Chapter 19: Cry

October 25, 1983, Chicago, Illinois

"You called it," Mr. Matheson said on Tuesday morning. "Stand pat, per your analysis?"

"Yes. The barracks bombing on Sunday caused a small blip in oil and precious metals but no long-term effects. Invading Grenada this morning won't change anything, and counterintuitively reduces overall tensions."

"How do you figure?"

"Consider it like a relief valve," I said. "It allows Reagan to blow off some steam without actually risking a broader war. Cuban involvement won't matter, and we won't attack them. Castro will whine to Moscow and the UN, but the UN is toothless. The only reason the UN was able to intervene in Korea was that the Soviets were boycotting the Security Council at the time because the UN had recognized Taiwan. Had the Soviets not boycotted, they could have vetoed any involvement. A US veto is absolutely certain if Castro asks the UN to intervene.

"Then, consider the propaganda value for Reagan, especially following the barracks bombing. It also provides a way to say that we 'did something' to counter Soviet moves following KAL 007. So, in the end, no real effect on global markets. It does tell me that Reagan is going to be reëlected, though."

"A bold prediction when the first primaries are four months away."

"I have Tony working on a political analysis. It's not ready for prime time yet, but everything points to Reagan winning fairly easily. The only Democrats who might challenge Reagan seriously are John Glenn and Gary Hart. Former Vice President Mondale, who everyone thinks is the frontrunner, would lose in an Electoral College landslide based on our projections. I think he has enough superdelegates sewn up that he'd have to make a major misstep to lose the Democratic primary."

"House and Senate?"

"It's WAY too early to predict anything reliably, but the Republicans have more seats up for election. In the House, I can't imagine the Democrats losing control, given they have a hundred more seats. You'll start seeing poll amalgamations in our reports in January or February."

"OK. Are you ready to hire the second data analyst?"

"Yes. I arranged with Julie for Mr. Spurgeon to interview our top candidate on Thursday. I'd also like to hire for the open analyst position. Based on the research Tony has done into S&Ls, I think we need a full-time banking analyst."

"You're predicting a shitstorm with the thrifts.

"I believe the word we used was 'catastrophic collapse'," I replied with a grin. "Legal frowns on profanity in analyst reports!"

"The SEC is a bunch of pearl-clutchers with fainting couches!"

"I don't know that one," I said.

"Think old ladies clutching their pearl necklaces in shock at some vulgarity and fainting onto a sofa with its back raised and wrapping around one end with the other one open."

"There weren't too many women with pearl necklaces in Goshen," I chuckled.

"It's usually the prudish society set; think Margaret and Jeri Lundgren."

I suppressed my reaction because Jeri was anything but prudish. That said, she did give off that vibe with everyone except me.

"What's your thought on hiring?" I asked.

"You have the open requisition, so it's up to you. Do you have someone in mind?"

"Pete Mueller, an underwriter at Continental Illinois."

"The bank you say is toxic?"

"He's a good guy. He's been part of my contact group for about eighteen months."

"How sure are you on this S&L thing?"

"I am not uncertain," I replied.

"OK. Get his résumé for me, and have Tony talk to him. If you guys both agree, then arrange things with Noel."

"Will do."

I left his office and returned to my desk. Just before noon, Keiko called.

"Jonathan, there's a letter for you from the IRS," she said.

"Go ahead and open it, please."

She did.

"It's a request for an interview. It says you can bring an advisor with you. You're supposed to call a specific number and make arrangements. Is something wrong?"

"No. This is all part of the false accusations by Enderlee. I've done nothing wrong, and last year's tax return was actually very simple. This year's return will be far more complicated."

"What should I do?"

"Read me the phone number, then set it aside. I'll call Nancy King at Hart-Lincoln and have her call them to set up a meeting with the two of us and Robert Black."

Keiko read me the number, I thanked her, said I loved her, then we ended the call. I immediately called Nancy King and was put through to her by her assistant.

"What can I do for you, Jonathan?" Nancy asked.

"I received an interview letter from the IRS," I said.

"Do you know what they're looking for?"

"Nothing specific," I replied. "I'm positive it's related to a bogus complaint filed by a disgruntled former Spurgeon employee. The SEC is conducting an investigation which, according to Compliance, will not turn up even a hint of a rule violation. He actually suggested the IRS might talk to me."

"I should probably speak with him before I call the IRS. What's his name, please.'

"Kendall Roy. I'll let him know to expect your call."

"Thanks. Once I speak with him, I'll call the IRS and see what they have to say. I'll have a good idea from what documents they request."

"What kinds of things?" I asked.

"Pay stubs, bank statements, investment statements, mortgage documents, and so on. I assume you can account for the origin of all of the money in any account under your control?"

"Absolutely. I keep meticulous records, and Robert Black completed my taxes for 1982."

"OK. I'll give you ten minutes to let Compliance know I'll be calling."

"Thanks."

We ended the call, and I dialed Mr. Roy's number and let him know that Nancy King would be calling him.

"Don't sweat this at all, Jonathan," He said. "It's routine, and I'm positive it'll go away fairly quickly. We've seen it before."

"Thanks."

