Tournament of Shadows

By Andrew Capon and Michael H. Hyman

In the shadows, there are those who plot to exploit the financial weaknesses of the United States. A well-planned assault could threaten the dollars position as the worlds reserve currency. An attack like this would also threaten the business of government, military, and social programs and lead to dangerous instability, in America and around the world.

It will take the combined efforts of Sarah Linderman and Jack Romanov to foil an international conspiracy to destabilize the global financial markets and bring America to her knees. However, its almost impossible to protect against an invisible antagonist, especially when the adversary is knowledgeable with unlimited funds and determined to humble the whole world.

Who is the concealed enemy of the United States, and why are they so hell bent on throwing the world into a financial crisis? Will Sarah and Jack be able to stop them before its too late, or will America end up powerless and poverty stricken? This is a work of fiction, but recent events show that in the financial world, the truth can be stranger and sometimes just as sinister.

• Language: English
• Publisher: Archway Publishing
• Release date: Mar 23, 2016
• ISBN: 9781480827448

Andrew Capon

Michael Hyman “cut his teeth” in the London markets of the eighties and nineties, after completing his post-graduate studies at the London School of Economics. He is the co-founder of RPH Capital. Andrew Capon is Head of Strategic Communications at Insight Investment, the United Kingdom’s biggest active fund manager. He has twenty years experience of financial markets as a senior investment analyst, strategist and award-winning journalist.

Book preview

One

Saul Linderman would much rather have stayed in his hotel room reading the International Times. But he had been invited to a cocktail party downstairs. Some celebration---he couldn't remember what it was about. A trader's birthday, he thought. But Joel Schwartz had opted out, claiming another engagement. Well, this was an opportunity---one of the traders might have one too many drinks and let something slip. He laughed inwardly---that's probably why they had invited him. They hoped he would let something slip. He was not afraid of that. He could be the soul of discretion.

He wondered if Nicky would be there. She was evidently the right arm of Joel Schwartz. A conspicuously wealthy hedge fund manager could probably have his pick of gorgeous women. Yes, Saul was sure she would be there---dressed in some slinky black thing with cleavage no one could take his eyes off of. What was her real function? he wondered. To get old men like himself---he felt very old tonight---to reveal something? No. Saul had lived too long for that.

The oval gold-framed mirror hanging above the faux Louis XIV bureau caught his image as he stared at himself. I'm getting too old for this, he thought. If something strange is happening, let the younger ones look into it. He rubbed his hand over his eyes. I am too old. Or is this just a welcome distraction? Something to get my mind off what's happening at home?

The SEC was looking into him. Why Saul Linderman? Why was he the scapegoat? All the others had been involved in the repo frenzy as well. Was it the age-old reason? He didn't want to think that. Jews had been singled out throughout the ages. But surely not here; not now.

Today something very strange was going on. He had hoped that this trip to Zurich and his meeting with Joel Schwartz at JS Global might help clear up the mystery. But everyone at JS Global, though perfectly pleasant, had been careful to say nothing that might help him understand what was going on.

He sighed. He really didn't want to go downstairs; he felt weary and uneasy about his late-night flight back to the States. He really wanted nothing more than to stay in his room and read. He would skip dinner and get a bite on the plane before settling down to sleep.

He stared out the window. It was dark, and it had started to rain. He turned back into the room, straightened his tie, and headed down the heavily carpeted corridor to the elevator---and to his doom.

Two

Saul paused at the entrance to the bar and assessed the scene. The party was in full swing. He had heard the braying of the traders long before he reached the door. They were clearly already well oiled and set in for the evening. He would have turned and left, but Nicky spotted him and was up and walking toward him before he could slip away. He had to admit that the way she looked---as if she had been poured into her dress---meant that a drink in her company would be no hardship, even with the rest of the traders partying around them. Clearly these guys all knew each other from New York and London. They saw Joel Schwartz as a meal ticket, not a colleague.

