From legendary short seller to god of American capital

Chapter 377 Baruch Continues to Add to His Position Despite Unrealized Profits; New Commission Received

On Wednesday, the market entered a period of complete collapse as almost all Chicago traders began shorting.

Everyone knows that the spot price of wheat is much lower than the futures price. The previous thinking was simple: because of worker strikes...

Rumors of reduced wheat production—for whatever reason, wheat futures prices have remained high.

Regardless of whether futures brokers believed that "futures prices will eventually converge with spot prices," they all harbored some degree of wishful thinking beforehand.

But now that futures prices have started to fall, everyone has had to face the reality. Those who went long were forced to close their positions, while those who went short increased their positions, and a consensus trading pattern began to emerge in the futures market.

To make matters worse, as rumors of railway workers ending their strike spread, spot wheat prices also began to fall.

This forced futures prices to fall again.

Old Stone stood at the counter, sipping his black tea and enjoying the last moments of leisure before the morning market opened. Just then, he saw a lean man with piercing eyes squeeze into the crowd and head straight for him.

"Hello!" The other person was polite, but their gaze was somewhat cold. "I've been asked by Mr. Livingston to deliver a message to you. He says he's going to add to his position when he's making a profit!"

"Mr. Livingston?" Old Stone frowned as he looked at his two sons.

Larry Livingston is now Stone's biggest customer. He shorted 1000 lots of wheat on Monday and then used half of his own account to short wheat again.

The original price was $1.28.

It was their selling that prevented the market from rising further.

Like other floor brokerage firms, Old Stone offers 5x leverage for overnight trades, and intraday trading can temporarily expand to 10x.

Double leverage.

Before shorting, Larry's account at Stone had a total profit of $54375, which, if combined with his initial principal, amounted to $81875.

He also shorted half of his wheat holdings, which was 32 lots, totaling 16 bushels of wheat.

On Tuesday, when wheat fell below the $1 mark, Mr. Livingston threw all the remaining cash and unrealized profits in his account into the market to short it. At that time, half of his remaining position and unrealized profits were traded at the $1 mark.

由于在1.26美元的32手小麦已经产生巨量的浮盈，所以他帐户在1美元处再次做空了40手，约20万蒲式耳小麦。

Currently, Mr. Livingston holds 72 short positions in his personal account at his own company, with an average cost of $1.116.

But now—he's actually going to add to his position with the floating profits! That's terrifying!

Shorting so many wheat futures contracts could wipe out huge unrealized profits with just a pullback. But this young man clearly didn't consider this factor at all, continuing to short at the extreme. Even old Stone was impressed by his ruthlessness.

"I will do as you say, but you have to tell me a price for the commission!" Old Stone said to the man who called himself Cole.

Cole simply replied, "Mr. Livingston said whatever—he's given you full authority to continue selling as long as the market continues to fall after opening!"

After saying goodbye to old Stone, Cole turned and left to give orders to the other two smaller accounts.

As for old Stone, he whispered to his two sons for a while before finally returning to the trading floor.

Just then, the 9:9 AM opening bell was about to ring. The first price for the September wheat contract was set, and it was a staggering 93.5 cents.

This price wasn't surprising, as yesterday's closing price had already fallen below 95 cents. Old Stone waited outside the crowd for a while, arms crossed, as wheat prices rebounded slightly before continuing to fall, eventually dropping below 92 cents.

Old Stone sighed – the market is too weak!

"How many lots of wheat can Mr. Livingston's account short?" Old Stone asked his eldest son.

"Floating profit—$70,560. Now that the price has dropped, the cost of margin per lot is also decreasing. Now, approximately—" The eldest son calculated for a while with a serious expression, and came to an answer that even he couldn't believe, "—approximately, we can add another 76 short lots!!!"

hiss----

Despite being mentally prepared, old Stone still gasped.

This is how short selling in futures works: as prices fall and profits increase, the number of short positions that can be opened subsequently rises significantly.

"Short it, now!" Old Stone sighed. "What a formidable opponent—"

Meanwhile, Larry and Matthew continued their trek through the muddy roads after the rain, their steps uneven.

Next to the workers' assembly area were the railway's storage warehouses, which also had many wheat warehouses, though none as large as Cargill's.

The two explored the gray warehouse like detectives. The grain warehouses here were tall and gloomy, and due to two consecutive days of rain, the air was filled with the smell of grain and mold.

