1 00:00:06,040 --> 00:00:09,000 Speaker 1: Hello, and welcome to the latest edition of the Odd 2 00:00:09,039 --> 00:00:14,080 Speaker 1: Lots Podcast. I'm Joe Wisenthal, Managing editor at Bloomberg Market. 3 00:00:14,880 --> 00:00:18,160 Speaker 1: My co host Tracy Alloway is away again this week, 4 00:00:18,200 --> 00:00:21,560 Speaker 1: but fortunately she is going to be back next week. 5 00:00:21,880 --> 00:00:25,439 Speaker 1: But since she's out, we're doing another special episode or 6 00:00:25,520 --> 00:00:28,240 Speaker 1: unusual episode. I wanted to talk to one of my 7 00:00:28,440 --> 00:00:32,880 Speaker 1: colleagues here at Bloomberg who wrote a fantastic news story 8 00:00:32,960 --> 00:00:37,760 Speaker 1: that I absolutely love entitled the Big Long making a 9 00:00:37,880 --> 00:00:41,600 Speaker 1: killing in the market everyone left for dead. It's about 10 00:00:41,720 --> 00:00:45,879 Speaker 1: the people who made a fortune by going long risky 11 00:00:45,960 --> 00:00:50,560 Speaker 1: assets down at the worst part during the worst period 12 00:00:50,560 --> 00:00:53,640 Speaker 1: of the financial crisis. So essentially the opposite of the 13 00:00:53,960 --> 00:00:57,480 Speaker 1: big short. So um, without further ado, I want to 14 00:00:57,480 --> 00:01:00,160 Speaker 1: get right into it. I'm here with Alastair Marsh who 15 00:01:00,240 --> 00:01:03,160 Speaker 1: wrote this story. Alistair, thank you very much for joining us. 16 00:01:03,520 --> 00:01:06,920 Speaker 1: Thanks having me on. Let's give the quick round up. 17 00:01:07,280 --> 00:01:10,520 Speaker 1: What's your story about? Who were these investors who were 18 00:01:10,640 --> 00:01:14,080 Speaker 1: bold enough to go along very risky assets right at 19 00:01:14,080 --> 00:01:17,160 Speaker 1: the bottom of January two thousand nine. Who were they 20 00:01:17,240 --> 00:01:20,720 Speaker 1: and what was their bad sure were They were trading 21 00:01:20,760 --> 00:01:24,080 Speaker 1: asset back securities for a UK bank called h Boss 22 00:01:24,680 --> 00:01:27,920 Speaker 1: H BOSS has a very interesting history in the UK. 23 00:01:28,040 --> 00:01:30,840 Speaker 1: In fact that one of the most controversial ones, you 24 00:01:30,920 --> 00:01:34,840 Speaker 1: might say, UM, ultimately collapsed back into the end of 25 00:01:34,880 --> 00:01:37,600 Speaker 1: two thousand and eight. It had a government bail out, 26 00:01:37,640 --> 00:01:40,240 Speaker 1: it had a secret cash infusion from the Central Bank, 27 00:01:40,720 --> 00:01:43,680 Speaker 1: and ultimately was taken over by Lloyd's Bank. So while 28 00:01:43,720 --> 00:01:46,480 Speaker 1: all this UM was happening in the in the background, 29 00:01:46,560 --> 00:01:49,880 Speaker 1: you had these two traders at h BOSS called Melam 30 00:01:49,920 --> 00:01:52,800 Speaker 1: Patel and Richard Paddle, who had spent the last ten 31 00:01:52,880 --> 00:01:56,080 Speaker 1: years or so trading A B S every day. And 32 00:01:56,480 --> 00:01:59,440 Speaker 1: when the crisis hit, A B S the asset back 33 00:01:59,520 --> 00:02:02,960 Speaker 1: security is and these were the securities that were tied 34 00:02:03,000 --> 00:02:07,600 Speaker 1: to mortgages mostly that everybody has come to know and understand. 35 00:02:07,640 --> 00:02:12,079 Speaker 1: We're sort of a key variable in the financial crisis exactly. Yeah, 36 00:02:12,160 --> 00:02:15,919 Speaker 1: these were typically backed by so these were bonds backed 37 00:02:15,919 --> 00:02:20,280 Speaker 1: by mortgages in the UK, typically UM, and they were 38 00:02:20,320 --> 00:02:23,440 Speaker 1: trading these for ten years or so. For most of 39 00:02:23,440 --> 00:02:26,959 Speaker 1: that time, these were considered a relatively vanilla product. Most 40 00:02:27,000 --> 00:02:30,239 Speaker 1: of them were rated triple A, and it all seemed 41 00:02:30,240 --> 00:02:33,480 Speaker 1: like a good and safest houses, so to speak, kind 42 00:02:33,480 --> 00:02:35,480 Speaker 1: of bet. The title of your story is called The 43 00:02:35,520 --> 00:02:39,520 Speaker 1: Big Long obviously a reference to the Big Short, So 44 00:02:39,680 --> 00:02:42,880 Speaker 1: explain what they did in this trade and how it 45 00:02:43,000 --> 00:02:46,600 Speaker 1: was sort of the mirror opposite of the Big Short trade. Sure, 46 00:02:46,720 --> 00:02:50,079 Speaker 1: there as many kind of paradles to the Big Shot. Effectively, 47 00:02:50,720 --> 00:02:55,160 Speaker 1: the Big Short was saying that, um, the housing market 48 00:02:55,240 --> 00:02:58,160 Speaker 1: is going to collapse, and these subprime mortgage bonds are 49 00:02:58,480 --> 