The table went silent as he approached. The soberer ones attempted to stand. With half a dozen empty bottles of Krug on the table, he realized they were drunker than he had thought. Kevin Warsh, their head trader, had been forced to down a Champagne Hemingway, a lethal combination of absinthe and fizz, and was barely coherent. Even so, they managed to pull together a semblance of sobriety.

Please don't let me disturb the fun, Saul said. I just came to wish Kevin a happy birthday, and then I'll leave you to it.

There was a general outcry of dismay at that, with a space rapidly cleared and champagne poured, along with an insistence that he sit down and join them. None of them broached the subject of Linderman Brothers' collapse or Saul's legal difficulties. Instead, they turned to the one thing they had in common: the markets. Saul let the talk run, and it soon turned into champagne-fueled boasting.

Short US is the biggest macro opportunity of a lifetime, one of the traders bloviated. We're already up 40 percent this year, and we're going to be up a hell of a lot more by December.

Nothing like betting that the US markets will tank, another added.

You guys seem to have some pretty ballsy positions, Saul said. You're, what, a ten-billion--dollar fund? How much leverage are you running?

Even in their cups, Saul sensed caution in the group, an exchange of glances. Only Kevin Warsh was too drunk to pick up the warning bells. We can leverage as much as we want, he said. "Cooperman Black will give us anything---anything. JS is a fucking huge client."

A silence fell, stony enough to penetrate even the fog of absinthe in Warsh's brain. What? he asked. What?

Nicky rushed in to fill the awkward moment, leaning forward as she topped up Saul's glass. You guys are all so boring. Short this, long that. I thought this was a party.

The chat flowed back hesitantly, then ramped back to its previous volume. Saul kept the conversation general, trying not to betray his excitement at what Warsh had let slip. Outwardly he remained composed, impassive.

Nicky soon made her excuses and went to her room, where she picked up the phone. When she put down the receiver, she took a deep breath. It was one thing to target an anonymous man through the sights of a rifle from half a mile away. This was of a different order. Saul Linderman was not some anonymous goon; he was a courtly gentleman who showed her respect.

She splashed water on her face and reapplied her lipstick. Snap out of it, she thought. From the small safe in her room, she retrieved a vial and placed it in her handbag. She checked her watch. It was 8:15 p.m. Saul Linderman had said he was leaving around midnight.

2.jpg

When Nicky got back to the table, Saul and the JS Global traders were still chatting amiably. Nothing seemed untoward.

I think it may be time to let the boys enjoy the rest of their evening. But if you'd like to join me for a light supper, Mr. Linderman, I know the maître d' at Restaurant Sein very well---if you have time, that is? She touched the fringe of her hair, just as she had been taught.

Saul looked at his watch. Flattered, he replied, A light supper is an excellent idea. I'll sleep on the plane.

In the minimalist dining room of Restaurant Sein, the waiter cleared away their entrees. Martin Surbeck's cuisine did not disappoint. Saul asked for a filter coffee and went to the bathroom.

When he returned, everything was as it should have been, with Nicky's purse back by her side.

A few hours later, when his Gulfstream IV was refueling at Knock in Ireland, Saul told his pilot he was feeling unwell. He was pronounced dead on arrival at Mount Sinai Hospital in New York in the early hours of Friday morning.

Three

The next morning, Jack Romanov jogged to his office across Hyde Park in London, feeling more energized and alive than he had in many weeks. A text had arrived from Saul Linderman while he was asleep, and he had read it over his breakfast cereal.

JS trader says Cooperman Black gives them as much leverage as they want. On way back to NYC. Speak soon.

Interesting, Jack thought. And it looked like a vindication, too. There was definitely something strange going on---it wasn't just paranoia on his part. He gave his usual cheery greeting to a mother duck and her ducklings as he jogged past them, simultaneously deciding that he would ring Saul to find out more as soon as it was a reasonable hour in the United States. It would distract his mind from his scheduled lunch with disgruntled clients and perhaps give him a clue as to how to turn the situation around. Knowledge might be power, but in the markets, it was also money. If he knew that this Schwartz character was behind the massive selling wave on pivot points, then he could find a way to turn that to his advantage.

