Chapter 455: Can you earn it, can’t get it?

After having supper in the hotel, Qin Xianglin suggested going to a cafe and want to have a chat with Gao Yang and Wu Ruohan alone.

After 7 o'clock in the evening, in an Italian cafe on the second floor of Hilton Garden Hotel, Gao Yang, Wu Ruohan and Qin Xianglin sat around a small round table.

Gao Yang and Qin Xianglin both asked for a cup of latte, and Wu Ruohan asked for a cup of cappuccino.

Wu Ruohan scooped up a spoonful of fragrant milk foams, smiled and handed them to Gao Yang's mouth, asking him to taste it.

Looking at this scene, Qin Xianglin suddenly smiled:

"Gao Yang, I have to say that you are really an investment genius, and your premonition of the US subprime mortgage market is completely correct."

Gao Yang asked with a smile: "Professor Qin, you have worked hard these days, what have you discovered?"

Qin Xianglin said: "My discovery is that during this round of subprime loan bubble, Wall Street was far more crazy than I thought. They designed CDOs very complicated, and it was difficult for ordinary professionals to see clearly.

Let me give you an example, you will understand that, for example, when you initially have a combination guaranteed asset package like CDO A, CDO B is designed, it also contains some of the assets of CDO A.

It has developed to this point, such as B in A, and A in B, and then A and B are packaged into CDO C. This form is called CDO CDO, which is the guarantee of debt guarantee.

On this basis, a comprehensive debt guarantee is derived, called Synthetic CDO, which can be used to bet on the winners and losses between CDO holders and swap traders.

The conclusions between you are correct. The real estate bond market is based on the real estate bond market, the multi-level guarantee market for derivative real estate bonds, and various types of CDOs and CDS are about 20 times that of the bond market. I estimate that it is probably not less than 50 trillion US dollars.

In other words, the entire mortgage market was magnified by Wall Street's use of asset-backed securities by 20 times.

This is the largest and craziest casino ever on Wall Street—and all kinds of betting patterns were created in this way.”

Wu Ruohan asked: "Professor Qin, based on your research results, how do we consider our best trading targets and trading strategies now?"

Qin Xianglin said: "The best trading target is what Gao Yang mentioned, AA CDO, buy short of its swaps, and the leverage return rate is expected to be as high as 200 times.

In the past few days, I have analyzed nearly 100 AA-level CDO asset packages. I found that among AA-level CDOs, the proportion of debt-guarantee assets with AA-level ratings is not more than 90% of the publicity promoted by major investment banks and insurance companies, and the proportion of AAA-level assets is only about 25%.

AA CDOs contain a large number of BB, BBB, and even B-level guaranteed assets, which should be a common phenomenon.

In addition, the credit default rate of subprime loans has been rising, and the trend is very obvious.

The sub-goods bubble is almost inevitable."

Gao Yang smiled and said, "Thank you Professor Qin, then Titan Fund can boldly short the swaps for AA-level CDOs."

Qin Xianglin shook his head: "Gaoyang, this is exactly what I want to talk to you and Ruohan. If Titan Fund uses all US$220 million or buys short AA-level swaps with a heavy position, it is not advisable and it is very risky.

Theoretically, once the credit default rate of AA CDO exceeds 12%, AA-level guaranteed bonds will be like waste paper, and even AAA-level may be greatly affected.

At that time, the entire CDO market would collapse, and the entire European and American financial markets would storm, bringing in tens of trillions of dollars of financial assets.

Buying short AA-level swaps has a return rate of 200 times, even in casinos, is a bet with extremely small winning rate, and is an unpopular among the unpopular.

You have 220 million US dollars. If you buy all AA CDO swaps, theoretically, if the price of AA CDO drops by 10%, you will get 20 times the profit, that is, more than 4 billion US dollars.

In the context of the CDO bubble that is almost bound to burst, it is easy for you to win money. The question is, if you can really make a profit of billions or even tens of billions of dollars, can you take it away and can you get it?

Although Wall Street is crazy, it is not all crazy people or fools. On the contrary, there are many smart people.

I believe that people who see the huge CDO bubble are not just us, but some of them must be betting like you. There should be very few people who just bet on AA level directly.

Wall Street has seen the CDO bubble. The most common strategy for trading managers is probably to buy multiple A and AA to hedge risks while buying short BB and BBB assets.

Of course, there must be someone who is like you, completely empty.

Once the CDO bubble bursts, the global financial market dominated by Europe and the United States will inevitably experience huge turmoil. Perhaps large investment banks will go bankrupt, and global wealth losses may exceed ten trillion US dollars, or even more.

