On the Edge Read online

  Which was true. In his first year back in London, Carr-Jones’s group had made profits of one hundred and thirty-two million dollars. An obscene amount.

  Calder left his screen and wandered over to Carr-Jones, who ignored him as he continued his phone call. Calder waited.

  Eventually Carr-Jones put down the phone and faced Calder.

  ‘Justin. Remember last night?’

  ‘I remember you physically assaulting me,’ Carr-Jones replied.

  ‘Do you remember what you said to Jen?’

  ‘Would you excuse me, I’ve got work to do,’ he said, turning back to his phone.

  ‘You promised to apologize to her.’

  Carr-Jones began punching out a phone number. ‘You threatened me.’

  ‘You were drunk.’

  Carr-Jones leaned back in his chair, receiver pinned to his ear. ‘So, I take it, were you. Which is why I will forget you attacking me. Oh, hello, Klaus,’ he said, switching into smooth salesman mode and leaning forward. ‘How are you today?’ He smiled quickly at Calder, and then turned away from him.

  Calder shook his head and returned to his desk. Jen was right. What was he doing working with people like that?

  Ten minutes later she arrived, dressed as usual in a white top and expensive black trouser-suit. She placed her slim briefcase carefully by her desk, which was next to Calder’s, sat down without taking her jacket off and turned on her screens. There was an air of quiet determination about her.

  ‘Morning, Jen,’ Calder smiled.

  ‘Sorry I’m late.’

  ‘That’s all right. When you’ve checked the market, I’d like to have a chat about Italy. It’s acting weird again.’

  ‘OK,’ she replied, without moving her eyes from her screens.

  Calder stared at her. ‘Are you all right?’ he said. It was clear she wasn’t.

  Jen turned to him. ‘Can we talk?’

  ‘Sure.’

  ‘In private?’

  Calder frowned and led Jen away to one of the small glass conference rooms that edged one side of the dealing room. Occasionally these were used for meetings with clients. More commonly they were used for internal manoeuvring, rumour manufacturing and distribution, politics, conspiracies, corporate assassinations. Calder hated them. He was also concerned that Jen brought her briefcase with her.

  They sat down on either side of a small table. ‘Shoot,’ said Calder.

  ‘I want to make a complaint against Justin Carr-Jones,’ Jen said.

  Calder winced. This was bad. ‘An official complaint?’

  Jen dug into her briefcase and came out with a green ring-binder entitled Bloomfield Weiss Human Interaction Protocols. Calder winced again. She flipped open the ring binder to a page marked with a yellow sticky note. Section II: Sexual harassment and discrimination.

  ‘It says here that I must make the complaint in the first instance to my line manager. That’s you.’

  ‘Don’t do it, Jen.’

  ‘Here.’ She handed him a single sheet of paper. Calder scanned it. It described succinctly the incident of the night before. It made the claim that this was the latest of many similar incidents that Jen had suffered. And it demanded that action be taken. Jen’s spiky signature was scrawled on the bottom.

  Calder carefully placed the sheet on the table between them. ‘You don’t want to do this, Jen.’

  ‘I want Justin Carr-Jones disciplined.’

  ‘I’m sure you do. But it’s not going to happen.’

  ‘Why the hell not? You were there. You heard what he said to me yesterday.’

  ‘Yes, I was there. And I agree he was completely out of order. But this …’ Calder flicked the paper towards her, ‘this will just make things much worse.’

  ‘Why?’

  ‘Because Carr-Jones is the biggest revenue producer in the London office. He’s one of the biggest revenue producers in the whole firm. And, as you well know, he’s a shit. He’ll make mincemeat of you. Your career here will be over. There will be nothing I can do to protect you.’

  Jen looked at Calder in shock. ‘I don’t believe this. I thought you, of all people, would support me on this.’

  ‘I will support you, Jen. I think you have a good future in this firm working with me as a proprietary trader. You’ve got a good brain and good instincts, and I’ll make sure you get good training. Carr-Jones can’t stop you from succeeding here unless you let him. This will let him.’

  ‘You’re just covering for him.’