00:03:03,200 Speaker 1: priced at crazy levels that don't imply that collapse. Well, 50 00:03:03,639 --> 00:03:05,760 Speaker 1: they had the opposite view that in the UK the 51 00:03:05,800 --> 00:03:08,680 Speaker 1: housing market was not going to collapse, and that the 52 00:03:08,840 --> 00:03:12,520 Speaker 1: mortgage bonds in the UK implied that the mortgage market 53 00:03:12,760 --> 00:03:15,400 Speaker 1: had collapsed or was about too, and they believed it wasn't. 54 00:03:15,760 --> 00:03:19,280 Speaker 1: And they believed that the same kind of massful closures 55 00:03:19,320 --> 00:03:21,320 Speaker 1: that we saw in the US, or the same spike 56 00:03:21,360 --> 00:03:23,760 Speaker 1: in mortgage you is, was it wasn't going to happen 57 00:03:23,760 --> 00:03:27,000 Speaker 1: in the UK. And obviously they they ultimately turned out 58 00:03:27,040 --> 00:03:30,160 Speaker 1: to be correct. So anyone who's seen the movie or 59 00:03:30,280 --> 00:03:32,760 Speaker 1: read the book The Big Short knows that it wasn't 60 00:03:32,880 --> 00:03:35,560 Speaker 1: just enough to have a negative view on housing or 61 00:03:35,560 --> 00:03:40,440 Speaker 1: asset values, but that these trades were not trivial to exercise. 62 00:03:40,480 --> 00:03:43,880 Speaker 1: They were complicated to structure. In the case of the 63 00:03:43,960 --> 00:03:48,320 Speaker 1: story you reported, on, there were difficulties and complications in 64 00:03:48,440 --> 00:03:51,840 Speaker 1: executing the opposite trade. What did they have to do 65 00:03:52,000 --> 00:03:55,360 Speaker 1: to express their view on these assets? Sure? What the 66 00:03:55,360 --> 00:03:58,520 Speaker 1: biggest difference between the two, leaving aside one was short 67 00:03:58,560 --> 00:04:02,000 Speaker 1: and one was long, was that the short bet. These 68 00:04:02,000 --> 00:04:04,960 Speaker 1: were mainly institutional investors, hedge funds and others trying to 69 00:04:05,000 --> 00:04:08,240 Speaker 1: do this, but the big long These guys whilst they 70 00:04:08,280 --> 00:04:12,440 Speaker 1: were traders by profession, they worked for a bank. Actually 71 00:04:12,480 --> 00:04:15,280 Speaker 1: they used there, they put up their own money. This 72 00:04:15,400 --> 00:04:18,479 Speaker 1: was a kind of Ultimately they were retail investors and 73 00:04:18,520 --> 00:04:20,920 Speaker 1: so they had to go They had to first get 74 00:04:20,960 --> 00:04:24,120 Speaker 1: compliance from the bank and they managed to get this. 75 00:04:24,360 --> 00:04:27,000 Speaker 1: It's what's quite interesting and I've I've had feedback from 76 00:04:27,000 --> 00:04:29,880 Speaker 1: a number of people in their ASBAC securities market here 77 00:04:29,880 --> 00:04:32,760 Speaker 1: in the UK who are quite indignant that these guys 78 00:04:32,760 --> 00:04:35,800 Speaker 1: were able to do this because they whilst working at 79 00:04:35,839 --> 00:04:38,320 Speaker 1: various other banks, wish that they had had the opportunity 80 00:04:38,360 --> 00:04:41,200 Speaker 1: they were permitted to do so as well. But anyway, 81 00:04:41,040 --> 00:04:44,320 Speaker 1: they they they had to ask compliance that that they 82 00:04:44,360 --> 00:04:46,000 Speaker 1: managed to get that, and then they had to go 83 00:04:46,120 --> 00:04:48,760 Speaker 1: to the retail broker and say I want to buy 84 00:04:48,880 --> 00:04:52,240 Speaker 1: a BS please, and the retail broke would say, you 85 00:04:52,320 --> 00:04:56,240 Speaker 1: want to buy what typically there are? These are retail 86 00:04:56,279 --> 00:05:01,120 Speaker 1: brokers that are typically used to selling vanilla bond and stocks. Right, 87 00:05:01,160 --> 00:05:04,080 Speaker 1: they're not acid back securities or the sort of more 88 00:05:04,160 --> 00:05:09,400 Speaker 1: complicated stuff that institutional traders trade, right exactly. Yeah, that 89 00:05:09,440 --> 00:05:11,240 Speaker 1: they be the kind of thing like I want to 90 00:05:11,240 --> 00:05:14,200 Speaker 1: buy BP shares or I want to sell bark these 91 00:05:14,200 --> 00:05:18,719 Speaker 1: shares please. So asking for triple B granite bonds, for example, 92 00:05:18,720 --> 00:05:22,080 Speaker 1: which is what their best trade was, was virtually unheard of, 93 00:05:22,160 --> 00:05:25,560 Speaker 1: and they had to explain to these to the basically 94 00:05:25,720 --> 00:05:29,560 Speaker 1: called a call center in Glasgow. For some reason, in 95 00:05:29,600 --> 00:05:32,080 Speaker 1: the UK, most of our call center operators are based 96 00:05:32,120 --> 00:05:34,200 Speaker 1: in Scotland because there's something to do with the Scottish 97 