Restart life

Chapter 382 0372 [What reborn person doesn't short sell during an economic crisis?]

Just as September was beginning, Chen Guiliang disappeared, taking a plane to the United States.

We have to get involved in the economic crisis, after all.

Many things are going to happen in September, but Chen Guiliang was not in the industry in his previous life.

So he hadn't heard of any of the news, such as Fannie Mae and Freddie Mac being taken over by the US government, or AIG, the world's largest insurance company, being on the verge of collapse.

He only remembers two news stories that were widely reported by Chinese media.

One was the bankruptcy of Lehman Brothers.

One is that Merrill Lynch was acquired.

Moreover, both events occurred in mid-September, when he was interning at a newspaper. The guy at the next desk, who specialized in reporting financial news, rushed in early in the morning saying that Lehman Brothers was finished.

Chen Guiliang asked what Lehman Brothers was, and the guy explained it to him in detail, while also boasting that he had expected it all along.

Chen Guiliang had already made arrangements in order to get involved.

Chinese companies or individuals are not allowed to transfer assets overseas at will.

Where did Chen Guiliang get the US dollars?
Didn't ByteDance sign a repurchase agreement during its IPO? This agreement was triggered recently, so ByteDance launched a capital increase and share expansion plan, with Game Science injecting funds to repurchase shares.

Actually, Chen Guiliang didn't need to drag things out; the approval process for these kinds of things takes quite a while.

The Olympics had already ended when the relevant departments finally approved the transfer of $2500 million to You Ke's account in the United States.

The money has not been touched yet, but it can be accessed with Chen Guiliang's signature.

Using the money to short Lehman Brothers is a clear violation of regulations and does not comply with domestic approval standards. If problems arise, Chen Guiliang will be in serious trouble.

It's not just about losing money; it's also a crime—illegally transferring assets overseas!

But Chen Guiliang was confident because he was a prophet.

After landing in New York, Chen Guiliang headed straight for Wall Street.

The process of finding someone to handle the matter has already been arranged. Lu Zhihui, the head of ByteDance's IPO, recommended a Chinese man named Huang Wenzheng.

When Chen Guiliang first heard Huang Wenzheng's name, he was stunned for a moment, thinking that this was too much of a coincidence.

Actually, it's quite a coincidence. Huang Wenzheng is really capable, so it's perfectly normal for Lü Zhihui to recommend him.

Huang Wenzheng is famous in China not because he made hundreds of millions of dollars on Wall Street, but because he made enough money in the United States but did not become a U.S. citizen. Instead, he returned to China to advocate for American citizenship and wrote articles and petitions with other scholars.

They are urgently warning that China will face a population crisis!
Professor Li, who co-authored the article with Huang Wenzheng, was one of Chen Guiliang's thesis advisors.

"Hello, Mr. Huang."

"Hello, Mr. Chen."

Huang Wenzheng was wearing glasses, his hairline was receding slightly, and his forehead was covered by his sparse bangs.

Chen Guiliang asked, "Mr. Huang is concerned about China's population issue?"

"Huh?" Huang Wenzheng was completely stunned.

Chen Guiliang was his client, and the first thing this client said to him when they first met on Wall Street was about China's population problem.

Chen Guiliang explained, "My graduation thesis also discussed population. Last year, while researching, I found Mr. Huang's master's thesis, which also discussed the future development trend of China's population."

Huang Wenzheng chuckled, "What a coincidence! What are Mr. Chen's views on population?"

"I plan to combine philosophy and sociology to explain the impending population crisis in China..." Chen Guiliang gave a brief overview of his graduation thesis.

Huang Wenzheng felt a sense of kinship and shook hands with him again, saying, "We are kindred spirits."

This person made a fortune in US dollars and returned to China to study population issues, dedicating more than ten years to this research.

His 2015 book, "Chinese People Can Have More Children!", co-authored with other scholars, directly promoted the implementation of the two-child policy.

Chen Guiliang then changed the subject: "Let's talk about investment instead."

Huang Wenzheng asked, "Does Mr. Chen have his own investment plan, or does he need me to recommend projects for overall planning?"