  Calder took a deep breath. ‘I’m not covering for him. I’m being rational about it –’

  ‘Meaning I’m not being rational?’ snapped Jen.

  ‘Meaning you’re about to take a very bad decision and I want to stop you.’

  ‘You want to stop me blowing a hole in Bloomfield Weiss’s cosy men’s locker room.’

  ‘Come on, Jen, that’s unfair, and you know it. What I can do is talk to Carr-Jones. Get him to apologize.’

  ‘He’ll never apologize.’

  ‘He might have to.’

  ‘If he did he wouldn’t mean it. Anyway, I want him disciplined. Officially.’

  ‘It won’t work.’

  ‘I want you to pass my letter on to Human Resources.’

  ‘I won’t do it.’

  ‘It says here,’ Jen said, stabbing the folder in front of her, ‘that if I don’t get satisfaction from my line manager, I should go to HR directly myself.’

  Calder looked at the sheet of paper and at Jen. ‘I’m sorry. I’m not going to help you blow up your own career. You can take this to HR if you want. But I strongly advise you not to.’

  Jen glared at Calder. Without another word she snapped the folder shut and slid it and her letter into her briefcase. A moment later she was back at her desk, on the phone to HR, trying to fix up an immediate appointment. Calder glanced over to Carr-Jones, talking on his own phone, oblivious to what was going on. Bastard. Calder admired Jen’s courage in standing up to him and if he had thought there was the slightest chance that she would succeed in getting him disciplined then he would have supported her. But of one thing he was sure: there was none.

  As Jen picked up her briefcase and strode off to her meeting with HR, Calder felt a profound gloom settle over him. He hated to watch a potentially good trader throw away her career.

  3

  Jean-Luc Martel stretched his long, long frame and spun his four-thousand-dollar leather swivel chair away from the mess of the European bond markets towards the dawn. The delicate pink fingers of a sun which was still hidden behind the mountains to the east stroked the snow-covered tree-flecked slopes of the Tetons, and brushed the low-voltage luminescent blue of the sky above. The town of Jackson slumbered below, cosy in its ‘Hole’, the twenty-mile-long valley that followed the path of the Snake River through this stretch of the Rockies. Martel loved to come in this early, when the markets of London and Frankfurt were already active but the day had yet to begin in Wyoming.

  Two decades before he had left the stifling restrictions of the Parisian financial establishment for the hurly-burly of New York’s markets. After ten years he felt he had mastered them, and he began to find even the ruthlessly meritocratic investment bank he worked for too restrictive. So he had set up his own fund, in this mountain paradise, to take on the world’s markets from afar. He had done well. Spectacularly well. A million dollars invested with his Teton Fund in 1994 was now worth nearly twenty million. He had been short the yen in 1998 and he had made money out of the hedge-fund disasters of that same year. He had ridden NASDAQ all the way up in 1999 and all the way down in 2001. He had sold oil in 2003 a couple of months before the invasion of Iraq. And he had done it all using leverage, borrowed money, the rocket fuel that turned a one-dollar movement in a market into a ten-dollar profit for the Teton Fund.

  Martel fancied himself as a philosopher, a philosopher of what he called behavioural evolution. He could quote Francis Galton, Daniel Bernoulli, Charles Darwin and Richard Tha
ler in bewildering combinations. He believed he traded fundamentals. Where other traders used this phrase to mean the fundamental strength of a particular company or market, Martel meant the fundamentals of human nature, especially the agglomeration of human nature that makes up a marketplace: greed, fear, euphoria, panic. But his most deeply held belief was one he had learned from the poker table as a young man. The player with the deepest pockets wins.

  His successes had made him well known in the markets, but not outside. This frustrated Martel. He was the smartest investor in the world, and he was upset that the world didn’t recognize it. Two men particularly irritated him. Warren Buffett, whose ability to accumulate billions by sitting on his hands and watching his investments grow placed him in a different category from Martel. And George Soros. Now there was a man Martel could emulate, and eventually surpass.

