Chapter 7: Diversification

August 20, 1983, Chicago, Illinois

"Do you have that exam every time you see a doctor?" I asked Bianca when we left Doctor Wisniewski's office.

"You mean the gynecological exam? Once a year, since I lost my virginity. They don't do Pap smears or internal exams until a girl has sex for the first time."

"That would imply cervical cancer is caused by sex," I said.

"I honestly don't know about that, but I'm sure it has to do with the taboo of violating a girl's virginity."

"I suppose that makes sense, though you would think medicine would ignore those taboos."

"That makes sense from a purely medical perspective, but there are a lot of girls who would freak out over that kind of exam if they were virgins. And the patient's views have to be taken into account, even if it doesn't necessarily make sense. And logic doesn't override taboos or religion for most people."

"You know me," I replied. "I'm guided by logic."

"Bullshit!" Bianca protested. "Getting married to Keiko last weekend had zero to do with logic!"

"Actually, it was completely logical." I countered. "I love her and want to spend my life with her, so the logical thing to do was to ask her to marry me. Once I'd done that, we scheduled a wedding date, but given Keiko's health, it was logical to get married right away so we didn't have to contend with conflicts with her treatment."

"Love isn't logical!"

I chuckled, "That wasn't what you said! You said what I did last weekend was illogical!"

"OK, Greg!" Bianca smirked.

"Greg?"

"Brady! He did a whole thing with his dad about exact words. It had to do with driving a car versus driving the Bradys' car."

"I must have missed that episode of The Brady Bunch! Back to the pre-natal exam, Juliette was exactly right about the vitamins and folic acid."

Instead of heading home, we went to Jewel to do the weekly shopping, stopped at the dry cleaner, and then headed home, where Dustin, Archie, Costas, and Trevor were setting up for the bachelor party. Bianca and I put the groceries away, I hung my suits in my closet, then went to the Japanese room to spend time with Keiko before the rest of Jack's and my friends arrived.

"How are Bianca and the baby?" Keiko asked.

"So far, so good," I replied. "No ultrasound, but Bianca's vitals are good; they drew blood and performed an exam. She just needs to eat a balanced diet, do low-impact exercises, take her vitamins and folic acid, and avoid alcohol."

"Good! I'll remind her to be very careful to not touch me or any of my clothes or sheets or anything because that could harm the baby."

"She did mention your chemo to the doctor today, and the doctor said the same thing. Bianca's also supposed to avoid exposure to smoke, and fortunately, nobody on the FX team smokes in the office."

"Your boss in the mailroom did, right?"

"Cigars, until his cardiologist made him quit, but he only smoked in his office, not in the mailroom. Does anyone in your family smoke?"

"My grandfather occasionally smokes a ceremonial pipe, but otherwise, no. My dad did as a teenager, but my mom made him quit before she'd kiss him. He obviously wanted her badly enough to quit smoking! Did you ever try smoking? Or pot?"

"No. I wasn't interested, and even if I had been, I didn't have money to literally burn! I see no point in taking up smoking cigars, even though it seems to be a thing all traders do. Whisky is really my only vice."

"Besides girls!" Keiko teased. "Fortunately for me! And even more fortunate that you gave up that vice except for me!"

"And I happily did so."

"You guys are mostly staying outside, right?"

"Yes. Nobody will bother you in this room. Is everything set for tomorrow with the girls?"

"Yes," Keiko replied. "You and Jack are going to the Cubs game tomorrow, right?"

"Yes. We don't want to crash your bridal shower. Glen, Dustin, and Archie are joining us."

"Are you telling the guys we're married today?"

"Yes," I replied. "They'll understand why we did what we did. And so will the girls. Is Monday's plan still the same?"

"Kristy will take me to the hospital before class, my mom and grandmother will visit, and you'll pick me up. That's set for all five days. Do you still plan to take a long lunch on Tuesday and Thursday and come see me?"

"Yes. I'd skip going to the gym this week, but you insisted I not do that."

"Remember what we talked about."

"I remember. That's why I'm doing what you asked me to do."

"You're taking great care of me, Jonathan," Keiko said. "And I very much appreciate it. It's obvious you love me, but you also need to focus on work and stay in good shape. You're going to miss time when we're in Rochester, so you need to be at work now."

"I know," I replied. "That doesn't make it easier."

"Jonathan," Jack said from the door to the Japanese room, "our friends are starting to arrive."

I kissed Keiko, then followed Jack into the backyard. I was very happy that both Tom and Stuart could make it, as I hadn't seen Tom very often since he'd married. When I greeted Stuart, he pulled me aside.

"Tom and Maria separated," he said quietly.

"That sucks," I observed. "Is it something that can be solved?"

"I can't share what he's told me privately," Stuart replied. "But I'd say there isn't much chance of reconciliation."

"Bummer."

We rejoined the other guests, and Jack introduced me to several friends from High School, as well as his brother and a cousin. From my perspective, the only downside of the bachelor party was that my female friends weren't able to attend. Most of them, including Marcia, Violet, Bev, and Beth, would be at Keiko's and Kristy's joint wedding shower.