At 11:30am, I met Beth Schoenburg at a kosher deli. After lunch, the rest of the day went along as usual. Just before 3:00pm, Nancy King called to let me know we had an appointment with an IRS examiner on November 7, at 3:00pm. They had asked for the documents Nancy had suggested, and I promised to have Robert Black send everything to her.

Because I'd come in early, as was my usual practice now, once the call ended, I headed home to relieve Keiko's grandmother.

"You're sure you aren't in any trouble?" Keiko asked as soon as Atsuko had left.

"Positive. I keep meticulous records, and I don't use any tax shelters. Well, OK, the carried interest exemption, but that's not a shelter; it's considered unrealized gains until I take the money out. I haven't touched those funds, and they actually don't accrue to me until January 1st. We do have to pay taxes on my part of the management fee because that's actual realized income. But, rest assured, Robert Black and Nancy King have every i dotted and every t crossed."

"You're not worried at all?"

"Not one bit," I said. "How was your day?"

"OK. No real changes, so other than feeling typically weak and tired, it was fine. I was able to complete the work for my correspondence courses, and Ellie stopped by for a few hours around lunch. My friend Niki from High School is coming over Friday afternoon and will stay with me while you go out."

"Good."

I spent about ninety minutes with Keiko, we ate dinner, and then I called Pete Mueller.

"I know you feel safe," I said after we greeted each other, "but I need a banking analyst, and I'd like you to come for an interview. The ship you're on is sinking."

"You're not wrong. Sure, why not? The worst that can happen is the status quo."

"Get me your résumé, please," I said.

"I should ask the salary."

"I actually can't tell you, as all of that is confidential and up to Mr. Spurgeon. He may or may not tell me, but the usual way is for me not to know. I do have an idea of the range, and from your application for my fund, I know your current salary, and I can't imagine a situation where your base pay and bonus wouldn't be significantly higher."

"OK. I'll fax over my résumé. Should I use the number on your card?"

"Yes, please."

We said 'goodbye', I hung up, and after I kissed Keiko, I headed to Circle for my stats class and my pie and coffee with Violet.

October 27, 1983, Chicago, Illinois

On Thursday, I skipped class, as did Violet, so she, Jack, Kristy, and I could go to Chicago Stadium to see the Hawks play the Pittsburgh Penguins. It should have been an easy game for the Hawks, given the Penguins were having a terrible season at 1–8. In the end, it wasn't a hockey game; it was a street fight with twenty-three penalties, including a game misconduct for Al Secord of the Hawks.

The Penguins had scored first and built a 3–0 lead before the Hawks came back with two goals. The Hawks pulled Murray Bannerman to try to tie the game, but Bob Errey scored an empty-netter with thirty-four seconds remaining to give the Penguins a 4–2 win.

"That STUNK!" Violet groused as we walked to my car so I could drive her home.

"It didn't help the Hawks to take twelve penalties and for Al Secord to be ejected. He was in two fights and tried to start a third one when they ejected him! Then, Denis Savard was ejected along with Dave Hannan from the Penguins. The Hawks lost two of their best players, and that hurt them badly."

"I haven't seen a game that nasty except against the Flyers," Violet observed. "The teams seemed to hate each other!"

"It's like the old joke — 'I went to a boxing match, and a hockey game broke out'!"

"I really appreciate you bringing me to the games. Have you thought more about season tickets?"

"Yes, but there's a long waiting list. I added my name to it, but it could take as long as ten years. With my new position, I'm allowed more tickets next year. I assume we're still on for Hawks and Bears games?"

"Yes! Absolutely! I really enjoy going, and I'm happy Keiko is OK with it."

I drove Violet home, then headed to my house, where I quietly climbed into bed with Keiko.

October 28, 1983, Chicago, Illinois

"The pressure on the Aussie dollar is building," I said to Scott when he came to my desk on Friday morning. "What conclusions do you draw from your analysis?"

"I don't think I can draw any firm conclusions," Scott said. "The futures contracts are all in a range that predicts stability, which makes zero sense given we know they have to devalue."

"All things being equal, I agree, but something is bugging me, and I can't quite place it. I wish Mr. Matheson had information for us, but his friend in the Finance Ministry is mum, which, after today's news, I think we can understand."

"So what's the play?" Scott asked.

"That's the $64 question," I replied. "All indicators we have, including our rudimentary model, say short the currency. I think we go with the model. It hasn't been wrong yet. What confidence factor?"

"It's a toss-up as to how much and when."

"And if we write that, I'll have Noel Spurgeon on the phone before the ink is dry on the report bitching about wanting a one-handed researcher!"

"OK, but it really is a toss-up!" Scott protested.

"I agree, so let's go with the model. Just say that, and give our confidence factor at 60% for shorting the currency now and starting to apply pressure. I'm going to use an actual short but cover it with call options. The spread from our predicted exchange rate is such that it's cheap insurance."

"Let me go write it up."

"Thanks."

He left my desk, and I used my trading terminal to double-check the current exchange rate for the Australian dollar and the price of call options, then called Mr. Steinem to place the orders.

"Short a million AUD and cover with December call options for the full amount, right?" He asked.

