From legendary short seller to god of American capital

Chapter 378: Buying high-quality spot wheat crashes futures prices

On September 15, Larry's long-awaited "market manipulation funds" finally arrived in Chicago.

This is the $1.2 million security deposit transferred by Baruch and held in Reading's account; and the $1.2 million transferred by Mr. Porter.

$43 in Paine Weber Securities' account.

The total of $163 million has finally arrived in my account.

But it seems Larry is no longer needed.

Starting with a $500 loan from Dunbar, Larry first ventured into St. Louis, where he robbed the betting offices of Dolan and Taylor. He then shorted panic selling and subsequently shorted wheat, making a fortune.

Even more outrageous, Larry kept adding to his positions as the profits were on the rise. When wheat futures prices broke through the 1 cent mark and 92 cents, he twice converted all his margin into new positions to continue shorting.

Currently, the price of September wheat futures has fallen to around 84 cents, almost the same as the spot price of wheat.

Larry's three futures accounts all made a large unrealized profit, and although he did not continue to short the market, the profit was enough to cover his subsequent expenses.

Larry was still very happy to see the belated "capital for the game." Immediately, he visited Cargill and, while Cargill's father and his son-in-law McMillan were present, told them his idea in person.

"I'd like to take advantage of the current low prices of grain and buy a batch of spring wheat," Larry said with a smile to his father-in-law and son-in-law.

Old Cargill and his son-in-law exchanged a glance, their faces showing extreme surprise, as if they had seen a saltwater crocodile in Chicago.

"Excuse me, Mr. Livingston, I'm old and my hearing isn't very good. What you just said was—buying wheat?" Old Cargill asked, frowning.

"Yes, it's wheat! I want to buy a batch while the price is low. You happen to have a lot of empty warehouse space, can I store the wheat here? I'll charge you the normal storage fees," Larry repeated.

Old Cargill frowned and remained silent.

McMillan, on the other hand, said directly, "Mr. Livingston, you are a very shrewd man. You should know that although wheat prices are low now, they will be even lower later. Once the railroad workers' strike ends, wheat from Minnesota and Daxton will flood in."

Back then, there were more sellers than buyers—wheat prices would be even cheaper! In fact, I think this year's wheat price could drop to as low as 62 cents.

Old Cargill, standing nearby, couldn't help but say, "Wheat prices will continue to fall—you understand that, and in a sense, you were the one who burst this false boom bubble in wheat futures prices. And now you're coming to say you want to buy wheat—it's ridiculous."

Larry, with a smile on his face, waited until they had both finished speaking before continuing, "I just want to stockpile some, and it's the highest quality wheat! If you're willing to lend me your warehouse, then I'm not here to discuss it with you, but to inform you. Is that alright?"

"Of course! Business is business!" Old Cargill sneered. "But we've made it clear beforehand! If you lose money playing the wheat hoarding game and can't pay the storage fees—even though we're allies now, we'll use your wheat as collateral!"

"That's your right!" Larry said with a laugh. "I also need to entrust you with the task of purchasing the wheat. Remember, I only want all of the No. 1 wheat, and the No. 2 soft red winter wheat and No. 2 hard red winter wheat—I'll buy as much as you can!"

After hearing Larry's words, old Gaggi looked at his son-in-law again, his eyes filled with even deeper doubt.

Because Larry was using industry jargon, the so-called "No. 1 wheat" refers to No. 1 Northern Spring Wheat. This is the highest quality wheat that meets stringent standards for moisture and impurities, and currently, there aren't many of these in Chicago.

Additionally, No. 2 soft red winter wheat is suitable for making pastries and cookies. No. 2 hard red winter wheat, due to its higher protein content, is suitable for making bread.

This wheat crop is much larger than the No. 1 wheat crop, but due to few export orders this year, much of it went directly to the East and West Coasts via rail. Chicago's inventory isn't particularly high either.

Compared to ordinary wheat, this labeled wheat is considered a premium variety. It typically accounts for no more than 40% of total wheat production.

Cargill pondered for a moment and said, "Cargill can act as your agent for purchasing, but purchasing requires a large amount of capital! And I must make it clear that there has been a lot of rain this summer, and the inventory of No. 1 wheat may not be very large, so those spot traders will ask for higher prices."

Larry tapped his fingers on the table and said decisively, "As long as the moisture and impurities strictly meet the exchange's inspection standards, I'm willing to pay an extra two cents per bushel premium for No. 1 wheat!"

