Over the last three weeks I'd spent long hours on the phone handling Matsuo Noda's new hedging in the currency markets. The play started out modestly, but as his Eight Hundred Year funds became bloated with cash, it grew into an avalanche of speculative positions.
His guiding principle was to keep a low profile in order not to spook the markets, same as any good trader would do. Whenever the FOREX desk of one market-maker bank on his list would start getting nervous, I'd just hit the next place in line. Finally after everybody on this side of the ocean began backing away, he went international. Zurich, in particular, loved the action and took everything he threw in its direction. I guess the Swiss are used to high rollers, since their financial casino never got cold feet and invented a house limit.
Somewhere along the way I also came to realize I couldn't possibly be the only agent in his employ; there was far too much money to move. Also my list of contracts eventually got pared to manageable levels, so somebody else had to be picking up the slack. It appeared that just as I was spreading the action he'd assigned to me all over the globe, he was spreading his own assignments worldwide. The man had to be covering a major chunk of the world market in interest-rate futures and currency forwards, but not a penny of it was traceable to Japan. Or to Matsuo Noda.
How, I kept marveling, could this be happening right under the nose of all our supposed geniuses of world finance? One thing, Noda had all his moves down pat. My hunch was he'd started routing a lot of short selling through Sydney and Hong Kong, and also was hitting the off-exchange "third market," anyplace he could find somebody to take his bets. If you remember how the dollar plunged in the mid-eighties, you'll also recall that anybody who'd had the foresight to dump it in advance would have been sitting pretty. Plenty of traders did, but none of them received any particular attention, since the pond is so huge. In cumulative totals the currency exchanges worldwide easily handle as much as two hundred billion dollars a day. Although DNI's massive short position clearly signaled that somebody major was anticipating a crash of the dollar, Noda realized that all he had to do was keep moving and nobody would put it together.
Need I add that my own little dollar hedge for Amy was peanuts compared to what was going on now. Dai Nippon through its anonymous agents was dumping American currency in the multi-billions worldwide, but since Noda kept the action spread out, nobody bothered to notice the pattern. Ditto his awesome "naked" shorting of Treasury futures. I mean, anybody who'd troubled to assemble the numbers could have predicted somebody up on the bridge must have sighted a reef dead ahead. I kept trying to warn traders I knew, both on and off the exchanges, but nobody wanted to hear downbeat speculation from some Cassandra. They were all too busy pocketing commissions and ordering more champagne.
And then it happened. In broad daylight. I'll explain the operative details shortly, but if you were there, that could be a little like reviewing the theory underlying nuclear fission for somebody standing at ground zero when the bomb hit. So first let me recollect how it felt down in the trenches.
I was breakfasting at the dining room table downstairs that particular Monday morning—November 7, as we all remember so vividly—when Matsuo Noda dropped the first shoe, or maybe it's more accurate to say he began loosening the laces. I'd just finished squeezing some orange juice when I punched in the number of a financial update service on my trusty cordless phone, mainly to hear the (recorded) sound of a human voice. I'd totally forgotten the U.S. Treasury was holding its quarterly refunding that day.
Newsbreak. Dealer banks were reporting that demand for the long bond, the thirty-year, was extremely soft to nonexistent. Equally unnerving, there wasn't any noticeable interest in Treasury's ten-year notes either. The reason seemed to be that the usual heavy participation by major Japanese investment houses (typically twenty to forty percent of the total) had inexplicably evaporated. In fact, a rumor currently flying across
the floor of the Chicago Board of Trade said a number of Japanese securities houses and banks in New York had begun what appeared to be a program to divest their current Treasury holdings massively. Since spokespersons at Japanese outfits like Nomura and Daiwa Securities had clammed up, refusing to deny that rumor, the usual institutional buyers like Oppenheimer and Goldman, Sachs were holding back, nervous.