Free to Trade (29 page)

I showered and just made it to lunch. I munched my way through an exotic Mexican salad, half listening to a Bloomfield Weiss economist drone on about the importance of recent non-farm payroll figures in the deliberations of the Federal Open Market Committee.

The first presentation after lunch was by Hank Duralek of Beart, Duralek and Reynolds, the kings of leveraged buyouts. Their firm had just bought the biggest biscuit manufacturer in the world, for a breathtaking $27 billion, easily the largest deal in history. Duralek was convincing, arguing that it would be easy to make enough cost savings to finance the mountain of debt which the company had taken on. I was intrigued, but I thought I would wait to see what happened to the company over the next year. It was just a little too risky for De Jong's first investment in junk bonds.

Then came an extraordinary presentation from the notorious Marshall Mills. As he himself said, his greatest achievement was to marry an actress a third of his age. He was a short stocky man in his sixties, who breathed heavily as he talked. A handkerchief was never far from his balding brow. But his eyes were tough and beady, full of energy as they darted about his audience. As he began to speak, the atmosphere in the room became electric. The earnest young men polished their glasses, stuck out their jaws and glowered. Mills's audience didn't like him. But he didn't care.

He told us the story of his success. Thirty years ago he had inherited his father's small oil company based in Tulsa, Oklahoma. Over the next couple of decades he had grown the company from a little cluster of nodding donkeys to one of the largest private oil and gas concerns in the state. He had used innovative financing techniques to achieve this growth. 'Innovative financing techniques' was a phrase which reappeared regularly in Mills's talk. I soon realised it meant finding a sucker, and borrowing as much as you could from him, in the hope that whatever you had bought with the money he had given you, went up in price. If it did, you made millions, if it didn't, then the sucker lost. It was a strategy followed successfully by a number of America's great entrepreneurs.

In 1982, after the second oil-price hike, Mills had made his boldest move. He had borrowed several hundred million dollars to finance the development of oil finds in Utah and Colorado. Mills portrayed the episode as a dramatic success. My recollection of events was that the drilling had been left unfinished as oil prices dived below $15, instead of rising above $50 as had been predicted. Somehow Mills's original businesses had ended up with all the cash, whilst the non-recourse subsidiaries held all the debt and a few half-drilled holes in the Rocky Mountains.

He had pulled the same stunt five years later in an attempt to use 'innovative financing techniques' to build a network of gasfields across the south-west of the United States. Once again, it had all ended in tears for Mills's hapless bondholders. The way Mills told it, though, they had been honoured witnesses to one of America's great entrepreneurial successes.

The audience was restless during this self-eulogising. When his speech was over and he asked for questions, a dozen people leapt to their feet. It was clear that a number of them had participated in some of these 'innovative financings'. After the fifth hostile question, Mills's patience wore thin. He interrupted an enquiry about why his refining company had failed to make an interest payment when it had $50 million of cash on its balance sheet, by saying, 'Look, you guys are lucky. You buy my bonds, and you have Marshall Mills working his guts out for you night and day. There are many people who would give their right arms to have Marshall Mills working for them. Now I have something to tell you, which really will give you something to worry about.' Suddenly there was silence in the hall. It gets worse? 'You may not have Marshall Mills working for you much longer.' The wheezing became more pronounced. 'My doctors have diagnosed a heart condition. I could live ten more months or ten more years. But I think it will be prudent for me to retire soon and spend more time with my darling wife.'

The audience cheered up at this. No doubt many of them hoped that the actress would be more comfortable with the notion of repaying debt than Mills was. Two or three people quietly sneaked out of the conference hall. Later, on the way to dinner, I was not in the least surprised to hear that most of Mills's companies' bond issues were up five points.

I joined the two hundred other participants in a huge ballroom dotted with tables laid for dinner. I walked over to my table. Cash was there with Cathy and Waigel, from Bloomfield Weiss. Apart from myself, there were two other clients there.

'Hey, Paul, how're you doing?' Cash yelled across the table. 'Glad you could make it all this way. Let me introduce you. This is Madeleine Jansen from Amalgamated Veterans Life, and this is Jack Salmon from Phoenix Prosperity Savings and Loan. Madeleine, Jack, this is Paul Murray, my best client in London.'