Sovereign wealth funds---funds that individual governments had amassed---could represent huge sums, and it did look as though someone or some entity with very deep pockets was shorting the bond market aggressively, driving down the cost of US ten-year Treasury bonds. When the cost of those bonds went down, the yield went up, forcing borrowing costs to rise, and that was not good for the economy.

2.jpg

Showered and changed at his office, he showed the text to Max Blinder. His head trader was skeptical.

Sounds like trader talk to me, he said. Boasting. You know how hard it is to get leverage these days.

Maybe, Jack said. But this is Saul. He's not going to be fooled by some loose talk on the floor. And he texted me earlier saying there might be sovereign wealth money behind it too, so there could be some kind of political motivation there as well.

Jack laughed at the expression on Max's face. Okay, okay---I'll wait till I talk to Saul. But I'm certain he's on to something here. Jack was whistling as he settled at his desk to read through a performance attribution report in preparation for his lunchtime meeting.

The Swiss bankers had turned up at ten past eleven and soon extracted their pound of flesh in the form of indecent quantities of Wagyu beef with truffles and Gevrey-Chambertin at the Michelin-starred Asian fusion restaurant almost next door. Jack turned off his mobile so as not to be disturbed. He had stuck to mineral water and salmon with brown rice salsa, happy to foot the bill knowing that they were still clients---for now. They wanted to see a net asset value for the fund every day at 5:00 p.m.---no problem for an operation as tightly run as Jack's Romanov Capital. He had left them at 2:00 p.m. at the achingly trendy art deco downstairs bar with Mai Tais in their hands. They were on the prowl for ladies who lunched with a taste for Eurotrash and a high tolerance for Hermes and Zegna.

Why do those guys bother wearing ten-thousand-pound watches if they're late for everything? Max joked. I take it you survived.

They're not exactly the smartest clients, but yeah, I talked them round.

Listen, with your attention to detail and the setup we've got here, they'd have been mad to leave.

Jack appreciated the sentiment, but he knew that Max knew too that they wouldn't be able to command fees of 2 percent for long if they continued to underperform, however tight a ship he ran---or how much overpriced, pampered cow he fed his clients. And he hadn't come over to Max just to get his ego massaged.

Max, you said this morning that about $1 trillion in US Treasuries had been sold. Is that right?

Approximately. It may be more than that.

Is that even possible? One trillion?

Jack knew the answer; he had been mulling it over since lunch. But he wanted to see what Max had based his assumptions on. His head trader didn't disappoint.

Sure it is. Think about it. There's more than $20 billion in daily volume in US Treasuries and more than that on busy days. No one entity could get that done easily, but there are a lot of sellers out there. Many long institutional funds don't like US assets. But we've already heard gossip about central banks as well as some big hedge funds being active.

Which central banks, Max?

Max's reply was unusually tentative. There's scuttlebutt in Asia about the Iranians doing some clumsy trades but that's not really news ...

Jack snorted. They don't have the money or the wit to create the trading patterns we've seen. No, forget Iran. We'll leave that to the CIA. But I've been thinking about this. We've seen selling pressure before. We've seen it all year. But this is new. The one type of entity with the sophistication to get these trades done and to take advantage of the technical analysis is a firm like ours, another hedge fund. They'd be busy shorting Treasuries, betting against the dollar, as well as selling bonds. And to marshal sums like that, they would have to be massively leveraged.

Jack knew that his firm could only get ten times leverage on their positions, a nominal $30 billion. If he pushed really hard, he might get fifteen times for a highly conservative strategy. But running big shorts on US assets, presumably matched by big longs in the euro and other bond markets, was hardly a tame investment strategy. It was a massive one-way bet. There was no hedge.

Besides, the 2008 credit crisis had curtailed the ability of the banks to fund leverage. Since then, regulators had stepped in to constrain banks even further. The sums didn't add up. If he could only leverage $30 billion, a hedge fund selling even $500 billion of Treasuries would need an equity base of $50 billion. No such fund existed, certainly not an obscure outfit in Switzerland like JS. Jack turned to Max.