  Soros was not trading actively himself any more, but he was still widely known as the world’s most successful hedge-fund investor. His Quantum Fund had posted huge gains during the nineteen eighties and nineties, culminating in the rumoured billion dollars he had made when he speculated successfully against the Bank of England in 1992 as the markets ejected the pound from the European Exchange Rate Mechanism.

  Like Soros, Martel was of Eastern European ancestry – his grandparents had come from Poland to France at the beginning of the twentieth century and his name had been Młotek before his father had changed it to Martel when he was twelve. Like Soros, he was a philosopher. Like Soros he was brilliant. Soon, the world would recognize these facts.

  Perhaps very soon. The Teton Fund was short four billion euros’ worth of Italian government bonds and Martel was selling more every day. Already his profit was twenty million euros, but he was expecting much more in the coming months.

  He felt a discreet buzzing at his waist. He checked his Blackberry, a small mobile device that he always kept attached to his belt It was an instant message from Walter Lesser, who ran a hedge fund in New York. Many hedge-fund managers would instant message each other all day long. They preferred it to e-mail, it was faster and it left no trace for regulators to examine later.

  Hey Jean-Luc. You still shorting the BTPs?

  Martel smiled, and flicked his fingers and thumbs over the compact keyboard of the Blackberry.

  Yep. And it’s got a lot further to go.

  A moment later:

  They say it’s impossible for Italy to leave the euro. Unconstitutional.

  Martel replied:

  That’s what they say. But I’ve got a law professor in Milan who says different. Do you want his report?

  Martel waited, his excitement building. To his annoyance, the major hedge-fund players had never really accepted him as one of their number. Walter wasn’t one of the biggest funds, but he spoke to the really big guys every day. If he could get Walter on side, then he’d tell his friends and Martel’s trade would build up momentum.

  It took a full minute before the response came back:

  Send it.

  Martel grinned and scanned the pile of papers in his office. The room had started life as a plush executive suite with deep carpets and expensive art, but had since been overrun by a whirlwind of energy. Almost every inch of the walls was covered with newspaper cuttings, photographs, cartoons, aphorisms and white boards and flip charts sprayed with manic arrows describing trading strategies. The floor and desk surfaces were ninety per cent submerged below paper, although a medicine ball and some weights were strewn around the far corners. The Italian information overwhelmed a low steel and glass table and the carpet surrounding it. Martel picked out the law professor’s report, which was on the pile next to one of his wife’s Indian vases, scribbled a note and left it on his assistant’s desk outside his office. As he returned to his own desk he glanced at the portrait of his wife, hanging on the wall opposite, a patch of serenity amid the chaos. It was a beautiful painting of a very beautiful woman. Perhaps he ought to commission the artist to paint him working here, in his office, on top of the world? At the very moment he was fashioning the trade that would change history. Worth a thought.

  He stared at the nineteen-inch flat screen that dominated his desk. The prices of the Italian bonds were highlighted, gently ticking up and down. He knew it was a waste of time to stare at numbers, but sometimes, on mornings like this, he just liked to gloat.

  Suddenly the price of the bellwether BTP flashed and gapped down three quarters of a point. He checked his Bloomberg screen to see why. Sure enough, there was a one-line item of news.

  Leader of the right-wing Democratic National Party, Massimo Tagliaferi, announces that former finance minister Guido Gallotti had joined his campaign. Gallotti is a forceful advocate of Italy leaving euro.

  Tagliaferi, the energetic owner of one of the country’s largest industrial holding companies, was an outsider to win the coming election, but for the first time a credible Italian party was saying the unsayable, and in the process highlighting the fragility of Italian membership of the euro. The bond markets were spooked and Martel’s trade was rolling.

  Martel hit the button of his squawk box. ‘Hey, Andy. Get inhere!’

  A moment later, Andy, his young but extremely smart bond trader, was in his office grinning from ear to ear. ‘I guess you saw the news?’

  ‘I did. And I have just spoken with Walter Lesser. He’s interested.’

  ‘Do we take profits?’ the trader asked. We’ve got to be close to a hundred million up.’

