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DIAMONDS & CUBES 
At 2:45 PM on Wall Street, the NASDAQ was
down 200 points. It was flirting with a new
bottom. This had been going on for weeks, up 300,
400, sometimes 600 points in a week, only to lose
it all the following week. Six months earlier
Federal Reserve Chairman Martin Schwartz had told
the American public, the entire world, that the
market was over-heated. That it needed a
breather. Inflation was a concern. There was too
much wealth. Too much wealth. How can that be
bad? Nick Anthony sat in his office at Market Makers, Inc., a day trading firm he had founded four years ago in San Diego for those gamblers who lived for the adrenaline rush of a fast trade and a quick buck in a market that would never let you down. There were fifteen work stations rented out for $135 per day each to registered reps, all trading for their own accounts. Their high speed, on-line computers gave them instant, real time information about the movement of stocks, futures, options, bonds and derivatives. The traders bought and sold their favorite security of the day going in and out of those positions sometimes within a few minutes or seconds. Rarely would any of them remain in a position for as long as it took to go to lunch and return. And never would they stay in over night. For the type of commerce it conducted, Market Makers was an upstanding organization. All its traders were required to sit for the challenging Series Seven examination and were licensed by the National Association of Securities Dealers. They had much more than a passing knowledge of the markets: they were pros. Nick had seen plenty of day traders come and go through Market Makers' doors over the few short years of operation. Most had brought small fortunes and left them behind. A few lucky ones brought very little and left with small fortunes. But these were the exceptions. Invariably when Nick interviewed prospective reps, he would be told that they wanted to get into the action for a while, build up a modest nest egg, perhaps two or three million dollars, and get out. He would watch those traders meet their goals; but they never got out. They were hooked on the action, smarter than the market, invincible. They had expensive lifestyles to support, big houses, big mortgages, fast cars, margin accounts, and lines of credit to support their trading addictions. This day was a turning out to be a disaster. Losers were outstripping winners five to two, and there was still more than an hour of trading left in the day. Nick was not himself a day trader; he was an investor who believed that well managed mutual funds would outperform most markets. He jumped on opportunities when he saw them, and stayed away when he sensed that the mood was negative. One of the day traders in the office who Nick respected a great deal, and who shared Nick's investment philosophy, was Clyde Courts. Clyde had been in banking for may years and tended to be a conservative investor. His strength was in bond trading, but on this day he thought he saw an opportunity looming that he could not pass up. He had been studying a particular Mutual Fund, Hanover Emerging Markets, a tech fund specializing in the stocks of web based companies. It was going to get killed today. Clyde estimated that the NASDAQ had another 100 or 200 points to lose in the last hour of trading and he would pick up HEMIX at the price at the close. This morning's Net Asset Value for the fund was $40 per share. He would be surprised to see it close above thirty seven, a 7.5 percent hit. Tomorrow or the next day the NASDAQ would turn around and the NAV for HEMIX would head north again, giving Clyde a tidy profit in a very short time. Nick Anthony's Market Makers acted as his investment bankers. From a $10,000,000 line of credit that they had established through the Capital Markets area of a major trading house, Nick had created a margin account for Clyde. He would extend up to $2,000,000 in credit, based upon a fifty percent loan. Clyde would match that with his own funds in an equal amount. OK, here goes. Clyde's chubby fingers slid the mouse across the rubber pad and clicked on the trading screen on his computer. He punched in a buy order. His hands shook slightly as he tapped out the letters H E M I X in the security field. The readout came back `buy Hanover Emerging Markets'. In the appropriate field asking `number shares' Clyde entered `90,000'. The verification screen came back `buy 90,000 Hanover Emerging Growth at market close'. Enter pin number and hit `execute'. Clyde's breath was coming in short bursts. He sat back for a minute and wiped his sweaty palms on his trousers. Then he took in two deep cleansing breaths. His heart was still racing and his brain was working at light speed. He did the calculations again in his head. Ninety thousand shares, even if it closed at forty, that would be a $3,600,000 trade. He was more than covered. He looked at the big board one more time. The NASDAQ was still down 192 points. A little improvement, but certainly not enough to be concerned. He moved the curser over to the identification field and left clicked his mouse. The curser blinked on the open field. Again Clyde's hands were shaking slightly. He tapped in the code `win435x4t'. His pin number now appeared in the verification field. He moved the curser over to the enter button. He clicked. It was that simple. He blinked and saw that there was no great change to the screen. It was still glowing back at him in that bright blue light that was so familiar. In the lower right corner a red field blinked with the words `click here for verification'. Clyde clicked on the blinking red field. A