Time Smuggling Starting from the Year 2000 Chapter 80

Huang Xuan kept the secret key and ordered Rolin to call Aubrey and Dutoit. He had tried so hard to persuade Guy to hand over the formula. According to Rolin's a.n.a.lysis, it was going to be easy to find the ingredients for the pill, given the current state of the technology. They only needed a few simple elements and organic matters. The pill was similar to other medicines in the market. It was made of a variety of complex compounds, which had unique spatial requirements in terms of degree of rotation and chirality. However, there were many methods to obtain them. The difficult part was configuring the purity of the pill. In comparison, this required more out of them.

Based on the information provided by Rolin, there were only a handful of companies which were able to produce pills with that purity. Unfortunately, none of them were in China. During the campaign to destroy the Four Olds, the United States of America acc.u.mulated the most resources in the world. Europe similarly took about 20 years to complete its revival. Although they claimed they had finished ahead of schedule, their estimation was inaccurate — the entire plan was a mistake.

Of course, as long as there was a company capable of manufacturing the pill, Huang Xuan was satisfied. He didn't care which country the company was in. However, he was not the only one who was involved in the pharmaceutical industry; the entire Huang family was as well. If he started a research, he might invite trouble.

He could engage professionals to help him.

Huang Xuan, who was indeed his mother's son, immediately thought of Citigroup.

"Rolin, contact Aubrey and Dutoit."

"Alright."

The consortium of banks was the leader of the entire capital market. In the United States and Europe alike, bankers were always important to businessmen. Even businessmen like Rockefeller, despite being akin to Ford, wouldn't dare offend these financial giants. Of course, most of these businessmen already had one foot in the banking industry.

If one wanted to be welcomed by industries in the United States, he first had to be on good terms with the banks. It was simple: they had to ensure that the banks trusted them enough to lend them money. Taking unnecessary loans or making unnecessary deposits were all crucial to building a relations.h.i.+p and repaying the loans on time would improve their credibility with the banks. At the same time, the process of taking and repaying the loans would facilitate the forging of friends.h.i.+ps. This made use of the same logic as dating in school. Borrowing books from girls and taking the wrong textbook on purpose... These were old school methods that worked.

Compared to Walmart, which economized its way to first place, Citigroup was more powerful. The unbeatable giants on Wall Street had unique methods. These giants could be counted on one hand: Merrill Lynch, Citigroup, J.P. Morgan, Goldman Sachs, Bear Stearns, Chase Manhattan, and Morgan Stanley. These groups were at the tip of the capital market; they formed a small monopoly. According to the words of the old Marx, the banks were formed to average out society's profits. The simplest explanation of this statement was that banks searched for the least risky ways to use others' money, in order to earn the most profits.

Aubrey and Dutoit were perfect representatives of these financial groups.

Despite having watched a movie, Dutoit was still the first to arrive. He brought with him a tall, white man. However, Huang Xuan was more interested in speaking to Citigroup. Hence, he had no choice but to invite them to wait.

Dutoit understood and sat down. With the help of a translator, he introduced his colleague: "Mr. Huang, this is Dr. Kelly. He is a specialized a.s.set manager at UBS Private Wealth Management Company. On the team's name list we created for you, Dr. Kelly is the second manager." Dutoit handed the name list to Huang Xuan.

"OK." Huang Xuan received the name list. He greeted Dr. Kelly, and they exchanged a few pleasantries. He was an Englishman. His eyes were dull but lit up when he talked about economic problems.

There was a total of eight names on the list. The first five had "Doctor" in front of them. They seemed powerful, yet Huang Xuan was not hopeful about increasing the value of his personal a.s.sets; hence, he was not too concerned about the name list. He folded the piece of paper and placed it in his pocket. Sitting opposite to Dutoit, he casually picked up a few information sheets and asked, "How was the latest delivery?"

"It went smoothly. We've completed more than half of it."

"Very good." Huang Xuan nodded. He continued, "How's Furnas? I've seen your plans, but honestly, they're too complex. If you don't mind, I'd like you to explain it to me once more."

"Of course I don't mind," Dutoit scanned his surroundings and said. "Dr. Kelly is very familiar with this. The restructuring of Furnas was done by him."

"Mm-hmm?"

Kelly pushed his spectacles upwards. He nervously removed a stack of doc.u.ments from his bag and hurriedly said, "Yes. I've conducted a field investigation at Furnas. I've found a couple of problems that we have to resolve—"

"Dr. Kelly," Huang Xuan couldn't help interrupting him. "We don't have much time. Now, I want to know if this company has been restructured according to my instructions."

