Chapter 24: A Courageous Protector

December 15, 1983, Chicago, Illinois

Thursday was a relatively quiet day in the office, as was typical of days in December at Spurgeon. About a third of the traders were already on vacation, and after Friday, nearly all of them would be away, with only skeleton crews manning the desks. That was almost always the most junior licensed individual, which for the FX Desk was Larry Howell, one of the assistant brokers.

Time off for my team was staggered, and Tony or I could cover for anyone except the fixed-income analysts. That wasn't a big deal at this time of year because the bond market was essentially static for most of December. Currency markets were a bit more active, as global trade actually increased in December, but settlement for most of that activity was in January.

I used my lunch hour to review my notes for my statistics final. I had studied the night before, and felt confident I would do well enough on the final to have an A for the class. After lunch, I sat with Bianca and Steve to review the regression testing they'd done with their new model and was pleased with the results.

"I think we'll be able to incorporate this starting on January 3rd," I said. "Great work!"

"Thanks," Bianca said. "The new Sun workstation really makes all the difference in the world. We can run our analysis at least ten times faster than on the IBM PC, and overnight, we have full use of the system, unlike the mainframe, where we had to share with portfolio reconciliation."

"So long as we show positive results and continue to provide value, you'll be able to have more cool toys!"

"I have a wish list," Steve said. "It's long and detailed!"

"And starts with a date with Anna?" Bianca asked with a smirk.

"Yeah, well," he said with a grin.

"There's no problem with that from my perspective," I said. "Different teams, and you aren't support staff, so the rules against fraternization don't apply."

"Go for it!" Bianca encouraged.

"Maybe I will," Steve replied.

I left their office, completed some paperwork, then headed to Violet's house, where I completed my final review before we had dinner. The test was challenging but not overly difficult, and I was positive I'd scored enough points to have an A for the semester. As usual, I met Violet after class, and we headed to the diner for pie and coffee.

"I didn't want to ask before your exam — how is Keiko?"

"Her blood oxygen levels are low, even with what Doctor Morrison calls 'supplemental oxygen by mask'. She's weak and tired and sleeps about fifteen hours a day. Very soon, she'll need a catheter, and they'll begin giving her drugs to make her comfortable."

"Bianca invited me to a New Year's party. I wasn't sure it was a good idea."

"Me, either, but I spoke with Keiko about it, and she encouraged us to do it."

"But if..."

I nodded, "I know. There is literally nothing anyone can do for her except try to make her as comfortable as possible. Obviously, I'm going to spend a lot of time with her, but I will see you on Sunday for the Hawks game. I also hope you'll join us on Christmas.

"Yes, of course! Your mom will arrive next Friday evening, right?"

"That's the plan. If anything changes, I'll let you know."

"OK. What are we doing next semester?"

"Lunch on Saturdays," I replied. "I'll be taking a class for my next securities license in February and March, but it's in the Loop from 1:00pm to 4:00pm for five weeks. Given my finance class ends at 11:00am, we'll still have enough time. We have tickets for one more Hawks game in March, and, of course, baseball starts in April. I did promise I'd have time for you, and I will."

"Sorry," Violet said. "I didn't mean to sound needy."

"I didn't take it that way," I replied. "I simply took it as you asking what we'd do with my change of schedule, the same as you've asked at the end of each semester. You're still hanging out with Lily and her friends, right?"

"Yes, and I saw Bev earlier this week. She didn't seem to know what was going on in your life, so I was careful about what I said."

"I've kept details fairly limited for most people. Bev and I just aren't close at this point. Lily doesn't know any details, either."

"I noticed that, but I wasn't too surprised, given you guys aren't close these days."

"True. How are things going at work?"

"Great! I really like the people I work with, and everyone is so nice. They've given me more duties, and I'm basically the office manager now, and I'll receive a nice raise starting in January. How did the investments you made recently turn out?"

"Very well. Your money was in early, and you've had the full benefit. Your yearly statement should show about $120,000, marked to market."

"Really? Is that before or after your fees?"

"After. Next year will be tougher, so I don't think you'll see the same returns, but you should have a million bucks in less than ten years. Remember, you'll receive a Schedule K form, and you'll need to report your gains on your income tax forms. It's passive, pass-through income, so you only pay income taxes on the realized gains. There is no Social Security or Medicare tax."

"Uhm, that's going to be a lot of money!"

"Yes, but some of the gains aren't realized, so there is no tax on that portion. There are no early redemption fees to withdraw money to pay the taxes. That's why I indicated a million bucks in ten years — allowing for paying taxes. Everything will be clearly stated on the tax form, and all you'll need to do is report it on your Form 1040, though you can't use the EZ version. If you have any questions or are confused at all, I'll pay my CPA, Robert Black, to help you."

"You can't help me?"

"No. Weirdly, if I didn't have securities licenses, I could. I'm expressly prohibited from providing tax advice. I also don't have permission to act as a real estate agent or insurance broker."