As Larry walked, he silently counted the number of warehouses in his mind. The two avoided the managers and found several porters who were taking a break.

Before Larry could speak, Matthew had already used the "Larry communication skills" he had learned to take out a few ordinary cigars from his pocket and offer them to the workers, while smiling and greeting them.

At first, the workers were wary. But when the cigars started to light and Larry and Matthew repeatedly said they wanted to buy a batch of goods, an older German immigrant started talking.

"Food? Yes, plenty—"

The old worker stomped hard on the wooden plank under his feet. "But many of the bags are wet. Do you see those burlap sacks in the corners?"

The damp wheat sacks are a much darker color. It's been raining heavily these past few days, and the warehouse roof is leaking. If you're going to choose, make sure you look for those that won't get moldy!

Another worker spat, "You also need to watch out for those mixed with sand! Some grain merchants will do anything to increase the weight! There is good wheat, but not enough. A lot of it is piled up in the dry area near the door, just to show off to the inspectors?"

Matthew nodded and chatted with several workers, while Larry, under the pretext of checking out the warehouse's structure, quietly walked deeper into the warehouse.

Walking up to the pile of sacks, Larry picked at one with his fingers, feeling a damp, cold sensation. He even caught a faint sour smell from a tear in one of the sacks.

"—Everything is just as I expected!"

Larry finally smiled.

At 10:30 a.m., Baruch stood in "his" trading room, watching the prices of futures and stocks being transmitted along the paper tape of the quotation machine.

At this time, each VIP room was equipped with a telegraph machine. Of course, the telegraph machine displayed the market prices. Some wealthy people sitting in the trading room, who found it inconvenient for the telegraph machine to show their stocks in such a long time, would sometimes simply go to the trading hall to place their orders.

But Baruch wouldn't; his professional expertise allowed him to easily discern which prices were relevant to him. It was less a premonition and more an instinct.

At that moment, the price quote machine clicked and clacked. Baruch frowned, staring at it, sensing that this price was probably related to him.

Sure enough, the paper bag that was pulled out showed the latest price of wheat—it had fallen below 92 cents.

Before Baruch could even marvel, there was a knock at the door, and a Reading trader appeared with a telegram.

"Your telegram, Mr. Manager."

"Where did it come from?"

"Chicago! Signed Mr. Livingston," the other party replied.

Baruch hurriedly stood up and took the telegram, which was the latest instruction from his client that he had been waiting for!

Larry's cable was simple: Keep a close eye on their movements! Also, start shorting the September wheat contract today. Start with a small position and gradually increase it. Execute the plan directly, without considering the other side's response.

Baruch was somewhat confused after reading the telegram. Livingston hadn't told him how to deal with the expert who had suddenly appeared; instead, he was told to continue shorting wheat.

Of course, continuing to short wheat may be part of the plan!

But the requirement for this position size—"light first, heavy later"—is a bit hard to understand!

Livingston should also know that the price of wheat has fallen from $1.26 to 92 cents, a huge drop!

Shorting at this point still carries risks, although wheat futures should already have a lot of profitable positions. Livingston's advice to "start with a small position" is well-founded.

But why invest heavily in it later?

Baruch couldn't understand what Livingston was up to, but since the client had entrusted him with the task, he had to carry it out.

Baruch then assessed the remaining funds in Lehman Brothers' accounts. He shorted 20 lots of wheat at 92 cents.

The 20 lots were sold very quickly! The settlement slip sent out via direct telegram showed that Lehman Brothers’ floor trader in Chicago had sold 20 lots of wheat for him.

Baruch, who had remained serious throughout, saw that his wheat deal was complete. His next thought naturally drifted to the question: would he encounter that mastermind again?

Where should you set your stop-loss order for wheat futures?

A message came through the telegraph machine; it was from a trader at Lehman Brothers.

Baruch hesitated a bit because he had always been forced to sell when he set a stop-loss order before!

However, for Baruch, it was his business how others caused trouble, but he himself had no choice but to do things according to the instructions of his client.

"Place my stop loss at 2% above the market price!" Baruch set his stop loss again.

After finishing everything, Baruch did not feel any relief. Instead, his heart raced again—because he had no idea whether the mastermind behind the scenes would continue to suppress him.

