and father got divorced. She got re-married when I was a little girl. I can't stand my stepfather.'

'What about your Mum? Doesn't she miss you? Go on! Go and visit her. I tried to hug her, but she pushed me away.

15 -
A KILLING

After managing to get on the last flight, I landed in London late morning and rushed straight from the airport to the office. The coffee charts and price statistics showed that the trend was still down. Since the market had been weak in the past month, profits on our coffee options had halved to around $3 million. The price was hovering around $2.15 a pound. Danny had told me that Veruschka and Borodino had built up huge short positions in the coffee futures and options market. Some European and US hedge funds had trailed them and had also sold coffee short. The Russian bears and their allies were betting that the price would fall below $2 and for the moment, they were on top.

Before the New York trip, Maffie and Krishna had told me to take profits on Aquarium's gold and agricultural shares and other investments. We now had an extra $800,000 cash in the kitty to purchase more options. Our tiny Aquarium fund was about to fight back. David against the Russian Goliaths.

Ruffish was becoming increasingly edgy. I was also nervous, for a different reason. I was paranoid about the big bearded thug at the Russian Samovar and the likelihood that he had murdered Yapolovitch. It was dangerous to take on those guys.

'Come on Jack, block it out. Keep focused. Your head down,' I kept muttering to myself. 'They didn't see you there. They don't know what you look like.'

These thoughts kept whirling round and round in my head.

At last the call from Brazil came. It was 12.30pm in London and 7.30am in New York. The New York coffee market was due to start trading at 8.30am.

'Sergio on the phone for Maffie,' shouted Bess.

We all rushed to Maffie's work station. Compared to us, Maffie was calm and relaxed. She first spoke in Portuguese and then in English.

'You say that the temperature has dropped, Sergio. Are you quite sure there's going to be a cold front?'

She noticed all the anxious faces and put the phone on to speaker.

'The weather forecasters are warning that it could get a lot colder, but they are not that certain,' Sergio said.

'Fulvio believes that there will be a frost, right?'

'Yes, Fulvio says that a severe frost is on its way.'

'What do you think it's going to do to the crop?'

'It's not whether the crop is going to be bad, it's how bad.'

'How come coffee prices haven't started rising?' asked Maffie.

'I can't understand it. It doesn't make sense.'

'It's weak because the market is following two Russian hedge funds that are big sellers,' I said. 'What does Fulvio think?'

'Fulvio hasn't changed his mind. He's now even more convinced. He's sure that it will be 1975 all over again. That frost surprised everyone.'

'Thanks Sergio . . . You're a good friend . . . If we win, you'll also do well,' said Maffie.

'I was going to write, Maffie. Please thank your boss. We all appreciate it. Fulvio, the farmers and me,' said Sergio. '$50,000! Bless you all!'

'I'll tell him . . . Wait, Sergio. If Fulvio's right, then . . .'

'Maffie, Maffie . . . Can't hear you . . . Bye.'

She put down the phone and I looked at my watch. It was 7.45am, New York Time.

'The market opens in forty five minutes,' shouted Maffie.

'Aquarium bulls against Russian bears,' shouted Krishna, slapping his hands against his thighs.

We rushed into the meeting room and sat around the table. Maffie stood before us in front of the whiteboard. She had blue and red felt pens.

'OK, General Shaka we're in your hands,' said Ruffish.

'We're ready, Ruff. Jack has $800,000 to buy another 100 coffee options,' said Maffie.

'Are you crazy? We'll then have 200 options! That's the right to purchase 7.5 million pounds of coffee,' shouted Ruff. 'At $2.20 a pound that comes to $16.5 million! The leverage is enormous. Our exposure to the market will be more than sixteen times the original capital of the Aquarium fund. If the price falls, the fund's finished.'

'Don't worry Ruff, we're not going to buy all the options at once,' replied Maffie softly. 'We won't lose our original capital as that is safely in the kitty. We are playing with profits and as you know, options are far less risky than futures.'

'I've been studying the coffee statistics,' said Krishna. 'Consumer demand for coffee is far greater than supply. The shortage should squeeze the bears. Prices could go ballistic!

'What's a bear squeeze?' asked Bess.

'South American, African and Asian coffee production has declined. They cannot meet the orders from the manufacturers that roast the coffee and sell it to the shops,' Krishna explained. 'In normal circumstances prices should have risen. Instead they have fallen because the Russian hedge funds and other bearish speculators, have been heavy sellers.'

'The bears sold coffee futures and options short, hoping to buy them back at a profit when the price falls,' Krishna continued. 'Now imagine how they will feel if a frost causes prices to rise unexpectedly. They will be nervous. They know that they have sold coffee that they do not own. They know that they must buy back their positions quickly, if prices rise. If they don't they will lose a lot of money.'

'So they will panic and try and buy back the coffee,' said Bess. 'But you said there's a shortage, so who's going to sell to them?'

'They will have to bid up prices to encourage sellers. But the market will soon realise that the bears are desperate to buy. So players who own coffee will wait and demand even higher prices. The bears will be squeezed into a tight corner.'