00:05:34,200 --> 00:05:36,240 Speaker 1: accent that's kind of soothing or something like that. Is 98 00:05:36,279 --> 00:05:38,360 Speaker 1: that is that really a thing? That's really a thing 99 00:05:39,120 --> 00:05:42,320 Speaker 1: called most most banks, which boards, etcetera. It's always in 100 00:05:42,360 --> 00:05:46,040 Speaker 1: Scotland anyway. So they call them, they call Glasgow, they're 101 00:05:46,080 --> 00:05:48,040 Speaker 1: they're on the phone for two hours and they have 102 00:05:48,120 --> 00:05:51,160 Speaker 1: to explain not only what they want, um, what it is, 103 00:05:51,240 --> 00:05:53,479 Speaker 1: how it works, but also kind of where they can 104 00:05:53,520 --> 00:05:56,320 Speaker 1: get it and in some cases who to call to 105 00:05:56,360 --> 00:05:58,520 Speaker 1: get it. So for the A B s, they because 106 00:05:58,520 --> 00:06:00,600 Speaker 1: they're sitting at the Bloomberg, they have all context in 107 00:06:00,640 --> 00:06:03,000 Speaker 1: the market. They know that, for example, Morgan Stanley has 108 00:06:03,040 --> 00:06:05,440 Speaker 1: got these bonds, so they know that Credit Swiss has 109 00:06:05,480 --> 00:06:08,440 Speaker 1: got those bonds. So they'd say, cool this guy, Morgan Stanley, 110 00:06:08,440 --> 00:06:10,320 Speaker 1: please and get me these bonds. So basically they are 111 00:06:10,320 --> 00:06:12,920 Speaker 1: doing the job before the retailer. I love this because 112 00:06:13,040 --> 00:06:16,919 Speaker 1: there because their institutional traders, they know everything there is 113 00:06:16,960 --> 00:06:20,760 Speaker 1: to know about what they're trading. But because they, for 114 00:06:20,920 --> 00:06:23,839 Speaker 1: this weird quirk, were forced to go through a retail 115 00:06:24,279 --> 00:06:27,240 Speaker 1: brokerage to make these purchases. They had to sit there 116 00:06:27,279 --> 00:06:30,719 Speaker 1: on the phone and walk the broker through the trade 117 00:06:31,040 --> 00:06:35,080 Speaker 1: exactly so Melan Melan Patel said that he would while 118 00:06:35,120 --> 00:06:37,480 Speaker 1: sitting at his desk, he'd be on hold or be 119 00:06:37,680 --> 00:06:40,320 Speaker 1: listening to the Beethoven Symphony and then in the background 120 00:06:41,120 --> 00:06:44,120 Speaker 1: whilst the cool center person tried to work out what 121 00:06:44,160 --> 00:06:46,120 Speaker 1: it was and how to how to get hold of it. 122 00:06:46,800 --> 00:06:50,920 Speaker 1: But but ultimately these retail brokers were able to do 123 00:06:50,960 --> 00:06:54,680 Speaker 1: the mechanics of buying these assets and getting them into 124 00:06:54,720 --> 00:06:58,640 Speaker 1: their accounts. Ultimately, yes, but it was very painful. That 125 00:06:58,720 --> 00:07:01,680 Speaker 1: was It was it, but it was very painful. Now, 126 00:07:02,000 --> 00:07:06,200 Speaker 1: do the stories of these two traders, Patel and Paddle, 127 00:07:06,680 --> 00:07:11,120 Speaker 1: do they sort of undermine a common argument? I mean, 128 00:07:11,160 --> 00:07:13,920 Speaker 1: the view is, I think in popular culture and probably 129 00:07:13,960 --> 00:07:17,679 Speaker 1: expressed by the books and movies, that the people trading 130 00:07:17,800 --> 00:07:21,080 Speaker 1: these assets had no idea what they were trading. They 131 00:07:21,120 --> 00:07:23,560 Speaker 1: had no idea what was in them. Everyone on Wall 132 00:07:23,600 --> 00:07:25,640 Speaker 1: Street was kind of stupid and there were only a 133 00:07:25,680 --> 00:07:29,640 Speaker 1: few smart people. But does their experience show that actually 134 00:07:29,840 --> 00:07:32,440 Speaker 1: a lot of the traders really did understand them and 135 00:07:32,640 --> 00:07:34,640 Speaker 1: were at least more aware of what was in these 136 00:07:34,640 --> 00:07:40,080 Speaker 1: assets than popular culture is depicted. Well, they certainly knew them, 137 00:07:40,200 --> 00:07:44,560 Speaker 1: and there's no basically they The way they explained it 138 00:07:44,640 --> 00:07:47,960 Speaker 1: is that they were trading for ten years. They knew 139 00:07:48,000 --> 00:07:50,080 Speaker 1: the names of the bonds, that knew how they were structed, 140 00:07:50,360 --> 00:07:52,480 Speaker 1: They knew were to buy them, who to sell them to, 141 00:07:53,040 --> 00:07:54,920 Speaker 1: So they knew the market at the back of their hand. 142 00:07:55,640 --> 00:07:58,440 Speaker 1: And it kind of stands to reason that the same 143 00:07:58,480 --> 00:08:01,600 Speaker 1: thing would be true of other traders and other institutions. 