There is an institution in the United States called Millennium Hedge Fund, which was later hailed as the "Whampoa Military Academy of Chinese quantitative private equity." Many founders of Chinese quantitative institutions worked at Millennium.

Millennium is more like a fund manager alliance, with over 300 independent investment teams worldwide.

Huang Wenzheng was the head of one of the teams.

Chen Guiliang asked, "I want to short Lehman Brothers."

Huang Wenzheng said, "Lehman Brothers is not doing well. The short-selling ban expired recently, and more and more institutions are shorting Lehman, so the margin lending rate is now very high."

"Securities lending?" Chen Guiliang asked, puzzled.

Huang Wenzheng explained, "The market situation is particularly bad right now. The US government has introduced policies to prohibit naked short selling of certain companies' stocks. Lehman Brothers is one of them. To short Lehman Brothers, you must first borrow shares and then short sell."

Right now, the only issue is the high short-selling rate. But once the major negative news breaks on September 9th, even finding suitable securities will be difficult. Short selling will become extremely challenging!
Forced naked short selling is also possible, but if the Americans catch you, they'll impose severe penalties.

During the worst of the economic crisis, in order to protect the market, the US government even announced a permanent ban on naked short selling.

Chen Guiliang asked, "What is the current margin lending rate for Lehman Brothers?"

Huang Wenzheng explained in detail: "Over the past year, the financial market has experienced severe fluctuations, and the interest rates for securities lending have increased significantly. The interest rate for Lehman Brothers was particularly high, and it seems to have almost reached 10%. I don't know the exact amount, because the situation is constantly changing, and you have to call the brokerage to inquire."

At that time, there were no apps; you could just take out your phone and check any information.

Computer software can also be used to check, but the information is outdated and cannot reflect the dynamics in real time.

Many times, you have to call to ask.

“$2500 million, at Lehman Brothers’ current stock price, with a 50% leverage, should be enough to borrow several million shares. Do you have that many shares available?” Chen Guiliang asked. Huang Wenzheng was somewhat surprised: “$2500 million all for shorting Lehman Brothers? What if the stock price goes up…”

"So I only use 50% leverage, which is already very conservative," Chen Guiliang said.

Huang Wenzheng was both amused and exasperated, realizing for the first time that conservatism could be understood in this way.

Chen Guiliang's conservatism stemmed from the fact that he only knew Leibao Brothers would go bankrupt in the middle of this month. The exact date might be inaccurate, and he was unsure whether the stock price had risen in the meantime.

Therefore, he only used 50% leverage and kept $500 million as insurance.

Of the funds that Youke used to invest in ByteDance, Chinese authorities only approved $2500 million.

The $500 million that Chen Guiliang is holding onto without moving represents Youke's overseas revenue. For example, the European licensing fees for "Future Era" were directly deposited into Youke's US account. There are also revenue sharing from overseas installments of games like "Three Kingdoms Kill" and "Plants vs. Zombies."

Out of professional habit, Huang Wenzheng stopped asking clients why they did this.

He first checked the software on his computer, and then personally called the brokerage firm.

After finishing the call, Huang Wenzheng said, "I contacted two securities firms, and they can mobilize hundreds of thousands of shares. If you want to short a large number of shares in a short period of time, you can activate a 'special short selling' program. Special short selling has a lock-up period, and the interest rate will be much lower, but you cannot sell during the lock-up period. Generally speaking, the shortest lock-up period is several weeks."

Chen Guiliang asked, "If I can't sell the shares during the lock-up period, what happens if Lehman Brothers goes bankrupt? Will the shares I borrowed become worthless, or will the share price be reduced to zero?"

"Uh……"

This was the first time Huang Wenzheng had encountered such a problem.

Lehman Brothers was the fourth largest investment bank on Wall Street, and you're telling me it was going to collapse? And it collapsed during your margin loan lock-up period?

Am I the one who's gone mad, or are you?

Sigh, the customer is always right.

Huang Wenzheng patiently explained: "If Lehman Brothers goes bankrupt, it means you've achieved great success with your short selling. The rest is a matter with the brokerage firm. You can negotiate a settlement, and the amount you owe will be the amount due minus the Lehman Brothers liquidation quota. Of course, if the Lehman Brothers bankruptcy liquidation quota is used, you might receive zero money. If negotiations with the brokerage firm fail, the contract will be extended until the Lehman Brothers bankruptcy liquidation is completed, during which time you will continue to pay interest to the brokerage firm."

