Chapter 142: Quantitative Easing
Manhattan, New York.
The DJ Capital building, located in the heart of Wall Street, was bustling with activity. Since acquiring hedge funds like Akron and Huntington after the last global financial crisis, the company had grown into a formidable financial institution.
As I entered the lobby, Lisa and Grant greeted me with warm smiles.
“It’s been a while, boss. Welcome back to New York.”
“Good to see you both. I’ve been keeping up with your progress through the emails.”
They escorted me to the familiar office. The view of Manhattan from the top-floor executive suite was still breathtaking.
After a brief catch-up over coffee, we got down to business.
“I saw the email, but could you walk me through the performance again?”
“Of course, we’ve prepared everything.”
Lisa smiled and brought up the summary of the past two years’ performance on the screen.
She began her explanation in a calm tone.
“Right after the Greek financial crisis, DJ Capital’s assets under management were at $10.97 billion. Separately, we held about $5 billion in client-entrusted assets.”
Both Seong-hwan and I were well aware of these details.
The Greek financial crisis, which occurred about a year and a half ago, had netted us a staggering $3.27 billion.
“We bet the entire $15.97 billion, including client-entrusted assets, on the second round of quantitative easing (QE2) you mentioned.”
The U.S., realizing too late that letting Lehman Brothers collapse was a mistake, had been injecting massive liquidity into the market to recover.
Thanks to this, the NASDAQ index, which had plummeted to 1,500 points during the financial crisis, had surged over 140% to 3,600.
“When we re-entered the U.S. market, the NASDAQ was around 2,000, right?”
“Correct.”
Lisa flipped through the slides, showcasing key investments.
“Let’s start with our growth stock investments.”
- A-ple: $500 million → Current value: $850 million (70% return)
While they may have lost the mobile OS battle to Lunar,
A-Phone sales hadn’t been bad, driving the stock price higher than expected.
Grant added further context.
“Beyond stock purchases, we maximized leverage through long call options.”
The attached data showed that buying $250 strike price call options with a 6-month maturity and a 15% premium had yielded an astonishing 2,500% additional return.
“High-risk, so you didn’t allocate much to it, I assume.”
“A bit regrettable, but still, the call option investment alone brought in over $300 million.”
I nodded in approval.
The results were more than satisfactory.
And beyond A-ple, significant funds had been invested across various stocks,
all with decent returns.
-
Nutflix: $300 million → Current value: $480 million (60% return)
-
Armorzon: $300 million → Current value: $530 million (76.7% return)
-
Teslor: $200 million → Current value: $290 million (45% return)
-
…
“With Nutflix, we noticed the success of ‘House of Paper,’ sold put options, secured premiums, and earned an additional $170 million.”
Following Lisa’s report, Grant explained the next chapter.
“The results of our leveraged investments.”
Unlike Lisa, Grant had focused on high-risk investments, but the outcomes were quite successful.
[Stock Futures & Options Trading]
- S&P 500 Futures Leveraged Investment: $200 million → Current value: $630 million (215% return)
“Confident in the Fed’s continued liquidity supply, we bought S&P 500 futures with 10x leverage.”
“…That’s incredible.”
Though futures, the index investment had yielded over 200% in just two years.
Seong-hwan couldn’t hide his amazement.
But that wasn’t all.
[Bonds & CDS Investments]
- U.S. 10-Year Treasury: $200 million → Current value: $520 million (160% return)
“Quantitative easing drove down U.S. Treasury yields, allowing us to book significant profits.”
Beyond Treasuries, they had also invested in Greek CDS.
As premiums soared during the financial crisis, they took a short CDS position and profited massively as rates stabilized.
“So, considering the overall returns, how much in assets do we currently have available?”
This was the most anticipated part.
Seong-hwan, equally curious, swallowed hard and focused on the screen.
Grant smiled and opened the last slide.
[Asset Overview]
-
Assets Under Management: $21.5 billion
-
Client-Entrusted Assets: $8.3 billion
-
Total Assets: $32.1 billion
“Wow!”
Seong-hwan gasped at the figures.