Once everyone had arrived, and the grill was on, I stepped up onto the deck and called out for everyone's attention.

"I have an announcement to make," I said. "As most of you are aware, Keiko will need a bone marrow transplant. Because the availability of a suitable donor is unpredictable, it might be that she's in the hospital on October 8th. We're still planning our Shinto ceremony at Chicago Botanic Garden that day, but out of an abundance of caution, Keiko and I were married by a judge last Saturday."

After a few seconds of stunned silence, my friends applauded and cheered, and I received several hearty handshakes and claps on the back. None of the guys questioned my decision, though I had some good-natured ribbing from Stuart about tying myself down when I had so many gorgeous young women interested in me. He was a guy who I felt would never marry or even date exclusively, something I couldn't personally contemplate.

We had a great time stuffing ourselves with brats, burgers, and other food, washing it down with beer and pop. Just before the party broke up, Stuart brought out a bottle of The Glenlivet, a single malt Scotch whisky, and everyone shared a toast to Jack and me. Following the toast, most of our friends left, though Dustin and Archie stayed to help clean up.

Because I had been with the guys and outside all day, I showered before getting into bed with Keiko.

"Did you have a good day?" she asked.

"Absolutely," I said, as she snuggled close.

I reached over, turned out the light, and my wife and I quickly fell asleep in each other's arms.

August 21, 1983, Chicago, Illinois

On Sunday morning, when I turned on CNN Headline News, I was greeted with a report of the assassination of Benigno 'Ninoy' Aquino Jr., an important opposition figure in the Philippines. He had been shot immediately after disembarking from his plane on his first visit following an exile in the United States.

That news convinced me that my analysis of the Philippine peso was correct, and that the puts I'd purchased at the end of May would pay off handsomely. I made a note to call Rich at Spurgeon early in the evening and have him buy more November puts, if the price was right. I contemplated whether I should call Mr. Matheson, given I'd been predicting devaluation for months, and decided it was better safe than sorry.

"It's goddamned early!" he growled when he answered the phone, clearly having been woken by it.

"It's Kane," I said. "Benigno Aquino was assassinated in Manila. I plan to call Rich as soon as he's in the office to extend my position and buy more November put options."

"Fuck that!" Murray Matheson growled. "Let me call around and see if I can find someone to take those trades right now. How much?"

"$20 million," I said.

"Options, not straight puts, right?"

"I can't take the risk," I replied. "I'll pay the extra bips for insurance."

"OK. I'll piggyback that on my move, which will be a massive short combined with put options. How sure are you for November?"

"I am not uncertain," I replied, using my code phrase for being as sure as I could be.

"Let me get on the phone; thanks for the call."

"You're welcome."

He hung up without saying 'goodbye', which was his usual style. If I was right, and I was sure I was, I'd theoretically make something on the order of $4,000,000, a return of around 20%, minus the cost of the put options, which were already in the money based on a 7% devaluation in June. I expected the next one to be at least 20%. If things played out the way I expected, even with doing nothing else for the rest of the year, I'd have a 29% return on my fund. By my calculations, the DOW and NASDAQ would return around 20%, so I was in very good shape.

"How much money did you just make?" Keiko asked.

"None," I replied. "The options are for November, so that's when I'll settle."

"How does that work?"

"I buy Philippine pesos at the market, then deliver them in exchange for dollars. If my counterparty played it right, he insured himself against a loss by shorting the peso or by using a mix of options."

"Everyone can't make money," Keiko observed. "Who loses?"

"Anyone holding accounts denominated in Philippine pesos or who has contracts for imports denominated in dollars or a European currency. Or, put simply, the Philippine people."

"And you're OK with that?"

"I didn't do it to them," I replied. "Ferdinand Marcos did. I'm simply taking advantage of his mishandling of the economy, and, though I obviously can't prove it, assassinating his main rival. Fundamentally, if a country raises its financial risk profile, people do not trust its currency, which causes fluctuations in exchange rates. A country can defend against that by having a strong central bank with significant reserves and a willingness to raise interest rates; the Philippines has neither, and it's the fault of their government."

"A dictator, right?"

"Yes. And, if you look at what the financial markets are doing, they are punishing Marcos for being, please excuse my using this word, an asshole dictator. At some point, things will be so bad in the Philippines that the people will rebel, and Marcos will be exiled, or, more likely, killed. But that's up to the people of the Philippines, much as it was the people of Iran."

"Wait! You support the Iranian government?"

"Hell no! They traded one dictator for another, and one with religious motivation. But they rose up against the Shah, which they should have done. Unfortunately, things got worse, not better, similar to Hungary in 1956 and Czechoslovakia in 1968. Revolutions are often ugly, with ugly results. The US is an anomaly compared to the Russian Revolution, the French Revolution, the English Civil War, the Spanish Civil War, and many others, which resulted in some form of autocracy."

"So revolutions don't work?"

"Often it's out of the frying pan and into the fire. But we do know it's possible from our own experience. Hopefully, others will follow that example, rather than the more common negative ones."