  ‘Do we take profits?’ Martel repeated, his brown eyes bulging as he stared hard at his subordinate. ‘Do we take profits? What do you think? Hein?’

  Andy paused. He realized he had made a mistake, but there was no going back. ‘Well, we’ve done pretty well, and I kinda thought …’

  Martel threw himself and his chair back from his desk and leapt to his feet. ‘You don’t listen to me, do you?’ He began pacing along his favourite runway by the window, which he kept clear of papers. He was just over two metres tall, and it took him only a few strides to reach the far wall. He might be forty-five, but he kept himself in good shape. With a tanned body well honed by fresh air and exercise and dark curly hair with only the first flecks of grey, he had the drive and the energy of a man ten years younger.

  ‘We are not trying to make a couple of million here. Opportunities like this do not come along every day. This is the trade of the century. The trade, of the millennium. Italy is going to crack. The economy is screwed, the government is screwed, the bond market is screwed. Within two months Italy will leave the euro.’ Martel was speeding up, his long arms waving wildly. Once he got like this Andy always expected him to knock over some of the junk in his office, but he never did. Suddenly he stopped and stared at Andy with those bulging eyes. ‘And once everyone realizes that, you know what will happen to Italian bonds?’

  Andy was twenty-nine with an MBA, and one year he had pulled down a seven-figure bonus on Wall Street. He looked up at the towering Frenchman and thought how much he hated being treated like a five-year-old. But he had seen Martel in these kinds of moods before. There was no option but to humour him. ‘Prices will fall.’

  ‘Prices will fall. And fall some more. You know the Petersburg Paradox?’

  ‘No,’ said Andy. He was sure that Martel had explained it to him before but he hadn’t listened.

  ‘It explains everything.’ Martel launched into a convoluted explanation of Bernoulli’s Petersburg Paradox, something about the problems of valuing trading profits that increase exponentially. ‘You understand?’ he said when he had finished.

  ‘Yes,’ said Andy, although in truth he didn’t see what relevance it had to the price of BTPs in the twenty-first century.

  Martel turned towards the snow-covered mountain behind him, now glittering in the early morning light. ‘So what do we do?’

  This question Andy knew the answer to. ‘We do more.’

  ‘Exactly. I want to be short two billion more euros by tomorrow.’

&
nbsp; ‘Two billion! The market’s gonna move away from us on that size.’

  Martel turned. ‘Go to work, Andy.’

  Andy went to work.

  Martel smiled. He knew Andy was a good trader, his only problem was he just didn’t know when to go into the market in size. Massive size. Very few people had the combination of skilful judgement and courage to be able to do that. George Soros had it, of course. And so did Jean-Luc Martel.

  There was a tentative knock on the open door to his office.

  ‘Hey, Vikram, you’re back!’

  ‘I got in last night.’

  Vikram Rana was Martel’s derivatives trader and one of his most loyal henchmen. Vikram had been born in India, but like Martel had taken to America with enthusiasm. At six foot three he was only four inches shorter than his boss, with a broad chest and flat stomach sculpted by many hours in the gym, skin that was no darker than Martel’s skiing tan, and flashing black eyes. He was also very smart, one of those rare quants who was clever enough both to understand the most complicated of derivatives and to use that knowledge to work on the greed and carelessness of the other players in the market.

  ‘So, we’re done?’ Martel asked.

  ‘We’re done.’

  ‘That was one great trade.’

  Vikram smiled, his white teeth gleaming. ‘They fell for it. We’ve got them, like a tiger pouncing on the goat.’ Vikram’s American accent was much more authentic than Martel’s. He’d worked hard at it.

  Martel didn’t give a damn about his. ‘Do Bloomfield Weiss know what they’ve done?’

  Vikram shrugged. ‘I guess so. I dealt with an Indian guy called Perumal. I could see the only thing he was thinking about was how big a fee they’d be making from the deal. Fifteen million bucks, by my calculations.’

  ‘Don’t worry,’ said Martel. ‘If that’s what it takes to hook them, that’s fine. We’ll make many times that when we’ve finished. Now what is it exactly we’ve bought?’