Any rumors about highly leveraged funds making big bets against US assets?

I don't know, Max said. But you know a man who might.

I was afraid you were going to say that.

Four

Charles Andrews, head of prime brokerage at Cooperman Black, smiled as he saw Jack Romanov's name come up on his phone screen. This might be fun, he decided.

Prodigal Jack, how the devil are you?

He could almost hear the irritation coming down the line. Years ago, he had been Jack's boss at Linderman Brothers. Twelve years Jack's senior, he had bestowed the nickname on him when Jack had been made global head of bond trading at Linderman. The younger man had soon eclipsed Andrews, rising through the ranks of star traders, leaving Andrews somewhat sidelined in client service and sales roles. It was a friendly enough nickname, but he didn't mind reminding Jack that he thought that his and Saul Linderman's shared Jewishness had something to do with his meteoric rise. Andrews had fallen on his feet when Linderman had gone bust at the peak of the financial crisis. He had ended up at Cooperman Black, one of the most respected names in the banking world, but he still couldn't resist the odd yank on Jack Romanov's chain for old times' sake.

I'm well, thank you, Andrews.

Good for you, prodigal Jack, Andrews said. Are you sure the Long Island natives aren't getting a little restless?

Romanov Capital had moved its prime brokerage account to Cooperman Black in 2009 when Linderman Brothers had started to get into financial difficulties, and Andrews had made it his business to keep a close eye on Jack's performance. The first $250 million of initial capital for Sovereign Alpha Opportunities had come from Saul Linderman and his network of wealthy friends in Long Island, and they would be none too pleased if the prodigal adopted son's hedge fund was underperforming.

They've had a pretty good run, Andrews, as you know, Jack said after a pause that Andrews knew had cost him a reserve of patience. Look, do you fancy a drink? There's something I want to ask you about.

Are you paying?

It may have escaped your memory, Andrews, but I am the fucking client in this relationship. Can you come for a drink or not?

Andrews smiled. Underneath it all, he liked Jack Romanov, but that didn't mean he didn't get a kick out of making him lose that famous self-control of his. Still, Jack was right. Not only was he a client, but Andrews had gotten a bumper bonus when Romanov had moved its account to Cooperman Black. He agreed to meet Jack at the Stafford in the American Bar. If nothing else, it would give him a chance to find out what was causing Saul Linderman's blue-eyed boy to lose his magic touch.

Jack Romanov left the office at 2:30 and walked to the Stafford. It meant getting there early, but he was grateful for the chance to clear his head for the first time that day. The large oak-paneled room was surprisingly busy, but he managed to grab a pair of the green-leather upholstered seats at the bar, placing his blue linen jacket on the adjacent seat to claim it for Andrews when he arrived. He ordered a Jack Daniels on the rocks and was soon brooding over his conversation with Max, letting his eyes gaze unseeingly at the memorabilia scattered across the walls. Andrews, late, announced his arrival with a punch between Jack's shoulder blades. Why can't the English just shake hands? Jack wondered, although of course when Andrews did then shake his hand, he squeezed just a little too hard.

Prodigal Jack, what's your poison?

Jack Daniels on the rocks.

Andrews laughed, handing Jack's jacket to him as if it were something one of his dogs had brought in. He, of course, was impeccably dressed right down to the soles of his handmade Lobb brogues. Good lord, you can take the boy out of Jersey, but you can't take Jersey out of the boy, Andrews said. He summoned the barman. Glen Garioch and a splash of water and whatever American filth my friend here is drinking.

You're late, said Jack.

Andrews pretended to be offended. It's all very well for you---wandering the streets of SW1 in a linen jacket like a director of a louche theatrical production. Some of us in the real world have to get a car from Canary Wharf, and I can assure you it's not terribly pleasant at this time of day.

You should have taken the Jubilee line. It would have been quicker.

The tube? Are you mad?

Their drinks arrived, and Jack let Andrews play his favorite game of verbal skirmishing for a little longer. Entertaining though it was parrying cut and thrust with a master practitioner, he knew from long experience that Andrews could keep it up for hours without ever saying anything of substance.