"Yes." Kelly was almost 30 years old, but it seemed like he only knew how to communicate with his mentors. He stuttered, "But I think restructuring the company this way is a mistake. Splitting a company into three parts will create a lot of problems. Professor Durney's tutorial says—"

Huang Xuan heaved a sigh and raised his hand. He smiled stiffly and said, "Dr. Kelly! Dr. Kelly?"

"Yes!"

"Tell me, have you restructured the company as I have told you?"

"I have, but—"

"OK," Huang Xuan signaled for him to stop talking. He said, "That's enough." He suddenly felt as if their ages were reversed.

Sensing the tense atmosphere, Dutoit interrupted, "Mr. Huang, there's another matter."

"Oh?" Huang Xuan poured a cup of coffee for him.

Dutoit retrieved a thumb drive and placed it on the table. He asked, "Do you know John McLeish?"

Huang Xuan spread his arms slightly and answered, "No."

"Here is some information about his new company. Indeed, he's talented in investing."

While Dutoit was thinking about the best way to describe McLeish, Aubrey walked into the room behind the butler. He abruptly added, "He's also talented in losing."

Compared to the small villa in Sao Paulo which Huang Xuan's father owned, this bungalow in Nanjing was indeed grand. Not only did it have a large lawn which Westerners desired, but it had a backyard and a Chinese-style pavilion. From the looks of it, Mr. Aubrey was admiring the place.

He followed Zhou Lian through the Ivy League corridor and looked around. He heard McLeish's name just as he entered the living room.

Huang Xuan stood up to welcome him. He asked, "Coffee or tea?"

"Coffee, thank you." Aubrey sat down and asked Dutoit, "Are you really thinking of asking Mr. Huang to invest in JWM's funds?"

"Is there a problem with that?"

"Of course!" Aubrey's face turned red. Coa.r.s.ely, he said, "McLeish nearly lost the whole of Wall Street two years ago. Now, a Swiss person is telling my client to invest in JWM. I can't be hearing this right."

"McLeish's investments are usually fine. That was an accident."

"An accident that was worth USD $1,000,000,000?" Aubrey shook his head in astonishment.

Kelly joined the discussion, and the three men argued in English so Huang Xuan gave up trying to understand them.

He leaned back on the sofa and asked Rolin, "What are they saying?"

"They must be talking about McLeish, the founder of LTCM. About four years ago, his company earned 25% profit a year. It was the most profitable of all the Wall Street hedge funds. The former chairman of the Federal Reserve was in his team. His team also had an economist who won the n.o.bel Prize. They raised $1.25 billion in funding and tripled that in the next two years."

"They lost it all afterward?" Huang Xuan guessed from the three men's discussion.

"Yes, there were a lot of reasons, but the biggest of all was that the financial leverage was too high. They controlled a total of $100 billion worth of a.s.sets through a variety of financial derivatives. They borrowed them all from banks. At the same time, these contracts circulated through each bank on Wall Street. The final figure was an astronomical USD$1 trillion."

"They lost it all?" Huang Xuan was shocked. $1 trillion was almost equivalent to the sum of the world's top 10 countries' GDP.

"Of course they didn't lose it all. The transaction involved $1 trillion, but they only lost a total of USD$10 billion. This, however, was enough to frighten Wall Street. The company affected the profits of nearly everyone on Wall Street — up to a total of $1 trillion. If the banks had not cooperated, which hardly happens in Wall Street, they could have lost up to $100 billion."

While Huang Xuan was still silent from the shock, Aubrey began to explain to him.

It seemed like a typical American story. However, this was a reality. It was more bizarre than the stories.

John McLeish hedge funds looked promising. They were set to become part of the legends of Wall Street. Later, people almost thought they had become legendary. However, faced with the impact of Russia's debt crisis, the long-term capital fund began to suffer losses. On their worst day, they lost $540 million. Wall Street was taken by surprise. In the final days of the crisis, the long-term capital fund was only worth $1 billion. Yet, they continued to manage $100 billion worth of a.s.sets through financial leverages. The banks kept the funds open on the condition that they maintained their losses at below 1%. At that time, the crisis was threatening to sweep all of Wall Street away. In the end, the Federal Reserve and the major banks on Wall Street had no choice but to intervene.

At the same time, while most of the Chinese kept their eyes on Clinton's zipper and listened intently to Lewinsky's words, a wave of panic quietly came and went.

To this day, McLeish wanted to test his — or his two partners' — theory; hence, he once again raised funds from big banks and wealthy investors. When he found UBS, Dutoit was certain that Huang Xuan would be willing to make high-risk investments in exchange for more profit.

Huang Xuan was not willing to stand behind either Dutoit or Aubrey. Instead, he asked Kelly, "Doctor, can you please explain to me what hedge funds are?"