"Yes. You can expect Mr. Matheson to begin the dogpile soon."

"How the hell do you sniff this stuff out?" Mr. Steinem said. "It's uncanny."

"Good research. I have the analyst reports and the computer model to back it up."

"No doubt, but you get it right every time!"

"Until I don't," I replied.

"Yeah, that is always the risk! Which, of course, is why you cover with options. Your orders are in. You'll see confirmations on your screen as soon as they're filled."

"Thanks."

A few minutes later, John Peters, the lead equity analyst, came to my desk.

"I want to check on a recommendation to go long on the Nikkei 225. Every sign points to a rapid increase in stock prices."

"How much and over what timeframe?" I asked.

"Based on property values and corporate earnings, it'll double in two to three years, and I think there's upside beyond that."

"You're the equities expert," I said. "If that's your recommendation, I'll back it."

"Thanks."

He left, and I looked over my asset allocations in my main fund, as well as the segregated fund for Jeri's trust, and decided to shift some money from S&P Index options to Nikkei Index options. I entered those trades directly, as they were within my trading limits and the asset mix guidelines for both my fund and Jeri's trust. It was a straight trade with no hedge, and my limits for index options were far higher, as it placed no risk beyond the price of the options, which was negligible.

If John was right, and the trend was what he believed it to be, I'd move more funds into the Nikkei, either directly or through options. Doing that would require modifying the asset allocation guidelines for the Cincinnatus Fund to increase the number of index shares or index options I could hold. I made a note to do that and then began reviewing the analyst reports which appeared on my screen on the IBM system.

After the reports were delivered, I met with Bianca to finalize the proposal for the Novell network and the Sun-1 workstation.

Later that morning, my phone rang.

"Research; Kane."

"Jonathan, this is Stan Jakes from the Trib. We met at the art show in Evanston. I'd like to buy you lunch and pick your brain. Off the record, of course."

"Sure. Tuesdays and Thursdays are best for me."

"How about next Tuesday, the 1st? You pick the place, but I don't have your kind of money!"

"How about Billy Goat Tavern?" I asked.

"Perfect! See you at 11:45am on Tuesday."

"Sounds good."

I had just hung up when Julie called me to say that Mr. Spurgeon wanted to see me. I let her know I'd be right up, then headed up to 32. When I arrived, Julie sent me directly in.

"You're authorized to hire Steve Smith," he said. "He'll have the same base and bonus structure as Pérez, and she'll receive a nice bump as of January 1st."

"Thank you."

"Murray tells me you want to fill the final position with someone you know."

"Yes. Pete Mueller from Continental Illinois. He's an underwriter, and I'm sure you read our analyst report, which says that there is no chance the bank survives."

"The Feds will bail them out; they always do!"

"Are you sure about that?" I asked. "The FDIC did not make Penn Square depositors whole. That had never been the case before, but nobody would assume the deposits, so the uninsured portions were wiped from the books. If the Feds were willing to force Chase Manhattan to take a haircut, all bets are off."

"Continental Illinois is orders of magnitude larger than Penn Square," Mr. Spurgeon observed.

"Yes, it is, and my team thinks the Feds would be forced to guarantee deposits beyond the insurance limits to prevent cascading failures, but Penn Square says that cannot be a sure bet."

"You're just full of good news, Kane," Mr. Spurgeon said.

"I only report the news," I said with a grin. "I don't make it!"

"Smart ass! Set up an interview for me with your friend. I'm going to ask Jackson to move our accounts from Continental Illinois. The last thing I want is to wait on the Feds to give me access to my money or, worse, take a haircut."

"I didn't know we had accounts with them."

"Cash accounts for settlement at the CFTC and CBOT. Not a lot, but enough, and overnight paper for the same purpose."

"Ah, that's why I didn't know. I have zero to do with trade settlement!"

"I want to see a risk analysis of all the major banks as soon as you can produce one."

"We'll get on that," I said. "We can start with the non-performing loan percentage as a rough indicator until Pérez and Smith develop the new model. Speaking of them, I have a proposal for a computer network and a data analysis computer."

"Murray primed me. I'll approve them. We have a real edge and need to double down on that."

"Thanks."

"Go make some money!"

"On it!" I declared.

I left his office and went down to 30 to speak to Mrs. Peterson about arranging for an interview for Pete, and once I'd filled out and signed the necessary forms. I went to my desk to get his résumé and brought it to her. She promised to take care of it right away and let me know that Steve Smith would start on December 1st. I had hoped it would be sooner, but given he was moving from California, there wasn't much that could be done.

Things were coming together really well, though I was having less success with raising capital than I would have liked. The problem was that I didn't have enough time to dedicate to it, and my other duties had to be a priority. And that wasn't a bad thing, really, in that AUM wasn't the key factor for me at the moment. What was key was being able to take the Series 30 exam, which I would do in March.

While I didn't foresee leaving Spurgeon, no matter the size of my AUM, I couldn't run my own shop with other licensed professionals without the Series 30 license. In addition, I was interested in the Chartered Financial Analyst accreditation, as those credentials would have a serious impact on my ability to attract new money. And that required me to continue working on my degree in night school.