We exchanged smiles and nods. Madeleine Jansen was a small quiet-looking woman. However, as she smiled and said hallo, her eyes displayed a striking intelligence. Jack Salmon was a tall thin man a few years older than myself. He had slightly buck-teeth and fidgeted nervously with his left hand as he shook mine with his right. I found I was seated next to him, with Cathy on my other side.

'I have heard a lot about your institution,' I said to Jack.

'Oh yeah?' he said, clearly pleased. 'I didn't know anyone had heard about us outside Arizona, let alone in London.'

'Ah, but you make quite an impression on the eurobond markets, don't you,' I said, consciously trying to flatter him.

'As a matter of fact we do a lot more in those markets than you would think, for an institution our size,' said Jack.

'Such as in a recent much-maligned deal for a country not a million miles north of Denmark?' I said, putting on a sly smile.

Jack returned it. 'Now you come to mention it, yes. How do you know about that?'

'I make it my business to know,' I said. 'Actually we took a lot of that deal ourselves. I think we and you were about the only investors to buy the deal when it originally came out. It's not often that one gets a chance to clean up like that.'

Jack laughed, 'As Cash would say, "That was a sweet deal!" I sure enjoyed that one.' He took a large gulp of wine.

Stroking this man's ego was not going to be difficult. 'It's strange for someone based so far away to be so successful in the London markets. How do you do it?' I continued.

'Well, we like to think we are quite cosmopolitan at Phoenix Prosperity. More so than your average investor in the States. I like to keep up with European news and events. I spent three months there when I was at school. And we know Cash Callaghan from way back.'

Ah, the real reason, I thought.

'Do you do much of your business with Cash?' I asked.

'A fair amount,' said Jack. 'He has a very good handle on the markets and comes up with some good analysis. He seems to be able to relate to my ideas.'

I bet he does, I thought. Phoenix Prosperity was an ideal account for Cash. I could imagine him inciting Jack Salmon to buy and sell all manner of bonds all day, whilst he steadily notched up sales commissions. 'Yes, we find him good too,' I said.

'Have you been involved in the junk market for long?' Jack asked.

'No, we are just starting. And you?'

'Oh, we've been doing it for a year or so.'

'How have you found it?'

'It's a blast. But you have got to have balls. If you find a good deal, and it gives you a 16 per cent return, and you are comfortable with the credit, then you have got to buy a lot of it, know what I mean?' Jack gave me a knowing smile.

I nodded. This guy is dangerous, I thought.

'But they won't let me do it,' Jack went on. 'If I buy more than one or two million they panic. I tell you, it makes it hard to make any decent money.'

So there was someone sensible, somewhere, controlling Jack.

'Are there any companies I should look out for tomorrow?'

'Yes, there is one I like. "Fairway." I think they have a good story.'

' "Fairway"?' I said. 'What do they do?'

'They make golf carts. You know, the little buggies you drive around golf courses.'

'I know. Thanks, I'll make sure I see them speak,' I said. We ate on in silence for a minute or two. 'Are your offices near here?' I asked.

'Pretty close. They are about ten miles away, downtown. But I'm staying at the hotel for the conference. It's a good opportunity to meet some of the other people involved in the business.'

'Do you have a big operation?' I asked.

'No, only two or three of us on the investment side. I make most of the trading decisions. But you don't really need a lot of people to throw around a lot of money.'

'We are a small operation too,' I said. Then I started angling, 'It would certainly be interesting to compare what you do to what we do. Although we live on different continents, I get the impression we have a similar outlook.'

Jack took the bait, 'Hey, when the conference is over, why don't I show you round. Could you spare a couple of hours?'

I smiled, 'Thank you. That will be very interesting. I look forward to it.'

Cash had been chatting away to the woman from Amalgamated Veterans Life. At first she had been very aloof, but she was slowly beginning to warm to Cash's charm. After half an hour or so, her laughter was ringing out to match Cash's.

I murmured to Cathy, 'Cash seems to be hitting it off with that woman. Why does she get the star treatment?'