144 00:08:01,640 --> 00:08:03,640 Speaker 1: Now that's not to say that they weren't kind of 145 00:08:04,040 --> 00:08:08,720 Speaker 1: egregious things done in very very various times of various places, 146 00:08:08,760 --> 00:08:12,560 Speaker 1: but it stands to reason that people who trade these 147 00:08:12,560 --> 00:08:14,840 Speaker 1: products every day, and these are not simple products, are 148 00:08:14,920 --> 00:08:16,920 Speaker 1: very complicated. That's why it took them so long to 149 00:08:16,920 --> 00:08:20,000 Speaker 1: get it through the their brokers. Um, you know, they 150 00:08:20,000 --> 00:08:22,200 Speaker 1: should know the risk, they should know what's backing them. 151 00:08:22,200 --> 00:08:24,160 Speaker 1: They should know what the mortgages are like, they should 152 00:08:24,200 --> 00:08:29,120 Speaker 1: know the chances of um you know that the arrears history. 153 00:08:29,160 --> 00:08:30,920 Speaker 1: They but it should know that stuff. But it does 154 00:08:31,000 --> 00:08:34,360 Speaker 1: seem like the way people talk about this period always 155 00:08:34,400 --> 00:08:37,360 Speaker 1: is very black or white. There's a few people that 156 00:08:37,440 --> 00:08:40,320 Speaker 1: were warning and then all of the other people were 157 00:08:40,920 --> 00:08:43,400 Speaker 1: cheap and not, you know, not paying attention to the 158 00:08:43,520 --> 00:08:46,439 Speaker 1: risks at all. And it sounds like it's not quite 159 00:08:46,440 --> 00:08:49,160 Speaker 1: that simple. Yeah, that's true. And actually I think in 160 00:08:49,280 --> 00:08:52,760 Speaker 1: some of the pages of The Big Short, actually it 161 00:08:52,840 --> 00:08:56,000 Speaker 1: implies that some of the guys in the investment banks 162 00:08:56,040 --> 00:08:58,000 Speaker 1: didn't know what they were doing. They were just hoping 163 00:08:58,040 --> 00:09:00,440 Speaker 1: that the a merry go round to go on for 164 00:09:00,480 --> 00:09:02,360 Speaker 1: a little bit longer than it did, so he knew 165 00:09:02,360 --> 00:09:05,319 Speaker 1: what was in there. Of course, one of the things 166 00:09:05,360 --> 00:09:08,319 Speaker 1: that makes The Big Short such a compelling story it 167 00:09:08,480 --> 00:09:12,839 Speaker 1: just the jaw dropping returns that those traders got in 168 00:09:12,880 --> 00:09:16,040 Speaker 1: the amount of money they made talk to me about 169 00:09:16,120 --> 00:09:19,880 Speaker 1: how well these two traders did. Well. They didn't do 170 00:09:19,920 --> 00:09:24,280 Speaker 1: anything um on the scale of the big shot. They 171 00:09:24,280 --> 00:09:28,160 Speaker 1: didn't become billionaires and they didn't become billionaires no, um, 172 00:09:28,440 --> 00:09:31,680 Speaker 1: I think well that they were. They didn't give they 173 00:09:31,720 --> 00:09:34,000 Speaker 1: didn't disclose fully the numbers. We had to do some 174 00:09:34,040 --> 00:09:37,600 Speaker 1: calculations here, but we we estimated that Buttel made about 175 00:09:37,640 --> 00:09:41,120 Speaker 1: one point too million pounds, which is not bad return 176 00:09:41,400 --> 00:09:43,800 Speaker 1: that the best they put he put forward, we reckoned 177 00:09:43,800 --> 00:09:48,040 Speaker 1: about four fifty thou pounds um. Their best return was 178 00:09:49,360 --> 00:09:53,839 Speaker 1: on bonds called Granite. These were sort of controversial and 179 00:09:54,000 --> 00:09:57,080 Speaker 1: central to the whole thing. Tell us about the Granite bonds. Well, 180 00:09:57,280 --> 00:10:01,400 Speaker 1: Grantite we're backed by mortgages from UK Bank called Northern Rock, 181 00:10:01,800 --> 00:10:03,959 Speaker 1: and Northern Rock is probably the closest thing we had 182 00:10:03,960 --> 00:10:08,480 Speaker 1: in the UK to sub prime and the bank basically 183 00:10:08,520 --> 00:10:13,560 Speaker 1: massively over leveraged um Well. It had a huge residential 184 00:10:13,600 --> 00:10:18,520 Speaker 1: mortgage backed securities program and which was called Granite and 185 00:10:18,520 --> 00:10:21,360 Speaker 1: allowed it to fund fifty billion pounds worth of mortgage lending. 