If Titan Fund uses all its funds or has a heavy position and only bets on shorting AA-level swaps, it is impossible not to be noticed during this financial turmoil, and there is even a 100% chance of being investigated.

Therefore, the trading strategy I recommend is to use 30% of the funds to buy short AA swaps, use 50% of the funds to buy short BB and BBB swaps, and the remaining 20% ​​of the funds to be bullish on AAA and serve as a trading hedge.

Such a trading combination is normal and difficult to doubt.”

Gao Yang thought for a while and said, "Professor Qin, then we will use 80 million US dollars to short the AA swap, 100 million US dollars to short the BB and BBB swaps, and then use 40 million US dollars to long the AAA CDO. What do you think?"

Qin Xianglin said: "This arrangement is OK. Although the leverage of shorting AA-level swaps is as high as 200 times, it is only theoretically. If you short the $80 million, even if you succeed, you will not be able to get a $16 billion profit.

I suggest that you should not be greedy if you short the AA level for this 80 million US dollars. If you have a profit of about 30 times, you must let go. The remaining profit will be left to smart people on Wall Street.

Shorting the BB-level and BBB-level swaps, the current leverage is no longer too high, because the price has risen significantly recently. After success, the expected theoretical rate of return is around 20 times. It is recommended that you let go when the return reaches about 10 times.

If you spend $40 million to long for AAA CDOs, you are expected to suffer most of the losses when the storm comes.

For your 220 million US dollars, the final comprehensive income is controlled at about 20 times, that is, 3 billion US dollars. After deducting about 30% of capital gains tax, you can still make a net profit of about 10 times.

Such a trading strategy is the safest and most advantageous.”

Gao Yang nodded and said, "Okay, then we will do as Professor Qin suggests. Thank you for your advice."

Qin Xianglin smiled and said, "Now you can book air tickets to Las Vegas. The weekend securitization forum. Our goal is to find bond guarantee managers from major investment banks and insurance companies, as well as swap traders, to complete the trading plan through them."

Gao Yang signaled Wu Ruohan and told Chen Lan to book a flight to Las Vegas on Saturday.

After Wu Ruohan left, Qin Xianglin suddenly sighed: "In about half a year, the CDO bubble may begin to burst. Once a large financial institution cannot withstand it, countless wealth will be wiped out, many people will be unemployed, and a large number of people will be kicked out of their residences and wandering on the streets."

Gao Yang said: "Professor Qin, isn't this a normal phenomenon in capital society?"

Qin Xianglin said: "I am not sympathetic. Once such a financial crisis occurs, the US government and the Fed will definitely rescue the market. At that time, although the United States is the center of the storm, the one that suffers the most may be Europe."

Gao Yang smiled and said, "This is almost inevitable. Does the Federal Reserve have the right to print money? Professor Qin, if the subprime mortgage bubble bursts and there will be a serious financial crisis in Europe and the United States, do you think this will be a move for Americans to deal with the euro?"

Qin Xianglin was stunned when he heard this, shook his head and smiled: "I understand what you mean. Over the years, some of the United States' actions in Eastern Europe, especially the Middle East and West Asia, have indeed been for the euro at the strategic level.

However, it is impossible for Wall Street to plan and promote the subprime mortgage bubble and finally trigger it to deal with the euro.

Of course, if Europe and the United States finally face a major financial earthquake, objectively, they can indeed strengthen the US dollar while weakening the euro.

Once the Fed takes action to rescue the market, the US dollar will inevitably return to the United States to help the United States resolve financial risks. This is also the natural advantage of the US dollar, which is equivalent to open conspiracy..."

Later, Wu Ruohan came back and whispered to Gao Yang: "Han Yun said that Dorsey wants to accompany us to Las Vegas, and he plans to rush from California on Saturday."

Gao Yang smiled and said, "Okay, tell your sister-in-law that you plan to book a hotel to Dorsey's room."

Professor Qin suddenly asked: "Gaoyang, if you really earn 2 billion US dollars in the end, what would you arrange for this money?"

Gao Yang said: "Professor Qin, if he really can make such a large amount of money, the profits belonging to Android companies will be transferred back through fund dividends, and then using Android companies as a platform to invest in the equity of American and European technology companies, as well as the Chinese market.

The Titan Foundation expands its capital and continues to invest in US stocks. In the future, the Titan Foundation will set up a new hedge fund to raise funds from abroad, expand its scale, and strive to grow into the US market and even the world-renowned hedge fund."

Professor Qin smiled and said, "Your ideal is very lofty."

Gao Yang said: "For China, European and American institutions have always been professional and have huge capital advantages. I think we can also accumulate capital in the European and American markets and make money from the European and American markets.

From financial capital, to technology companies, to various talents, we can find allies in the European and American markets…”
Chapter completed!