I waited for 15 minutes, and there was still no movement! I waited for 25 minutes, and still there was still no movement.

Baruch even sent a telegram to Lehman Brothers asking, "Has Mr. Livingston's account been stopped out?"

The other party replied that there was none. The market had been falling, and without an upward movement, it wouldn't trigger his stop-loss order.

Baruch frowned and pondered for a long time, finally arriving at only one conclusion: the person secretly targeting Livingston's account was probably not even paying attention here at the moment!

Almost at the same time.

James Keane stood in front of the price quote machine in his office, holding a long strip of paper in one hand and the other behind his back, carefully observing market trends.

A moment later, there was a knock on the door.

Mr. Keane's trader, Quincy with the slicked-back hair, knocked on the door and came in.

"Sir, I don't understand, why don't you continue to deal with him?" Quincy asked with a greasy, ingratiating smile.

James Keane glanced back at him, a cold smile on his face. "I don't want to deal with him! Especially not now."

"Why is that?" Quincy continued to ask.

"It's very simple, because they're on the right track." Mr. Keane then picked up the paper strip he had seen earlier, quickly and carefully read it through, and then handed it to Quincy.

Quincy pretended to read it respectfully, only to find that Mr. Keane had already turned his back and was checking the stock quotes again.

Quincy quickly exclaimed, "Excuse my slowness, Mr. Keane. I don't know why that kid's account can't be manipulated! We can clearly keep pushing the price up; he just established a short position at 92 cents today, and if we keep pushing it up, his margin will—"

"What will happen?" Keane turned to look at him, his face half mocking and half indifferent.

"This will trigger a margin call, forcing you to liquidate your position and exit at a loss."

Quincy said nonchalantly, "Haven't you noticed? This kid's getting more and more panicked. The continuous declines have made him lose his composure! If you mess with him one more time, he might really go all in!"

snort----

James Keane snorted and walked back to his desk, slamming his hand on the several reports spread out on it.

"You never know how to act wisely—you're always easily tempted by small gains! Can't you see? The wheat market is inevitably falling; it's a bear market!"

As Quincy approached, Keane tapped the reports on the table with his index finger. There were the latest harvest forecasts from the Department of Agriculture, freight schedules from Atlantic Freight Forwarders, and a spot wheat price list from Chicago circled in red.

"Look here!" Keane emphasized. "This year, winter wheat harvests in Kansas and Oklahoma are 18% higher than last year. Add to that the sharp drop in FOB prices at European Black Sea ports—what does this mean? In Chicago, both wheat futures and spot prices are falling. There's plenty of wheat in the US! Wheat futures should be shorted!"

"You mean, did that kid do the right thing this time?" Quincy continued to ask.

"Of course! This isn't a personal feud between me and Larry Livingston; it's the will of the market itself. The supply and demand curve doesn't change because of someone's intelligence or stupidity."

As he spoke, Mr. Keane stood up again and turned to look out the window.

Behind him, Quincy glared at him, her face full of impatience.

"Livingston is either very clever; he's trying to set a trap to make me go long—hmph!"

Keane chuckled again and continued, "But before I deal with him, I'm first and foremost a player! I won't go against the true direction of the market. His vision is too narrow; he only sees a deal, a gamble. But I see—the whole chessboard."

At that moment, the office door opened, and the old butler walked in, saying to Mr. Keane, "Sir, as you instructed! 200 lots of wheat have been shorted. The average transaction price was 94 cents."

Quincy was surprised and quickly asked, "So, you also took advantage of the situation to short wheat?"

"Yes! Not only will I sell now, but I will also sell when the market accelerates!" Keane had already turned around, glanced at Quincy and his butler, and a confident smile appeared on his face.

"What matters is the market itself. I don't care whether Livingston is shorting or not, but I won't go against the market."

Or perhaps I'll have to temporarily accompany him on this short-selling journey. Let him continue shorting; he doesn't even know who he's paving the way for!

Quincy was extremely surprised.

He was surprised by how petty his boss was. He had been relentlessly sabotaging the young man's account—from bribing insiders to setting up profit-sharing slips on-site. The costs and benefits were completely disproportionate.

But now, Quincy is lamenting that his boss ultimately wouldn't act impulsively! Faced with the real trend, he chose to short the market alongside Livingston!

Without a doubt! This time, Livingston's account is safe!

Both of them will reap substantial profits.