McMillan's eyes suddenly lit up. He stood up and said to Larry, "—What do you want to do with this wheat? You have to give me a reason, otherwise I can't convince the other grain merchants to sell to us."

Larry smiled at him, thought for a good ten seconds, and then said, "Just tell them that wheat prices will continue to fall. Even more so, due to panic selling, both futures and spot prices will continue to decline."

If they're unwilling to sell, then the wheat will just rot in the warehouses. When the new wheat arrives in the western states, even if they want to sell it to me, I won't take it!

McMillan stared intently at Larry, as if trying to read something from his eyes, but then he chuckled easily. "No problem, Mr. Livingston! But you'll need to pay the deposit for the wheat upfront!"

Larry nodded, took out a $150 million bank deposit certificate as collateral from his briefcase, placed it on the table, and pushed it over.

"Summon your company's lawyer! Sign the agency agreement now. My requirements, besides strictly adhering to standard acquisition procedures, include confidentiality. Not a single word can leak out!"

Larry looked at McMillan until the latter nodded emphatically, indicating that he understood Larry's meaning, before saying seriously, "The commission can follow the old rules of your industry, but for every 5 bushels your acquisition exceeds, I will pay an additional 2% bonus!"

"I understand!" McMillan also became serious. "I will help you acquire No. 1 and No. 2 wheat as quickly as possible. If we handle this well—"

Larry's smile returned as he stood up and casually said, "As long as you handle things well, Cargill's crisis will be resolved!"

"It's a deal!" McMillan took two steps forward, extended his right hand, and shook hands with Larry.

The two shook hands, smiled at each other, and everything was understood without words.

Old Cargill was still completely baffled.

After Larry left, old Gaggi pulled his son-in-law aside and asked, "What exactly is this Boston brat up to?"

McMillan lowered his voice and said to him, "He still wants to control the market. We misunderstood before, thinking that his shorting of wheat meant he was controlling the market, but this is just the beginning of his real control. However, this is very beneficial to us, and we must cooperate with him resolutely!"

The following day, negotiations between the striking railroad workers and the North Pacific owners showed further signs of easing.

The workers have agreed to resume work, but a comprehensive assessment of the current progress of the railway project is required before work can resume.

The employer agreed to increase workers' basic benefits by 12% and provide a 20% performance bonus.

This was thanks to lawyer Clarence Darrow, who was dedicated to helping workers fight for their rights. He assisted worker leader Dross in securing many new legal conditions.

Both parties agreed that workers would return to the site to resume work after the project progress was assessed this week.

Undoubtedly, the news of railway workers returning to work further fueled the decline in wheat futures prices.

By noon that day, wheat futures prices had officially fallen below 80 cents, and further dipped to 75 cents before the market closed, ultimately settling at 75.5 cents, narrowly holding above the key psychological level.

Meanwhile, Larry's three major floor brokerage firms also began to spread a new rumor—that Cargill was still buying high-quality wheat despite the sluggish market.

This news seems neutral, or even slightly biased. However, in a clear bear market, jittery traders and grain merchants interpret it as—even a large company like Cargill only dares to buy "premium wheat," indicating an extremely bearish outlook on ordinary wheat, which further exacerbates the panic among ordinary wheat holders.

Traders holding large quantities of ordinary wheat, especially those who had stockpiled it using borrowed funds, were on edge. The news that Cargill was only buying premium wheat was the final straw.

They began selling off their stock regardless of cost, trying to escape before prices fell further, triggering the first stampede.

Once a trend is established and time is running out, panic can become self-fulfilling and create a vicious cycle.

Correspondingly, interpretations from experts and newspaper commentators quickly followed.

An expert from the Chicago Business Journal commented that the acquisitions by these giants clearly point to a future structural differentiation in the market, where only top-quality grains will have value, while large quantities of ordinary grains will become ineffective supplies that no one will want.

This interpretation further solidifies the pessimistic consensus in the market.

Correspondingly, speculative short sellers took advantage of this opportunity to increase their selling positions. This caused spot prices to plummet from the opening bell on Saturday.

By noon on Saturday, wheat futures prices had fallen below the 70-cent mark, but even so, trading volume was very low—because it was obvious to everyone that prices would only go lower on Monday.