'Amalgamated Veterans is one of the largest investors in the US,' Cathy said. 'Madeleine Jansen is the senior portfolio manager there. She decides what strategy to follow. When she changes her mind about a market, that market moves. She's supposed to be very good.'

'I see,' I said. 'But Amalgamated Veterans isn't one of Cash's clients, is it?'

'Precisely,' said Cathy. 'But, you never know, one day it might be. Cash likes to make sure he knows as many of the major investors as possible. When he moves back to the States, he will probably call her up to see how she is doing.'

'And what will the salesman from Bloomfield Weiss who covers her think of that?'

'That's Lloyd Harbin. He isn't here this evening. A perfect opportunity for Cash.'

I didn't say anything. I supposed stealing a client off one of your colleagues was nothing compared to stealing $20 million from one of your clients. I thought of Debbie Chater. But I couldn't tell Cathy my suspicions. I shook my head. 'Cash seems like a nasty piece of work to me.'

'I can see how you might think that,' said Cathy diplomatically. 'It's true some people don't like him, but he's not always that bad really.

'OK, I admit he can be untrustworthy, he does take advantage of his customers now and then, and he is a notorious thief of other people's clients. But I wouldn't say he is the devil personified.'

I shrugged.

'Oh no. He wouldn't hurt a fly. He's quite a softy. Wants everybody to love him. Even me. Although I grumble about him, he does stand up for me. A couple of months ago, they told me I wasn't getting a pay rise this year. I had worked hard and I deserved one. Cash threatened to resign unless they increased it. So they did. There aren't many bosses at Bloomfield Weiss who would do that for their staff.'

I was impressed by Cathy's loyalty, but I wasn't convinced. I let it drop.

Cash broke off his conversation and called over to us. 'Hey, Paul, I'm getting a complex here! First of all, you conspire with Jack. That makes me nervous. Two of my clients plotting against me. There are some awkward stories you two could share about me. And if that isn't enough, you start turning my very own partner against me.'

'Yeah, you had better look out Cash, Paul here has told me all your secrets,' Jack said.

This last comment made me distinctly uncomfortable. I knew Jack was joking, but did Cash? I looked carefully at Cash, but he just laughed. I could see no indication that he was concerned.

Waigel butted in. 'There are quite a few secrets about Cash I could tell you. Remember Sheryl Rosen?'

'Hey, Dick, be fair,' laughed Cash. 'That was a long time ago.'

'You two have known each other for a while?' I asked.

'Oh yes,' said Cash. 'We go back a long ways. We both grew up in the same neighbourhood. Dick was the smart one. Always top of the class. Columbia University, then Harvard Business School. I was just good at drinking beer and getting to know girls like Sheryl Rosen.'

'You should have seen his bar,' said Waigel. 'Full every night. Lots of kids having a great time. It's a shame you had to shut that down.'

'Was that near Tremont Avenue?' I asked as innocently as I could manage.

'Right round the corner,' said Cash. Waigel looked at me narrowly. I held his gaze for a second or two, doing my best to look innocent. I wasn't sure I succeeded. Waigel thought I was up to something; I would just have to make sure that I didn't give him any evidence to back up his suspicions.

Cash went back to his task of charming the woman from Amalgamated Veterans. Waigel turned to Cathy.

'Tell me, how do you like the conference?' he asked.

'Oh, it's fascinating,' she said. 'It's amazing how well a lot of these companies are run. Having piles of debt to service really seems to focus the mind.'

'Yes, there were some great companies talking today. Did you see Chem Castings. That was a deal I structured myself. Great management. That's a company that is really going places.'

I had seen Chem Castings's presentation. The management did seem to be competent, and the underlying business was a good one. But, thanks to the advice of its investment bankers Bloomfield Weiss, the company had taken on too much debt, and would struggle to meet even its next interest payment.

'Yes, I saw that one,' said Cathy.

'It's a shame we can't sell deals like that into Europe,' said Waigel. 'Why is that, I wonder?'

Cathy stiffened. She didn't say anything for a second or two. I could feel the tension rising beside me, and I focused on my plate, pretending to ignore it. 'I don't know,' she said, carefully. 'Our clients just don't seem to have any interest.'