Listen, I didn't invite you here to discuss public transport policy, Jack said finally.

I sensed you had something on your mind. If you want to increase the feeble fees you pay us, I'm more than happy to oblige.

I thought it was bad manners to talk about money after 5 p.m, Jack said.

Only after 5pm and we're not there yet, prodigal Jack. Andrews said.

Have you been keeping a close eye on the US Treasuries?

I have been known to dabble in the darker recesses of the infernal Bloomberg machine on occasion. Why do you ask?

There's something very odd going on, Jack said.

"Are you on that again? Now that's something even I know about, not that I ever reached your exalted heights, oh prodigal one. I read about it in The Financial Times. The US Treasury is once more printing like a banana republic, so the Fed can buy bonds that no one else wants in a misguided attempt to suppress yields and give an artificial stimulus to an economy that is bust. But it isn't working, because the good ol' US of A is in hock to the tune of $14 trillion and dependent on others to fund its bloated and unsustainable national debt. Perhaps those nice foreign chaps are getting bored of the profligate ways of your countrymen? I think it's called a debt trap, prodigal Jack. That fellow Ken Rogoff at Harvard bangs on about it."

Jack wasn't really listening. Thanks for the economics lecture, Andrews, but this isn't about fundamentals. It's about the technicals. We have smashed through four pivot points in three months. Someone is selling US bonds massively at chart points where they know there is liquidity.

You've said this before, and I'll take your word for it, prodigal Jack, Andrews said. "I didn't ever really get to grips with pivot points. They always sounded rather unpleasantly industrial. Anyway, that's your bailiwick. What's it got to do with me?"

Max and I think the likeliest source of that sort of selling pressure is a big macro hedge fund running lots of leverage---as in insane amounts of leverage. We wondered if you knew of any who were dumping US Treasuries.

Ah, good old Max. How is he? asked Andrews. Are his wife and progeny well?

Er, yes, quite well as far as I know, Jack said, startled by the sudden turn the conversation had taken. Harry's bar mitzvah is coming up---I'm sure you got the invitation.

Ah yes, although I think it might clash with Royal Ascot. I've got a runner coming up, splendid little colt that the trainer talked me into. I'm generally more into the jumping, and this one likely has more of a future as a hurdler, but he's running in the two-mile handicap. If the trainer thinks he's on good form, I'll let you know.

Jack sighed. It was well-known that once you got Andrews on to the subject of his string of racehorses, it was a struggle to drag him off it, and he might as well have been speaking Swahili for all the sense Jack made of it. He made a last ditch attempt to get the conversation back on track. So, hedge funds, leveraged, dumping US treasuries? Ring any bells?

Andrews dropped into a clipped stage whisper. Now, now, prodigal Jack. Here we are in a public bar in hedge fund central, London. Do you honestly think the head of prime brokerage at Cooperman Black would start betraying client confidentiality in this of all settings?

"So you do know something," Jack said, narrowing his eyes.

No, prodigal Jack, I do not. And though your fantasies are an intriguing psychodrama, now I have to return to the real and grubby world of commerce. I have supper with a client at that new place in the Mandarin in half an hour. He's probably already drunk through two bottles of Cristal with a hooker and will doubtless be expecting Cooperman Black to pick up the tab.

Could you ask around, we heard this rumor about a fund called JS? Jack asked.

"I'm actually insulted, prodigal Jack. As you very well know, the last thing I need to do is to ask around. I do need to go, though."

As he got up to say good-bye, Andrews turned and placed his arm on Jack's shoulder. Prodigal Jack, markets misbehave. You're good at what you do. Your performance will come back. In the meantime, lighten up a little. You're really not suited to being a conspiracy theorist.

Even the conspiracy theorists must be right sometimes.

Andrews winked. I could tell you, but then I'd have to kill you. He emitted a loud guffaw, parted the crowd in the bar with his imperial bearing, and left Jack to his thoughts.

Five

Jack was just beginning to think it might be late enough to call Saul when his mobile