The initial $15.97 billion had more than doubled to a staggering $32.1 billion.
The company’s assets, which started at $1 billion, had grown over 3,000 times.
The numbers were almost unbelievable.
“Bro, with the assets we hold now, we could fund the data center construction.”
As Seong-hwan noted, with $21.5 billion in pure assets under management (excluding client funds),
liquidating these could cover the $22.68 billion needed for the data center.
But that would be like killing the goose that lays the golden eggs.
Even without deep thought, it was clearly a foolish move.
Seong-hwan’s analogy was just that—he wasn’t actually suggesting it.
“We’ll earn the funds for the data center construction from now on.”
Seong-hwan, Grant, and Lisa all turned their attention to me.
Their eyes showed they expected something significant whenever I visited after a global financial crisis or the Greek debt crisis.
To meet their expectations, I handed Lisa the materials I’d prepared.
“Put it on the screen.”
“Understood.”
Moments later, my PPT slides appeared.
The first slide read:
[U.S. Federal Reserve Ends Quantitative Easing (QE)]
The unexpected statement changed the room’s atmosphere instantly.
Lisa and Grant exchanged bewildered glances.
“Boss, ending QE… Are you sure?”
Grant asked, his voice tense.
“The Fed likely believes the U.S. economy is recovering faster than expected. Employment figures have already returned to pre-crisis levels.”
Lisa, reviewing the slides, continued.
“They must think the goals of QE have been achieved.”
“Exactly. Unemployment is below 7%, and the housing market, the crisis’s root cause, is stable. The Fed probably sees no need for further easing.”
Seong-hwan asked,
“So if QE ends… does that mean the money injected into the market gets pulled back?”
“Not exactly pulling back, but halting further liquidity injections. The U.S. government issued bonds, the Fed bought them, and the government spent that money. Now, that process stops.”
Seong-hwan nodded in understanding.
“Either way, less liquidity means the financial markets will cool quickly.”
“Yes, asset markets inflated by low rates will face a shock, especially stocks and bonds.”
Grant added, concerned,
“So maintaining aggressive long positions in the U.S. market will be difficult…”
“Correct. We need to overhaul our strategy.”
The room fell silent.
After a pause, I continued.
“I don’t know when the Fed will announce the end of QE, but it’ll likely be within 1-2 months.”
“Once they do, bond yields will spike, and stock market volatility will surge.”
I advanced the slide—a pre-prepared market prediction.
“As Grant said, long-term bond yields will rise first. Our priority is to build a strong short position by selling Treasury futures.”
Pausing after a sip of coffee,
I continued.
“The same goes for stocks. Liquidate all long positions in tech stocks and rebuild the portfolio using long puts and index futures shorts.”
Lisa looked puzzled.
“How much of a drop do you foresee in the U.S. financial markets?”
“At least 20% decline.”
Seong-hwan looked shocked.
“That much?”
“With QE ending, investors’ funding costs will rise, making that level of correction likely.”
“So investors will pull money from stocks due to higher funding costs?”
I nodded, adding,
“Which leads to the question: Where will that money flow next?”
“Huh? What do you mean?”
Seong-hwan looked confused.
“Investors who profited in U.S. stocks will seek new opportunities.”
“Boss… you’re predicting where the money from U.S. stocks will flow?”
Grant looked both amazed and curious.
Smiling, I brought up the next slide:
[Japanese Economy: Abenomics]
“Abenomics refers to Japanese Prime Minister Abe’s policies to revive Japan’s economy, right?”
Seong-hwan tried to sound knowledgeable, and I elaborated.
“The core is aggressive quantitative easing to weaken the yen and bold fiscal policies.”
“QE? So Japan’s injecting money?”
“Yes, but while Abenomics will boost Japan’s economy short-term, the yen will weaken significantly.”
The massive bond issuance will ultimately drive up yields.
Grant’s eyes lit up.
“So we should short Japanese government bonds or bet on yen depreciation?”
He grasped my intent immediately.
“That could yield even greater returns than the Greek crisis.”
And, of course, secure the funds needed for the data center construction.