186 00:10:22,000 --> 00:10:24,200 Speaker 1: Ultimately it succumbed to the first bank run in the 187 00:10:24,280 --> 00:10:28,120 Speaker 1: UK in a hundred and forty years. So the I 188 00:10:28,200 --> 00:10:31,480 Speaker 1: remember the scenes of watching people queuing outside of Northern 189 00:10:31,520 --> 00:10:33,920 Speaker 1: Rock branches on the high streets of various towns across 190 00:10:33,920 --> 00:10:37,080 Speaker 1: the UK. That that that sort of that is almost 191 00:10:37,120 --> 00:10:39,920 Speaker 1: as iconic as the images of the Lehman Brothers bankers 192 00:10:40,000 --> 00:10:42,840 Speaker 1: leaving the building with the you know, their crates and 193 00:10:42,840 --> 00:10:45,080 Speaker 1: so on and so so. Northern Rock is a very 194 00:10:45,160 --> 00:10:49,400 Speaker 1: kind of controversial and um institution, and it was bailed 195 00:10:49,400 --> 00:10:53,880 Speaker 1: out by the UK government. Um. But granite bonds because 196 00:10:53,920 --> 00:10:56,000 Speaker 1: they were sold, I mean without going to all the 197 00:10:56,000 --> 00:10:59,480 Speaker 1: technicalities of securitization. They were sold by a separate vehicle 198 00:10:59,559 --> 00:11:04,960 Speaker 1: that continue to exist once Northern Rock didn't. In the 199 00:11:05,080 --> 00:11:08,160 Speaker 1: story you quote Paddle is saying, quote there was a 200 00:11:08,240 --> 00:11:11,280 Speaker 1: concern in the market that the UK government would rip 201 00:11:11,280 --> 00:11:14,000 Speaker 1: it up. What did that mean that they would theoretically 202 00:11:14,040 --> 00:11:18,199 Speaker 1: pay nothing in the end? Yeah, well they they bought 203 00:11:18,240 --> 00:11:21,000 Speaker 1: these bonds. So they were initially sold at a hundred 204 00:11:21,000 --> 00:11:24,760 Speaker 1: pence on the pound. They brought them eightpence, So now 205 00:11:24,800 --> 00:11:29,240 Speaker 1: this was discount. Yeah. Um, Now that that was for 206 00:11:29,280 --> 00:11:31,480 Speaker 1: the riskiest bonds, the ones that were first in line 207 00:11:31,520 --> 00:11:34,720 Speaker 1: to take losses. Um. But even so, that's that's kind 208 00:11:34,720 --> 00:11:40,360 Speaker 1: of huge decline and the view was simply that basically 209 00:11:40,400 --> 00:11:42,840 Speaker 1: it was down to political risk that the UK government 210 00:11:43,080 --> 00:11:46,320 Speaker 1: having taken over the institution. I don't think we've had 211 00:11:46,320 --> 00:11:51,800 Speaker 1: a nationalization like that in well in anyone's memory. Um, 212 00:11:51,920 --> 00:11:54,400 Speaker 1: what's going to happen? This is unprecedented. Are they just 213 00:11:54,440 --> 00:11:56,079 Speaker 1: going to say, do you know what, we're not paying 214 00:11:56,080 --> 00:11:58,319 Speaker 1: those bonds back. This bank doesn't have enough money, We're 215 00:11:58,320 --> 00:12:01,760 Speaker 1: not going to pay. Why did they feel confident that 216 00:12:02,480 --> 00:12:08,439 Speaker 1: the government would not rebub those bonds? Well they didn't actually, 217 00:12:08,440 --> 00:12:14,600 Speaker 1: but what there basically their view was that m mathematically 218 00:12:15,120 --> 00:12:17,839 Speaker 1: it worked out that they should get at least get 219 00:12:17,880 --> 00:12:21,880 Speaker 1: their money back. So they bought eight pence on the pound. 220 00:12:22,720 --> 00:12:24,760 Speaker 1: And I think the way they described by the way 221 00:12:24,800 --> 00:12:27,640 Speaker 1: they described it to me was that it would take 222 00:12:27,720 --> 00:12:31,679 Speaker 1: about two years for the granite structure to be unwound, 223 00:12:32,320 --> 00:12:35,120 Speaker 1: as in it's quite a complicated structure and lots of 224 00:12:35,120 --> 00:12:37,000 Speaker 1: mortgages behind it, and soon it would take about two 225 00:12:37,080 --> 00:12:40,000 Speaker 1: years in their calculations to unwind. And in that period 226 00:12:40,080 --> 00:12:44,360 Speaker 1: they should have two years of five coupons, so ten, 227 00:12:45,200 --> 00:12:47,319 Speaker 1: so they should get ten back having put eight in. 228 00:12:47,440 --> 00:12:51,319 Speaker 1: So that was their very kind of basic bet. Obviously, 229 00:12:51,600 --> 00:12:54,400 Speaker 1: they then had a huge huge price rally, so that 230 00:12:54,400 --> 00:12:56,200 Speaker 1: that's where the huge returns came from. But at that 231 00:12:56,200 --> 00:12:58,080 Speaker 1: point they were just thinking. Yeah. So in you have 232 00:12:58,160 --> 00:13:00,480 Speaker 1: this chart that obviously the list a nurse to the 233 00:13:00,520 --> 00:13:02,839 Speaker 1: podcast can't see, but I'm looking at it right now, 234 00:13:02,840 --> 00:13:05,160 Speaker 1: and it shows that they bought in around eight and 235 00:13:05,200 --> 00:13:10,760 Speaker 1: then they sold around sixty. But actually the bonds continued 236 00:13:10,800 --> 00:13:14,560 Speaker 1: to rally. Uh what well, uh, you know, there's a 237 00:13:14,559 --> 00:13:17,280 Speaker 1: little bit of volatility, but they actually rallied much more 238 00:13:17,400 --> 00:13:21,000 Speaker 1: even after they sold them. Yeah, that's right, um, and 239 00:13:21,040 --> 00:13:23,040 Speaker 1: I did, Austin, why didn't you try to