'My money and the firm's money are at stake,' said Ruff. 'If you're that sure, are you prepared to back it with yours?'

'Jack already has money in Aquarium and Maffie and I are putting in another hundred thousand each,' said Krishna.

'Me too,' said Tong.

'And you Aram?'

'Can't take chances. I've got a family to support. School fees. I'll give it a miss,' said Aram Zabkian, the Eastern European specialist, who had just returned from visiting his mother in Estonia. He had always been sceptical about Aquarium.

'I'll double my chips,' said Bess.

Maffie went to the board in front of us and held up the blue and red felt pens.

'If you guys don't mind, I'm going to head operations,' said Maffie. 'I'll decide when to buy and sell.'

'Good on you General, what's Miner going to do?' asked Aram.

'Jack's going to be the front man. He'll execute the orders.'

'Will do,' I said.

I wasn't annoyed that Maffie was taking over. I was relieved. Since I had seen the Russians in New York, I had become so jittery that I wasn't thinking straight.

'Krishna will do the calculations and choose the best options for Jack,' Maffie continued. 'He and I will remain in the background.'

'I presume I'll buy as soon as the market opens this morning,' I said.

'That's right. But you're going to buy and sell simultaneously Jack. You're going to sell 20 coffee options through two or three brokers and ask Danny and another broker to buy 50.'

I was puzzled. 'Why can't I just buy 30, Maffie?'

'It's like poker, Jack. You'll be bluffing,' said Bess. 'Some people will think that you're buying; others that you're selling. They won't be sure of your hand.'

'Precisely, Bess,' said Maffie. 'We want to buy our coffee at the lowest possible prices, but also send a message to the bears that they could be wrong. The aim is to stop them selling. We want the price to first settle and then rise.'

'Do you seriously believe that this boy will influence the market?' scoffed Aram.

'What's Jack's age got to do with it? He's trading on the phone and they think that he's older. Anyway who cares?' retorted Maffie. 'Jack's already made money in the coffee market. He's now well known in the dealing community. His friends call him Trader Jack and jealous dealers and brokers gossip about the teen trader. Brokers will talk. All brokers do. The NYMEX trading pit will be rife with gossip.'

'Jack's been out of the coffee market for a few weeks. Believe me, when Trader Jack starts buying again, they'll take notice,' said Krishna.

'OK, so that's the start. What's the overall battle plan, Maffie?' I asked.

'We'll follow Shaka's strategy,' she said.

'Oh no! It's not going to sound like a computer game, is it?' groaned Ruffish.

Maffie laughed and then drew two thick horizontal lines on the whiteboard. The bottom blue line was Aquarium and the red line above, represented our enemy, the Russian bears.

'Similarly to Shaka's tactics we won't attack the Russian hedge funds immediately,' explained Maffie. 'We will advance slowly by carefully building up our option positions. If prices rise we will attack in earnest and buy a lot more.'

To illustrate her plan, Maffie drew two vertical blue lines that rose from each side of the lower blue Aquarium line towards the red line. These were Shaka's 'horns of the buffalo' that advanced towards the right and left flanks of the enemy. Maffie then curved the blue horns inwards so that the red Russian bear battle line was totally surrounded. That action represented the final coffee purchases that would encircle and squeeze the bears.

'Seems so simple. Hope your military game plan works,' said Ruffish with a half laugh. 'If you're wrong? If there isn't a frost in Brazil?'

'Highly unlikely,' said Maffie confidently as she looked at the screen. 'But if we're wrong, we'll retreat with less profits, not a loss.'

'OK, so we begin to advance towards the red line. But we're small and they're big. Who will help us?' I asked.

'The market will provide our extra regiments. As soon as the coffee roasters and others notice that the price is rising, they will follow us and buy,' said Maffie confidently.

Carefully following Maffie's instructions, I phoned Danny at Blaby just before the opening of the New York market: 'Hi Danny, sorry about the other day, we were cut off.'

'I was going to tell you about . . .'

'No time. Thanks to you, I'm back in London, Danny. I really appreciate what you did for me. By the way where's most of the selling coming from? Which brokers?'

'Darlington and Halesburg. Thinking of selling Jack? The price was down another 5 cents yesterday.'          'No. We want to buy. Here's the order . . .'

'What the . . .!'

We bought a lot of coffee options through Blaby and another broker at the opening of the New York market and simultaneously sold fewer options through Darlington and Halesburg. At the close of trade our net option positions had risen to almost 5 million pounds of coffee worth $10 million. Maffie's plan was working. The coffee price bounced off the bottom, but wasn't running away yet. The wires reported that evening that there was a sudden cold front in Brazil and the coffee price rose at the opening on Friday morning. We steadily continued to buy more coffee options as the price turned around and began rising. The Russian bears and their allies tried to counter the price rally and sold even more coffee short. Prices slipped when they sold, but quickly rose again when we and some other firms bought. This was another sign that the battle was beginning to swing in our favour. At the end of the trading day, Aquarium fund owned 200 options, giving us the right to buy 7.5 million pounds or 50,000 bags of coffee in warehouses worth about $18 million. We had completed our buying. Now we had to wait and see what the market was going to do.