The American Kill Line: I Can Predict the Future

All doubts were suddenly resolved.

Ron understood almost instantly why this "prophecy" only provided the location, not the event itself.

This is not the euro crash caused by one or more events.

Or rather, it wasn't the main trigger.

It was a premeditated feast of empty promises.

It's even possible that it was premeditated.

"Is it Soros and Blackstone?"

"Greenlight, Bridgewater, or Paulson?"

Ron pondered for a moment, his eyes grave: "No, perhaps it's not some kind of capital, but rather..."

He experienced the depth of the euro market last month.

At that time, the Fed's QE2 policy had not yet been implemented. If it weren't for the black swan event of the People's Bank of China raising interest rates, it would have been almost impossible to short against the trend.

Moreover, it's over 1300 basis points, a drop of 9.3%.

Neither Soros nor Bridgewater has that capability.

"Damn it, you guys might as well just draw candlestick charts."

It's clear that a group of giant crocodiles have joined forces.

Ron didn't stay long; he said goodbye to Charles and left early.

He needs to go back and think carefully about the next steps.

……

And on the other side,

Taking advantage of the city's focus on the Republican victory, a group of top hedge funds quietly arrived at a secluded estate under the cover of darkness.

It was raining heavily and quite cold tonight. The firewood in the fireplace was burning brightly, the orange-red flames leaping and dancing. The warm fragrance mixed with the rich aroma of cigars pressed heavily into the air, completely locked inside by the heavy Persian carpet and velvet curtains.

Outside the window, the lights of Manhattan shattered into cold, shimmering spots on the river.

"Let me share some interesting news first: Franklin Templeton Investments has recently made large purchases of Irish government bonds."

"Could you tell me the exact amount you bought?"

"I'm not entirely sure." Soros opened his palm, then slowly closed it again, as if weighing something unseen in the air. "But I estimate it's at least a billion euros."

"10 billion euros?" David Einhorn of Greenlight Capital let out a short snort.

He removed the cup from his lips, casually resting his wrist on the sofa armrest, his silver ring flashing in the firelight: "This little bit of money isn't enough to turn things around."

"I prefer—" Kyle Bass of Hyman Capital loosened his crossed fingers, drew an invisible semicircle on his knee with his middle finger, and cast his gaze straight ahead from above his knuckles:

"He's buying at the bottom."

A pine log in the fireplace crackled and popped, sending up a spark that briefly illuminated the profiles of a few people.

No one responded.

But there was a tacit sense of agreement floating in the air.

Hyman Capital was one of the visionary investors who made a fortune shorting subprime securities during the subprime crisis.

It is also one of the main players in the European sovereign debt CDS market, through the purchase of CDS of Greek, Spanish, and Italian government bonds.

They set their sights on Ireland as early as six months ago.

Shorting the euro is only one aspect.

The main battleground is in the bond market, where credit default swaps (CDS) are used to attack Irish sovereign bonds.

A CDS can be understood as buying "bankruptcy insurance" for Irish government bonds.

If Ireland defaults, the insurance company (the seller) will have to pay a huge sum of money to the buyer.

When large short sellers buy CDS, these sellers are major global banks and market makers such as Goldman Sachs, JPMorgan Chase, and Deutsche Bank.

They must hedge their risk exposure.

There are only two ways to hedge.

One approach is to directly short Irish government bonds. The bank sells a CDS, and to hedge, it will sell Irish government bonds in the spot market, or short the euro/dollar exchange rate.

Another method is for banks and market makers to hedge by buying Irish government bonds while simultaneously buying CDS.

But the question is, what if Ireland actually defaults?

The recovery rate of government bonds may only be 50%, while the payout of CDS is 100%.

To fully hedge, banks and market makers need to buy twice the notional amount of government bonds as CDS.

This is why Irish government bond yields are currently as high as 7%.

Simply put:

Short sellers bought a large number of CDSs, causing CDS prices to soar and sending a panic signal to the market.