hold on? 240 00:13:23,640 --> 00:13:27,600 Speaker 1: Because actually they were redeemed in January and December so 241 00:13:27,640 --> 00:13:30,160 Speaker 1: that they don't exist anymore and they were paid back 242 00:13:30,160 --> 00:13:32,839 Speaker 1: at pass so at one. That's just let's just pause 243 00:13:33,000 --> 00:13:35,920 Speaker 1: right there. How unbelievable that is that you know that 244 00:13:36,040 --> 00:13:39,520 Speaker 1: we all remember these bonds, these first in line losses 245 00:13:39,600 --> 00:13:42,320 Speaker 1: from two thousand eight and two thousand nine. I don't 246 00:13:42,360 --> 00:13:45,800 Speaker 1: even think that got much attention that in ten they 247 00:13:45,840 --> 00:13:49,560 Speaker 1: had essentially recovered a hundred percent of their value. Not 248 00:13:49,720 --> 00:13:53,440 Speaker 1: that they recovered some, but virtually the entire thing. I 249 00:13:53,440 --> 00:13:57,800 Speaker 1: think that part is almost entirely unknown to people. Yeah, 250 00:13:57,840 --> 00:14:02,680 Speaker 1: it's pretty unbelievable really, Um, but they said or Patel 251 00:14:02,760 --> 00:14:06,920 Speaker 1: specifically said that his start of investing is not to 252 00:14:06,960 --> 00:14:08,800 Speaker 1: try to time the top and not to try to 253 00:14:08,840 --> 00:14:12,280 Speaker 1: hold on for the last or so. But having gone 254 00:14:12,280 --> 00:14:15,680 Speaker 1: from eight to seventy or sixty, he thought, you know what, 255 00:14:15,760 --> 00:14:18,199 Speaker 1: that's a pretty good return. I'll take that. And actually, 256 00:14:18,559 --> 00:14:22,280 Speaker 1: at the time they sold out, which was about eleven, 257 00:14:23,280 --> 00:14:25,480 Speaker 1: it wasn't clear at all that the UK government was 258 00:14:25,520 --> 00:14:27,440 Speaker 1: going to sell them. That's that's why they were deemed 259 00:14:27,480 --> 00:14:29,320 Speaker 1: because the government sold them, but it wasn't clear at 260 00:14:29,320 --> 00:14:32,280 Speaker 1: all that was going to happen at that point. So yeah, 261 00:14:32,320 --> 00:14:34,960 Speaker 1: so no reason to get greedy. Eight to sixty is 262 00:14:34,960 --> 00:14:38,240 Speaker 1: a pretty a pretty nice return, isn't it. Yeah. Um, 263 00:14:38,320 --> 00:14:40,960 Speaker 1: let's let's look big picture for a second. Um. You 264 00:14:41,000 --> 00:14:43,400 Speaker 1: know one thing I want I'm always curious about is 265 00:14:43,560 --> 00:14:49,160 Speaker 1: um the sort of psychology of trading, making a making 266 00:14:49,160 --> 00:14:52,840 Speaker 1: a bed, or making a trade that's the exact opposite 267 00:14:52,880 --> 00:14:55,720 Speaker 1: of how the market sees like, basically, having the guts 268 00:14:56,080 --> 00:14:58,640 Speaker 1: to make a call that's different from what everyone around 269 00:14:58,680 --> 00:15:02,080 Speaker 1: you is um calling for. And it seems to me 270 00:15:02,240 --> 00:15:06,160 Speaker 1: that bears, they're always bears, are always people who think 271 00:15:06,200 --> 00:15:08,960 Speaker 1: the world is coming to an end. There are always 272 00:15:08,960 --> 00:15:12,320 Speaker 1: people who are predicting doom, and that sort of accepted. 273 00:15:12,600 --> 00:15:15,280 Speaker 1: People just accept that there's going to be negative people 274 00:15:15,280 --> 00:15:19,280 Speaker 1: out there. But in a way, optimism in the face 275 00:15:19,320 --> 00:15:23,440 Speaker 1: of panic actually strikes me as much more brave, because 276 00:15:23,600 --> 00:15:26,160 Speaker 1: no one likes to hear someone called a perma ball, 277 00:15:26,240 --> 00:15:30,840 Speaker 1: or people mock the balls. People have an intellectual respect 278 00:15:30,880 --> 00:15:34,360 Speaker 1: for negative people. How does that? What's your view on that? 279 00:15:34,560 --> 00:15:37,280 Speaker 1: Do you think that like that this view that they 280 00:15:37,320 --> 00:15:42,640 Speaker 1: expressed was particularly brave and gutsy given the prevailing negative 281 00:15:42,680 --> 00:15:45,600 Speaker 1: sentiment at the time. I think it was, and especially 282 00:15:45,600 --> 00:15:47,880 Speaker 1: when you think about the very place where they were 283 00:15:47,880 --> 00:15:51,040 Speaker 1: sitting that when they put these trades on, or when 284 00:15:51,080 --> 00:15:53,080 Speaker 1: they first asked permission to do that. That was in 285 00:15:53,160 --> 00:15:55,680 Speaker 1: January two thousand and nine, and it was that month 286 00:15:55,800 --> 00:15:58,560 Speaker 1: that the takeover of h Boss actually happened. So they've 287 00:15:58,600 --> 00:16:01,840 Speaker 1: had in