"Oh, of course," Kelly nervously answered. "Look, in theory, hedge funds do not exist under securities laws. However, in reality, hedge funds are funds that are formed as a private limited partners.h.i.+p. The risks involved are huge. Legally, there must not be more than 99 investors, and each investor must contribute more than USD$1,000,000, but if the fund grows, the maximum number of investors will increase to 500. However, each investor must then contribute at least USD$5,000,000."

"But how does it work? What is the hedge?"

Kelly took out his spectacle case. He composed himself and said, "This uses the concept of betting on the same person winning and losing. By doing so, the risks are minimized. Simply put, it involves selling overvalued stocks or futures and buying undervalued financial products."

"Then how does one earn from this?"

"Let me ill.u.s.trate. Let's say I sell USD$1 billion worth of August's light crude oil and buy USD$1 billion worth of December's light crude oil. If the oil prices rise so that the prices in December are higher than that in August, I'll earn some money. Conversely, if the oil prices in August fall to lower than that in December, I'll earn money. In layman terms, we're only concerned with the difference in prices and not the absolute figures. This way, we minimize the risk. At the same time, we make use of our leverage to work with ten times the amount of funds we have. The income will be significant."

Huang Xuan shrugged. Nonchalantly, he asked, "Can we make money?"

"We could also lose money," Aubrey answered. "Mr. Huang, if you're interested in investing in hedge funds, I can recommend a few reputable hedge fund managers to you, like Mr. Soros. McLeish is not a good choice."

"There's nothing wrong with Professor Merton's and Professor Scholes' models. They only failed by chance," Kelly couldn't help but argue.

Huang Xuan questioned, "Who are they?"

Kelly paused for a long while, but still did not know how to explain to him. Dutoit interrupted, "They're n.o.bel Prize winners, for Economics."

It all sounded impressive, but looking at Aubrey's flushed face, Huang Xuan smiled and said, "We can discuss this in the future. Today, I gathered you here because I need your help."

"Of course." Banks usually had to help their large clients with matters apart from business. Although this term wasn't explicitly written in the contract, everybody knew that banks that could help their clients earn more money and network with more people were more popular. In other words, powerful companies attracted rich clients.

Huang Xuan continued, "I want to invest in a medical research inst.i.tution or a biotechnological company. I want this company to have advanced biological agents. Do you have any recommendations?"

"Do you want to buy their stocks or manufacture your own medicine?"

"I hope to do some research and produce in small quant.i.ties. I mean, very small quant.i.ties. Investments don't matter."

Aubrey shook his head apologetically and advised, "You know how the American government looks at China's... Hmm... high-tech industry. They're not very approving." He obviously thought that Huang Xuan wanted to join the medical industry, just like he joined the power industry.

Of course, they were not approving. Huang Xuan smiled, yet he understood what Aubrey meant. They were nothing more than bad things about the deliveries.

Dutoit shook his head as well and said, "Mr. Huang, investing in high-tech companies is very sensitive..."

As he was rethinking his phrasing, Huang Xuan waved. "I have no intention to get this company into China." Carefully considering his choice of words, he continued, "I also have no interest in taking over any company. I only want to gain some help from medical experts by investing in the company."

"Your grandfather?" Dutoit's reaction was quick.

"Yes."

"I'm very sorry about that. However, the government makes things a little difficult for us."

Huang Xuan pursed his lips and replied, "I have no intention to challenge Was.h.i.+ngton. However, gentlemen, I want to invest in a pharmaceutical company. I want to get priority for medicine that are released in limited quant.i.ties. Is there a problem with that?"

Dutoit subconsciously frowned and said, "I'm very sorry, Mr. Huang. Investors are always very quick to invest in new medicine. Having connections with a company is not going to help you in this aspect."

"I don't think you understand what I mean." As Huang Xuan spoke, his mind went into overdrive. He lied, "I have a formula. I want to manufacture these pills in the best laboratories and preferably conduct clinical trials."

"Actually, we don't have to invest," Kelly suddenly spoke.

"Go on." Huang Xuan still found doctors impressive. His own father had worked extremely hard. However, he hadn't managed to attain the t.i.tle because Huang Xuan's mother wasn't able to leave the country. To that day, he was filled with regret.

"Actually, people are more receptive to sponsors.h.i.+p. If you only need medicine for one person, I believe it'll be easy to obtain it by providing the company with sufficient funds."

Dutoit clapped his hands and said, "That's an excellent idea. We were all a little carried away earlier."

Obviously, they were, given the way they had been arguing. Huang Xuan smiled and asked, "Which company?"

"Maybe we can seek professional advice for you. How much are you prepared to sponsor?"

"Enough to make them giddy." Huang Xuan rose to his feet. The two men were familiar with his habits. The discussion had ended for the day.