"Is it OK to ask about your taxes?"

"I pay taxes on the 1% management fee and some of the gains on my money, as well as on my salary and bonuses. I don't pay taxes on the 20% I take from your gains over 8%. That's called 'carried interest', and it isn't taxed until I withdraw it."

"Then, if I understand correctly, you'll pay taxes on about $1,000 I pay you to manage the money?"

"Yes. Overall, given the size of the fund, I'll pay taxes on about $16,000 in management fees, plus my salary and bonuses."

"I know it's none of my business, but is it OK to ask your salary?"

"So long as you promise never to say anything to anyone about it."

"No way! Never!"

"My base is $90,000 with a bonus potential of $45,000, which I should earn. I've also received special bonuses totaling about $75,000."

"WHOA! You're going to make over $200,000?! Not counting investments?"

"Correct."

"That's crazy!"

"Is it? Think about how much money I made for you and others — the total return for the Cincinnatus Fund is close to 40% for the year. And don't forget more than a third of that figure I gave you will go to pay my federal and state taxes."

"Your taxes will be more than I make at my job!"

I nodded, "Yes, that's true. I don't complain about taxes or even the fact that I'll pay at a higher rate. People who have more should pay more, including at a higher percentage. Taking a few thousand dollars from me is much fairer than taking it from you, don't you think?"

"Yes, of course."

"Baseball players make a minimum of $35,000 a year, and the average salary is around $300,000. If I remember correctly, Mike Schmidt of the Phillies will make about $1.6 million, or about eight times what I do. For playing a game!"

Violet laughed, "Good point!"

"NFL salaries aren't as high, but they're going up with competition from the USFL. Joe Montana should earn around a million next year."

"Baseball players make more?"

"Yes. Gretzky only makes about $400,000, so a quarter of what Mike Schmidt earned."

"That just seems so wrong!"

"It's about revenue. If you think about it, a baseball or football stadium holds between 35,000 and 50,000 fans, and both the NFL and MLB have lucrative TV contracts. Remember, too, each MLB team plays a hundred sixty-two games, while NFL teams only play sixteen if they don't make the playoffs.

"By comparison, hockey arenas hold 18,000 to 20,000, and trying to watch hockey on TV is beyond bad. They play eighty games. There's also the saying I've heard that the fastest way to turn a big fortune into a small fortune is to buy a hockey team. Many, if not most, of the teams lose money, unlike baseball or football teams."

"Going back to your pay, what happens if you lose money?"

"I'd receive my salary and the management fee, but I'd also very likely lose many of my clients and possibly even my job."

"But if the market goes down, that's not your fault!"

"I agree, but there are strategies to make money in what's called a 'bear market' — that is, when the overall market is trending lower for an extended period. There are a number of things that can be done, such as finding stocks which go against the market trend, or betting on which stocks will have the biggest losses. But it's also the case that I invest in other things than the US stock market, which you know if you read my quarterly report."

"I do. You mean foreign exchange, Treasuries, and other stock markets?"

"Exactly. I could make the 8% hurdle by simply parking the money in fixed-income products, but anyone could do that, and they don't need to pay me. They pay me for beating the S&P and DJIA, both of which are up about 20% compared to my returns of close to 40%."

"What would you do if you lost your job?"

"Find another one. One bad year wouldn't ruin my career, but two or three certainly would. And I'm doing my best to diversify without violating the expected norms that most of my assets are in my own fund. That's why I bought the two-flats, and why I'll keep my current house as a rental property once I'm in a position to buy or build a bigger one. I'll also buy some art, some gold and silver coins, and keep a significant part of my salary and paid-out bonus in CDs."

"Your bonus isn't fully paid out?" Violet asked, sounding surprised.

"A portion goes into the main Spurgeon fund so that I have 'skin in the game' as it's called. I also put a portion in my own fund as well, for the same reason. If people see me managing my own money, that engenders trust."

"That totally makes sense. You wouldn't happen to need a secretary or assistant, would you?"

I was doing just fine without one, but I did have the option of having one if I chose. That wouldn't require special approval, as it was included in the approved plan, though deferred for the future.

"It's possible. Is that something that would interest you?"

"It would mean I could see you basically every day, right?"

"Yes, but it's a much different work environment from where you are now."

"I'm positive that you don't treat people the way the other bosses there do."

"No, I don't. Let's talk about it in January, OK?"

"Sure!" Violet exclaimed.

We finished our coffee and pie, and after walking Violet to her house, I headed home. Keiko was sleeping in the hospital bed in the Japanese room, so I quietly checked the chart and saw that her blood oxygen levels were down and that she had an IV with ibuprofen, acetaminophen, and Versed. That made it very clear that she'd likely have a catheter in the next few days.