new screen appeared in the familiar blue color but in a completely different format. The screen only contained a few lines of text. Clyde grabbed a pen and wrote down the critical information, `you ordered HEMIX, 90,000 shares at market close. Account number 45365-8786. Confirmation number BB696-HX.' It was done. The biggest trade of Clyde Court's life, and representative of nearly all of his net worth. Counting it up, he should be ahead by easily a half million dollars within thirty to sixty days, maybe less if the market continued to crap out today and began to improve tomorrow. His margin would cost him about $18,000 per month to carry, but he could handle it. In his heart he believed he would be out of this position within two or three days. He knew that if he could get ahead by only $200,000 or $300,000 dollars he would sell the shares and take the quick profit. It was more than most working men made in years. Clyde was going to do it in a few days. He would get out, his money would be safe and he would wait again for another similar opportunity. Clyde's reverie was broken when a cheer came up from across the room. What was the commotion? He came out of his trading cubicle and looked around. The traders were all turned around in their seats talking animatedly among themselves, smiling and celebrating. Several of them got up to straighten their legs and stretch, while others worked feverishly at their computers trying to quickly take advantage of the news coming across the ticker. This type of thing happened every day, sometimes two or three times. An earnings report from Microsoft or news on the Producer Price Index would send the room into a frenzy. This time it was a little bigger than that. The President himself had visited the floor of the Chicago Board of Trade and given a speech. In that speech he had praised the free market system in America, and had a few encouraging words for the CBOT for their role in maintaining an orderly commodities market. He took this opportunity to announce an initiative that would open trade markets with China and two other Asian nations. The feeling in the trading room was that this would be good for the tech stocks which had been beaten badly during the past ninety days. This was no great earth shattering news to Clyde. He did not see what all the elation was about. Every time the President spoke on the subject of markets, the trading room would erupt. It was true that the Dow, the Standard and Poors Index and the NASDAQ, frequently responded favorably to announcements of this type, but the euphoria never lasted. Clyde thought the traders were acting immaturely. He returned to his seat and looked at prices again. The NASDAQ had returned seventy more points and was trading down 108 points on the day. This would not be good for the position Clyde had just executed. He would keep watching for a few more minutes and then decide what to do. He still had time to cancel the purchase of the HEMIX shares. He watched and waited. At 12:40 PM, 3:40 in New York, the NASDAQ was down only fifty points but on very heavy volume. It had been bouncing around, down sixty five, down seventy, down sixty-eight and so forth, taking a little and giving a little, all on very heavy volume. Now it was 3:50, only ten minutes to close. Clyde looked at the indexes again. The Dow was up 112 points, the NASDAQ was down sixty. It was not too late to get out. He considered for a moment and decided. His lifelong philosophy kicked in: you can't win if you don't play. Clyde had been waiting for a month to do something like this. He was not going to stop now. He noticed too late that the ticker was running six minutes behind the trades. When 1:00 o'clock rolled around and the market closed, Clyde's last chance to change his mind had passed. But the index values kept coming across his screen. Only at 1:10 were the final values posted. The Dow was up 230 points. The NASDAQ was thirty-eight points into positive territory. Clyde's hope to buy mutual funds on a very down day had dissipated and serious doubts invaded his mind. He stayed in the office long after the market close. Net Asset Values were not posted until the value of the shares within the fund were counted up after the trading day ended. He waited and worried. The NAV had been $40 per share at the opening. He now owned 90,000 shares. He silently prayed for a price of forty but knew that was not going to happen. HEMIX had a track record of outperforming the market on most days. He checked the price every five minutes from 3:00 PM on. Forty, forty, come on, forty. No news yet. At 3:20 the change was posted. The net asset value of a share of Hanover Emerging Growth Funds was posted at $40.82 cents per share. He had committed to pay eighty-two cents per share more for HEMIX than he would have paid the day before. It cost him $73,800 more today than it would have yesterday. It cost him a quarter of a million dollars more than he was expecting to pay at 11:45 AM when the NASDAQ was down 200 points. Clyde was normally a somewhat unhealthy looking man. He was not tall at five feet seven, he was slightly balding and his jowls tended to sag. His pale eyes, and pasty skin were evidence of his disdain for exercise and a decent diet. Even those weak features were now distorted. He felt nauseated. His head pounded and his face blanched. His eyes were showing fear and his normally erect posture had given in to a slouch. He looked like he wanted to hide. He would have to settle this trade tomorrow, and he had no confidence that the market would continue to support the price he had paid. He leaned over and wretched into a trash can. |
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