Banks and market makers sold off Irish government bonds to hedge their positions, causing bond prices to fall, yields to rise, and the euro to weaken.

Rising government bond yields increased the cost for the Irish government to borrow new debt, leading to greater market skepticism about Ireland's ability to repay its debts, and CDS prices surged further.

Then return to step one and cycle through the acceleration.

This is precisely the "reflexivity" that Soros excels at.

This group of short sellers, centered around him, doesn't even need to wait for Ireland to actually default.

Once this "death spiral" begins, CDS prices and government bond yields will mutually reinforce each other, causing the euro to continue to fall.

The short sellers' unrealized profits on their CDS positions are already quite substantial.

Besides, there's also the Euro.

At this time, John Paulson of Paulson Capital, the man who made $20 billion by shorting during the subprime mortgage crisis.

He pulled his arm back from the sofa armrest, clasped his hands in front of his lower abdomen, and asked in a slow, almost languid tone, "What did Hunter Capital say?"

As soon as he finished speaking, the sound of his body shifting on the sofa disappeared.

The soft clatter of the wine glass on the armrest also stopped.

All eyes were fixed on Paul Singer, the founder of Elliott Management and known as the "King of Vulture Funds" on Wall Street.

Elliott was also one of the investors in this round of Irish sovereign debt, and even earlier than all other institutions.

He will be the final driving force behind this European debt crisis.

Furthermore, he is one of the Republican Party's biggest supporters.

Hunter Capital is now qualified to sit at the same table and share the spoils.

The invitation to join can be seen as a well-intentioned warning.

Paul Singer did not answer immediately.

He first lifted himself up from the armchair, his right hand gripping the rim of the glass, his left hand rising from the armrest, and rubbing his chin with the back of his fingers: "No answer."

He glanced down at the remaining liquid at the bottom of the glass, a faint, almost imperceptible smile playing on his lips.

"But that doesn't matter. Does he really think he's a Wall Street stock market guru? Even if he is—"

Paul raised his cup and drank it down in one gulp in the firelight: "This is also the burial place of the gods."

The revelation of Ireland's fiscal deficit last month was merely a trigger, a test of the bulls' reaction.

With the implementation of QE2, almost all bullish investors have entered the market.

A few days is enough time for the market to digest all the positive factors.

Unless another black swan event occurs.

Moreover, it's the kind of super black swan that can flip the entire chessboard.

Otherwise, even the gods could not stop this bearish trend.

Upon hearing this, everyone present first smiled and nodded.

Then they all looked at Soros.

Soros's lips twitched visibly, which was probably the most frequent expression on his face in recent days.

Bob Prince, the macro strategy executive at Bridgewater Associates, loosely clenched his fist to his mouth, cleared his throat, and deliberately kept his voice level: "George, what did Blackstone say?"

Immediately, everyone composed themselves and looked at Soros.

In March of this year, the judicial authorities questioned Soros and others about their short-selling of European debt.

This time it's different from shorting European debt six months ago, when the European debt crisis had already fully erupted.

They were at most going with the flow.

After nearly half a year of easing, the market wounds are beginning to heal.

At this juncture, aggressively shorting Ireland would undoubtedly attract the attention of the Federal Reserve and the Department of Justice.

Hyman Capital and Elliott Management are primarily focused on Irish government bonds, while the rest are concentrated on euros and gold.

Blackstone Group was their chosen backup plan.

They are both participants and those responsible for resolving issues within the judicial system.

Soros didn't say anything, he just nodded slightly with a blank expression.

He agreed to Blackstone's offer last month, and that was the condition.

On the other side of the fireplace, Paulson leaned back against the sofa and laughed.

His laughter was soft, hoarse and relaxed, carrying a composure that only comes with age and experience: "George, I'm sorry to have troubled you."

Soros's face darkened further.

"Hahaha……"

Everyone present burst into laughter.