"It's too much trouble. I'm not going to do this kind of special securities lending." Chen Guiliang didn't know when Lehman Brothers would finish its liquidation.

If bankruptcy liquidation lasts for a year, wouldn't I have to pay the brokerage firm a full year's worth of interest? At that time, I'm afraid all the money I made from short selling would have to be handed over to the brokerage firm for nothing.

Huang Wenzheng asked, "Should I contact a few more securities firms?"

"Get in touch, and try to get as much as possible," Chen Guiliang said.

Lehman Brothers is in dire straits right now, and many brokerages are holding onto their short positions, even if they have the money, they might not be able to get them. The longer this goes on, the harder it will be to borrow securities, and the interest rates will be ridiculously high.

Damn it, if naked short selling were possible, there wouldn't be so much trouble.

Faced with huge profits, some people actually took the risk and violated the ban by engaging in naked short selling. The day before Lehman Brothers collapsed, the US specifically passed a law to severely crack down on naked short selling.

Chen Guiliang has no power or influence in the United States. He might be okay with small-scale naked short selling, but if he were to engage in large-scale illegal operations, he would definitely be arrested and made an example of.

On that day, Huang Wenzheng instructed his subordinates to do something and obtained more than 100,000 shares from the brokerage firm.

The next morning, Huang Wenzheng asked with a serious expression, "Mr. Chen, the short selling rate for Lehman Brothers has risen to 10.3%. Do you still want to short sell?"

"melt!"

Chen Guiliang said.

Just half a day later, Huang Wenzheng said again: "The short selling rate of Lehman Brothers has risen to 10.5%."

"Keep the integration going!"

Chen Guiliang said.

It wasn't until September 9th that news broke that the Korea Development Bank had decided not to invest in Lehman Brothers.

Major negative news!

Huang Wenzheng stared blankly at the news for a long time, then turned to Chen Guiliang and asked, "Mr. Chen, are you betting on this news?"

"Uh... sort of." Chen Guiliang had no recollection of that.

A young Chinese man ran over: "Boss, the margin lending rate for Lehman Brothers has skyrocketed. It's jumped to 20%!"

Without waiting for Chen Guiliang's confirmation, Huang Wenzheng quickly said, "Keep fusing, fuse as much as you can!"

Chen Guiliang asked, "Mr. Huang, why don't you borrow some money for yourself before shorting?"

Huang Wenzheng laughed and said, "There are many opportunities to make money. Mr. Chen is my client now, and I can't let him go and make money for me. Anyway, there are commissions, and I'll keep the commissions."

"light and spacious!"

Chen Guiliang gave a thumbs up.

At the current rate of short selling, Chen Guiliang's $2500 million is simply too much to spend. He won't even have the opportunity to short more, and leverage is utterly useless.

He's shorting, and so are others; everyone's scrambling to short the stock.

Towards the end of Lehman Brothers' collapse, short-selling interest rates soared to over 40%. Even with such high interest rates, securing a loan wasn't guaranteed!

Huang Wenzheng's gang... oops, I mean team, is mostly made up of Chinese people.

They deliberately passed by Chen Guiliang, their gazes towards him strange—a mixture of curiosity and a hint of envy and admiration.

This client was incredibly shrewd; he went on a short-selling spree several days in advance, aggressively entering the market to short Lehman Brothers.

It's too late for those who want to short sell now, because there's a temporary ban, and short selling is the only way to get a license. Most investors can't get that license, so no matter how much money they have, they can only watch helplessly.

Chen Guiliang had actually been very nervous. At this moment, he took out a cigarette to calm himself down. He put on a calm and composed expression, and said pretentiously with the cigarette in his mouth, "Mr. Huang, let's talk about the population issue. You can leave the short selling to your subordinates."

Huang Wenzheng was also full of admiration and laughed heartily, "Mr. Chen has quite the bearing of Xie Anshi. The young man has defeated the enemy so decisively, hasn't he?"

(End of this chapter)