Over the weekend, the wheat spot market also collapsed! Ordinary wheat saw a sharp price reduction due to its unpopularity. Grain merchants holding No. 1 and No. 2 premium wheat personally drove horse-drawn carts to Cargill's warehouses, begging the old Cargill to accept their premium wheat.

由于想卖给嘉吉的优质小麦实在太多，往年1美元以上的1号小麦，今年嘉吉的收购价仅82美分；2号小麦的价格也才74美分。

But this price is already much higher than the futures price! The grain merchants who sold wheat were not upset about the low price; on the contrary, they were very grateful for Cargill's "generosity".

Two days after the acquisition began, Cargill purchased 1.5 million bushels of No. 1 wheat and nearly 5 million bushels of No. 2 wheat, filling the warehouses that had just been emptied.

October 9th, Sunday.

As usual, James Keane sat in his office organizing information on companies and products from all over the world.

He immediately noticed the price communication from Chicago, where the price of wheat was highlighted in bold red font.

"It's dropped so much!" James Keane was quite surprised when he saw the price.

However, he has already heavily shorted the Chicago September wheat contract and increased his position to 450 lots, so the decline means excess profits for him.

Keane, pipe in hand, continued reviewing business intelligence from various regions. He only had a basic understanding of futures, but he could still analyze the reasons for the wheat price collapse. The key was that Europe was no longer buying American wheat, leaving New World wheat with nowhere to go.

After reviewing the intelligence, Keane took a satisfied puff of his pipe and muttered to himself, "There are only two weeks left in the September contract! Excellent, the direction and position of this operation are both sound."

After thinking for a moment, Keane pressed the call button. Soon after, his assistant pushed open the door and walked in.

"Did they continue selling wheat through that Reading account?" Keane asked.

As if he had known Keane would ask, the assistant pulled out a piece of paper, presented it to him with both hands, and said, "Yes, sir! Livingston's account shorted another 40 lots this Saturday, at a price of 70.5 cents."

Keane took the order, frowned, and sneered, "This idiot actually used an inverted pyramid scheme. If the market rebounds, he could easily go bankrupt—"

Keane picked up the Chicago Mercantile Exchange again, glanced at it, and smirked slightly. "Good luck to that kid! Wheat prices will keep falling. Looks like we'll both make some money. Well then, we'll just have to find a way to deal with him later."

The assistant leaned close to Keane and whispered, "Besides wheat, Livingston's stock account also sold 3000 shares of Hekla Mining stock!"

"Silver mine? Wasn't this guy always accumulating tobacco stocks? What? Is he shorting silver again?" Keane asked, frowning.

"I don't know! But it's true that he sold his shares in Hekla Mining," the assistant replied.

Keane began to think.

Hecla Mining, located in Idaho, is the largest precious metals mining company in the United States. Since there was no silver futures trading in the US at that time, selling its stock was equivalent to shorting silver.

Could it be that this little guy has received some new information again?

Shorting silver at this time would be unwise! The presidential election is approaching, and Republican Harrison has a strong chance of winning. He supports continuing to treat silver as a commodity in circulation, with the federal government purchasing it. Silver prices should continue to rise!

Keane thought for a moment, then instructed his assistant, "Keep an eye on his account! If he does another blank transaction, tell me immediately. I need to teach him a lesson! What exactly is this guy up to?"

While James Keane in New York was talking about Larry, Larry, far away in Chicago, rushed to the train station to join Democratic voters in eagerly awaiting the arrival of Democratic presidential candidate Mr. Cleveland and Senator Kennedy.

Around noon, a train, billowing white steam, roared and slowly came to a stop beside the platform.

On the platform, a near-boiling atmosphere of voices and heat filled the air. As soon as the train came to a stop, the crowd surged forward, erupting in cheers.

The first-class carriage door opened, and Grover Cleveland appeared. He was a burly man with a composed face, though a hint of weariness lingered on his features.

But it is precisely this composure and pragmatism that has led its supporters to recognize it as a reliable force amid the looming crisis.

His appearance sparked deafening cheers, and the Stars and Stripes waved wildly in the air.

Chicago police quickly maintained order, with plainclothes detectives mingling in the crowd, fearing the appearance of an assassin.

Cleveland did not immediately launch into a lengthy speech. Instead, surrounded by his entourage, he walked along the platform, shaking hands with as many people as possible.

Beside him stood a burly man with a brown beard. He was Altgild, the leader of the local Democratic Party.

On the other side of Cleveland is Massachusetts Democratic Senator Kennedy.