in a few months earlier Lehman had gone down, 288 00:16:02,320 --> 00:16:06,480 Speaker 1: then HBOS itself had had a twenty billion pound bail 289 00:16:06,560 --> 00:16:10,360 Speaker 1: out from the government, it had a Central Bank additional 290 00:16:10,360 --> 00:16:13,040 Speaker 1: top up from the Central Bank, and so with all 291 00:16:13,080 --> 00:16:16,160 Speaker 1: that background for them to be sort of bullish for 292 00:16:16,240 --> 00:16:18,520 Speaker 1: lack of a better way, but it is um. It's 293 00:16:18,600 --> 00:16:21,600 Speaker 1: quite remarkable. But what's also interesting about these guys is 294 00:16:21,600 --> 00:16:27,280 Speaker 1: that that they're not particularly um. They're not how you 295 00:16:27,360 --> 00:16:30,600 Speaker 1: might think or a caricature of a bond trader. They're 296 00:16:30,640 --> 00:16:35,400 Speaker 1: not kind of gregarious types or brash. That they're both 297 00:16:35,480 --> 00:16:40,080 Speaker 1: quite um, quiet and quite thoughtful. And actually Milan in 298 00:16:40,120 --> 00:16:44,080 Speaker 1: particularly very interesting because he's he had he started um 299 00:16:44,160 --> 00:16:46,640 Speaker 1: investing in bank bonds, not a B S, even though 300 00:16:46,640 --> 00:16:48,600 Speaker 1: he traded a B S for living. He first started 301 00:16:48,600 --> 00:16:51,160 Speaker 1: investing in bank bonds and he told me, having not 302 00:16:51,280 --> 00:16:54,640 Speaker 1: known this market that well, he spent his evenings for 303 00:16:54,720 --> 00:16:58,040 Speaker 1: about a month or so reading through bond prospectuses. So 304 00:16:58,080 --> 00:17:00,480 Speaker 1: this is just like Michael burry So was like someone 305 00:17:00,520 --> 00:17:03,480 Speaker 1: who's actually willing to dive into all the paperwork to 306 00:17:03,520 --> 00:17:05,800 Speaker 1: really figure out what's in there and how did you 307 00:17:05,840 --> 00:17:08,920 Speaker 1: find the story. Just as a reporter, it was quite 308 00:17:08,960 --> 00:17:11,960 Speaker 1: fun finding them. Actually, I spent quite a bit of 309 00:17:12,000 --> 00:17:15,800 Speaker 1: time in reporting on the sale of Granite the UK 310 00:17:15,800 --> 00:17:18,080 Speaker 1: government announced it was going to sell. At the time, 311 00:17:18,119 --> 00:17:20,040 Speaker 1: it was thirteen billion pounds and it was the biggest 312 00:17:20,080 --> 00:17:24,080 Speaker 1: ever sale of assets from the UK government. And because 313 00:17:24,200 --> 00:17:29,280 Speaker 1: granted was such a well known um series of bonds. 314 00:17:30,560 --> 00:17:33,000 Speaker 1: I wanted to investigate and actually managed to break some 315 00:17:33,040 --> 00:17:35,960 Speaker 1: news on who was bidding for them, who wanted to 316 00:17:36,000 --> 00:17:38,440 Speaker 1: buy them. In the end, it was Cerberus who won. 317 00:17:39,119 --> 00:17:41,960 Speaker 1: And but as part of that I kept hearing about 318 00:17:41,960 --> 00:17:44,960 Speaker 1: these mystical traders or the mythical I should say, traders 319 00:17:44,960 --> 00:17:49,120 Speaker 1: who bought granted at the bottom, and I guess there 320 00:17:49,119 --> 00:17:54,160 Speaker 1: had to be someone, right, Yeah, Well, one one whimsical 321 00:17:54,200 --> 00:17:57,080 Speaker 1: hedge fund manager told me that it was Harold Tynesite 322 00:17:57,119 --> 00:18:01,359 Speaker 1: who bought the bonds at the bottom. But I wanted 323 00:18:01,400 --> 00:18:04,359 Speaker 1: to find out who did, particularly when in December the 324 00:18:04,359 --> 00:18:06,320 Speaker 1: first bond started to be redeemed and they were paid 325 00:18:06,320 --> 00:18:09,560 Speaker 1: back at part at one hundred, which to me thought, 326 00:18:09,560 --> 00:18:11,760 Speaker 1: if he bought at the bottom and got a hundred back, 327 00:18:11,800 --> 00:18:13,960 Speaker 1: that's amazing UM. And so I kind of made it 328 00:18:13,960 --> 00:18:16,920 Speaker 1: a bit of a mission to find out who brought them, 329 00:18:17,000 --> 00:18:20,119 Speaker 1: and through asking various contacts in the market, came across 330 00:18:20,240 --> 00:18:24,640 Speaker 1: Richard Paddell and he was kind enough to to speak 331 00:18:24,720 --> 00:18:26,480 Speaker 1: to me in turn with the tale and was fascinating. 332 00:18:26,520 --> 00:18:30,840 Speaker 1: And then Milan also, so yeah, it was a really 333 00:18:30,880 --> 00:18:35,240 Speaker 1: interesting investigative process and looking back at the crisis in 334 00:18:35,320 --> 00:18:38,080 Speaker 1: the will the UK's experience of the crisis really interesting. 