I carefully kissed her forehead, then went upstairs to change. Once I was in sweatpants and a rugby shirt, I joined the others in the basement to watch TV. After the 10:00pm news, I headed to bed.

December 16, 1983, Chicago, Illinois

"I think I should put in the catheter," Jennifer said to Keiko on her early Friday morning visit. "You're too weak to even walk to the bathroom."

"OK," Keiko sighed. "Go ahead."

I held Keiko's hand while Jennifer inserted the catheter, something I was sure was very uncomfortable.

"We want to avoid what are colloquially called 'bed sores'," Jennifer said. "Jonathan, if you or someone could lift Keiko out of bed a few times a day and let her sit in one of the basket chairs, that would be good. You just need to be careful of the IV and catheter. Move the IV bag to the portable stand, carefully pick Keiko up and set her down, then move the urine collection bag to the floor next to her."

"How long should she sit up?" I asked.

"For as long as she can tolerate. It's absolutely OK if she sleeps in the chair; it's about changing where the pressure is applied to her body. That also allows for the linens to be changed on the bed. She's on a purely liquid diet, right?"

"Yes. Just the protein mix and the electrolyte fluid, plus whatever is in the IV."

"Just the analgesics and sedatives, though when I switch the bag, it'll be just the analgesics. When Kelly comes at 9:00pm tonight, she'll add the Versed. We'll keep an eye on Keiko's urine output, and when it drops, we'll give her Lasix."

"Jonathan," Keiko said. "I think we should exchange our gifts tonight."

"I think that's a good idea," Jennifer interjected.

Jennifer's comment indicated she didn't think Keiko would be coherent for much longer, and as Doctor Morrison had said, at this point, things were predictable, but not the timing of those things.

"Yes," I agreed. "We should."

I made sure Keiko had everything she needed, including the remote for the portable TV Bianca had purchased for her at the end of November, then went to speak to Deanna, who was having breakfast. I explained what Jennifer had said, and Deanna agreed she'd be able to lift Keiko from the bed to the chair and back. I asked her to call me if anything at all changed, then went to say 'goodbye' to Keiko. We kissed, and I left the house for the office.

As I drove, I considered which days I should request off, knowing that any inferences I could draw were provisional. Taking the days from Christmas to New Year's seemed to be the best plan, given everything that had been said. That would actually give me from December 23rd to January 2nd, and if I needed more time, I was positive Mr. Matheson and Mr. Spurgeon would grant it. Tony had committed to not taking those days off, for which I was grateful.

As usual, I was the first one in, and after starting a pot of coffee, I went to speak to Rich about overnight activity and checked the AUD exchange rate and trade volume. On hearing them, I was confident the exchange rate would recover to my limit sell, so I decided to leave those orders unchanged. I thanked Rich, returned to my office, and began my daily evaluation of the world. An hour later, with my daily report completed, I went to see Mr. Matheson.

"I think I need to take the week between Christmas and New Year's," I said.

"Because of your wife?"

I nodded, "Yes. The doctor's best estimate of the timeline is before New Year's."

"Noel authorized as much time off as you need."

"Thank you. Tony will be here when I'm out, so Research is covered."

"That's good, but you know almost nothing happens in late December. Even the terrorists take the holidays off!"

"I'm not sure I'd bet on that, given how many people travel."

"Anything of note today?"

"Not really. The government transitions from military rule to elected leaders in Argentina and Turkey went about as smoothly as we could expect. The real question is how long they'll last. Both currencies are a mess, and nobody can predict what either of the governments will do. In fact, I think the big scores on currencies are probably done."

"For good?"

"There will be opportunities with some weaker currencies, but they tend to not have enough float to do much with. Remember the trouble we had finding Zaïre? It's a similar problem with Turkish lira, Greek drachma, and so on. Not to mention, they usually go for shock devaluations as soon as they see the handwriting on the wall. That was the mistake Venezuela and the Philippines made. Australia was different because there was a huge float, and they thought they could manage it right up until they couldn't."

"Back to arbitrage, then," Mr. Matheson observed.

"An eighth of a percent per day means roughly twenty-five percent for the year, minus costs."

"Which is why you could beat me so handily. That said, I appreciate the boost! Find me something."

"We're on it. There will be some serious short strategies for S&Ls, but it might be '85 before that comes to a head. I'm sure you saw my short on Continental Illinois."

"I did. I took a position as well, but it's tough to find more shares to borrow at this point. The short interest is so large that we risk a squeeze."

"That's true," I agreed. "But we have the margins to ride it out. Hell, if it's squeezed higher, we find shares to borrow and extend our short."

"You're really down on them."

"$300,000,000 down," I replied. "And that's just from Penn Square and doesn't include other non-performing loans. They are, to put it bluntly — fucked. They're trying to buy their way out of it by offering bonus rates on jumbo CDs and other large deposits, but Pete says that's a losing proposition, like paying one credit card with another and allowing the interest to ride."