"Back to my question — how much could you make?"

"It depends on the devaluation, which I'm guessing will be around 20%. That would net my fund around $4,000,000, less the cost of the options, which is a few percent. They already devalued by 7% in June, so my options are in the money, that is, profitable."

"You used a word I haven't heard before — 'bips'. What is that?"

"A 'bip' is a basis point, or a tenth of a percent. Basically, it's an additional cost for me having the option to sell or not sell, with the buyer required to complete the transaction if I choose to exercise the option. I am, in effect, paying for the right to force him to make the deal if I want to, but not have the right to force me to make the deal.

"Mr. Matheson is going to use straight put contracts, which means he is obligated to complete the transaction no matter what. By not paying what amounts to an insurance premium, he makes a bit more money. And given he's likely to take a position in the range of half-a-billion dollars, half a percent is a big deal!"

"I'm missing something. If you have the Philippine pesos to sell, didn't you buy them at the higher rate?"

"No. I don't own a single Philippine peso. The contract says I have to deliver pesos at the end of November. I can buy them at any time prior to the day the contract settles. The contract prices are predictions of the future, and I predicted a much larger drop than the one in June, which is why I bought contracts that expire at the end of November. Those contracts had factored in a devaluation of about 5%, so I've only made about 2% so far. My overall profit will depend on the price Mr. Matheson can negotiate before the markets open."

"How much of that $4,000,000 is actually ours?"

"When it all shakes out, about $50,000, but that has to stay in the fund as 'carried interest', or we'd end up paying half of it in taxes."

"And that's over and above your salary and bonus, right?"

"Yes. Mr. Matheson will likely make $2,000,000 in salary, bonuses, and commissions this year, and his carried interest is something around $50,000,000 total."

"How does he get that out?"

"He can take it out, he just has to pay taxes on it. There are strategies to reduce taxes, mainly having to do with long-term capital gains. He'll likely cash out completely when he retires, and I'd wager he'll walk away with something on the order of $100,000,000."

"Those numbers are mind-boggling!" Keiko declared.

"I know! When Spurgeon finally decides to get out of the game, he's likely to have north of $600,000,000 in total assets. And that will be a VERY interesting situation, because he has to find the right person to run the firm, or investors will move their money away from Spurgeon, and with less capital, there is less opportunity for gains."

"What do you do with that kind of money?"

"Whatever you want!"

After breakfast, I helped Bianca and Juliette prepare for the bridal shower, and at 10:30am, Jack and I left the house to head to Wrigley Field for the Cubs game against the Braves. We met Glen, Dustin, and Archie outside the ballpark, then went in, taking our seats in the bleachers.

The game was wild, with the Braves scoring six runs in the top of the first, chasing Dick Ruthven from the mound. It wasn't all Ruthven's fault, though, as the Cubs made three errors, which resulted in three unearned runs. The Cubs got one back via a lead-off home run by Thad Bosley, then scored a run in the second inning and three in the third inning to make it 6–5.

Unfortunately, the Braves scored single runs in the fourth and fifth innings, putting them up by 3, while the Cubs rallied back with 2 in the bottom of the fifth to make the score 8–7. Another run for the Braves in the sixth, and two in the seventh, put the game out of reach at 11–7. The Cubs did score single runs in the seventh and eighth, but it wasn't enough, and they lost 11–9.

"Those three errors sank them in the first inning," Glen observed as the five of us left the stadium.

"Five different Cubs pitchers," Archie observed, "and the only one who didn't give up a run was Proly, who only faced one batter."

"This isn't their year," I said with a smirk.

"What year IS?" Dustin asked, disgustedly. "Seventy-five years since the last World Championship, and no hope in sight! At least the Sox are having a decent year!"

I had plans with Keiko, so while the others had pizza at a small pizzeria in Wrigleyville, I headed home so that Keiko and I could join our families at the restaurant on the 95th floor of the Hancock Center. My grandparents had been invited, but despite encouragement from Alex and Wendy, they had chosen not to attend. We had a great time, though Keiko and I didn't stay late, as she tired very easily.

August 22, 1983, Chicago, Illinois

On Monday morning, I left the house early so I would be able to leave the office at 3:30pm to take Keiko home from the hospital.

"Morning Rich!" I said when I walked in. "How is the Philippine peso?"

"Down a bit; Mr. Matheson made a number of private trades, and I made some on the market on his behalf. Others are piling on, as you would expect."

"Anything else major happen in the overseas markets?"

"No. Just some minor fluctuations in regional currencies, as you'd expect in a situation such as this, but nothing worth trying to eke out a few bips. Europe is calm so far, and there hasn't been much movement in precious metals since Friday's London fix."

"Thanks."

I performed my usual morning routine, sat down at my desk with a hot cup of coffee, and began work on my daily analyst report. Bianca had created a template in WordPerfect for me, which helped, as that provided all the 'boilerplate' information, as well as putting the necessary dates on pages, and had all the usual disclaimers. I completed each section, updated my analysis of political risk, entered the new market volatility index information, and bumped up my global risk factor by half a point, based on instability in the Philippines.