335 00:18:38,280 --> 00:18:42,240 Speaker 1: Other other others that you think probably you haven't found, Well, 336 00:18:42,280 --> 00:18:45,040 Speaker 1: there's others I know of, but I haven't necessarily included 337 00:18:45,040 --> 00:18:48,080 Speaker 1: in the piece. Um, there were some others who did 338 00:18:48,080 --> 00:18:51,040 Speaker 1: it with them at h BOSS. I mean, Milan and 339 00:18:51,160 --> 00:18:53,760 Speaker 1: Richard were effectively the brains of the trade, but there 340 00:18:53,760 --> 00:18:58,000 Speaker 1: were other traders that got in on various various purchases 341 00:18:58,080 --> 00:19:02,040 Speaker 1: with them. Um. We also know of a few other 342 00:19:02,160 --> 00:19:07,200 Speaker 1: hedge funds and one particularly large US investment bank UM 343 00:19:07,520 --> 00:19:11,040 Speaker 1: that shall remain unnamed. I guess that that, yeah, that 344 00:19:11,160 --> 00:19:13,320 Speaker 1: also got in on the trade. But they were doing 345 00:19:13,359 --> 00:19:15,120 Speaker 1: it not for them, not for themselves or their own 346 00:19:15,119 --> 00:19:17,760 Speaker 1: personal money, but for for the either the prop desk 347 00:19:17,880 --> 00:19:20,320 Speaker 1: or for the hedge funds. So looking ahead to today, 348 00:19:20,640 --> 00:19:24,040 Speaker 1: are they're always these types of stories in the market, 349 00:19:24,200 --> 00:19:29,840 Speaker 1: people finding assets with extreme dislocations or is this really 350 00:19:29,880 --> 00:19:33,240 Speaker 1: the type of thing that when there's a huge crisis 351 00:19:33,440 --> 00:19:36,480 Speaker 1: or a huge bubble, Yes, you find them, but most 352 00:19:36,520 --> 00:19:40,679 Speaker 1: of the time people can't really be expected to find 353 00:19:40,760 --> 00:19:45,879 Speaker 1: these extraordinary dislocations. I think you could probably argue that 354 00:19:45,960 --> 00:19:49,720 Speaker 1: both ways. Actually, I mean, Richard Paddles said something very 355 00:19:49,760 --> 00:19:54,639 Speaker 1: interesting that he reckons that every ten years this or 356 00:19:54,920 --> 00:19:58,399 Speaker 1: approximately every ten years, there's some big market event that happens, 357 00:19:58,400 --> 00:20:01,600 Speaker 1: whether it be the dot com the do calm bubble bursting, 358 00:20:01,760 --> 00:20:04,359 Speaker 1: whether it be the Asian financial crisis, whether the e 359 00:20:04,520 --> 00:20:08,399 Speaker 1: M debt in Russia for example, And this time around 360 00:20:08,440 --> 00:20:10,639 Speaker 1: he said, well this in so in the two thousand 361 00:20:10,800 --> 00:20:12,680 Speaker 1: two thousand and nine, it was in the A B 362 00:20:12,840 --> 00:20:15,240 Speaker 1: S market, aspect securities market, and since he was trading 363 00:20:15,280 --> 00:20:19,359 Speaker 1: that market, he was in the perfect position to profit 364 00:20:19,400 --> 00:20:24,480 Speaker 1: from it. Now, following his logic, then you know, in 365 00:20:24,480 --> 00:20:27,160 Speaker 1: a few years time, we should see something else, something similar, 366 00:20:27,359 --> 00:20:29,760 Speaker 1: and perhaps some people might say, oh, that's bank bonds, 367 00:20:30,080 --> 00:20:33,320 Speaker 1: or maybe that's high yield, or some people might even 368 00:20:33,359 --> 00:20:37,000 Speaker 1: say that's et F s um. So I'm sure that 369 00:20:37,080 --> 00:20:40,280 Speaker 1: there are going to be more of these type of scenarios. 370 00:20:40,280 --> 00:20:41,720 Speaker 1: I guess you just need to be in the right 371 00:20:41,720 --> 00:20:45,919 Speaker 1: place at the right time. I really know that market well, Alistair, 372 00:20:46,000 --> 00:20:49,320 Speaker 1: thank you very much for joining us. I'm looking forward 373 00:20:49,320 --> 00:20:52,640 Speaker 1: to in a few years you reporting on who made 374 00:20:52,680 --> 00:20:57,320 Speaker 1: the big money in and sixteen. I'm sure you'll find 375 00:20:57,320 --> 00:21:00,640 Speaker 1: them and I really appreciate you coming on the other podcast. 376 00:21:01,080 --> 00:21:03,600 Speaker 1: Thank you very much. Thank you, and thank you very 377 00:21:03,720 --> 00:21:06,400 Speaker 1: much for joining us on the Odd Lodge podcast. I'm 378 00:21:06,480 --> 00:21:09,000 Speaker 1: Joe Wisenthal. You can follow me on Twitter at the 379 00:21:09,000 --> 00:21:12,199 Speaker 1: Stalwart and you should follow Alistair too because he'll be 380 00:21:12,240 --> 00:21:15,199 Speaker 1: turning up the next great uh, the next grade scoop. 381 00:21:15,520 --> 00:21:19,440 Speaker 1: He's on Twitter at at Alistair j Marsh and we'll 382 00:21:19,440 --> 00:21:29,840 Speaker 1: be back here next week. 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