From legendary short seller to god of American capital

Chapter 393: The whole strategy behind the 2600-point bottom-fishing long position is revealed.

Prices continued to fall, but each time they hit 57 cents, there were always a few scattered buy orders supporting the price.

Even more surprisingly, a massive short order of 350 lots was placed at one point during the trading session, driving the price down through all existing buy orders above 54.5 cents.

But before other short sellers could follow suit or panicked long positions could be liquidated, a dozen brokers had already driven the market back above 58 cents.

Gradually, the hesitant floor traders who held long positions realized that the people who had been driving up the market yesterday were back!

They're propping up prices!

Although some people closed their long positions due to the short sellers' pronouncements, many others still stared expectantly at these unfamiliar traders, hoping they would drive the price up again.

Gradually, short-selling brokers and their traders also noticed the anomaly in the market. The seemingly frenzied flood of short orders, instead of breaking through the resistance, resembled waves crashing against a dam, sending ripples flying but failing to shake the bulls' last line of defense.

The 55-cent mark was breached several times, but it was never truly captured.

By noon, September wheat prices closed at 58 and three-quarters cents, with both bulls and bears exhausted and calling it a day.

Old Stone, who had been standing there witnessing this battle between bulls and bears, was extremely surprised—he secretly calculated the number of lots they bought in each transaction, and the result was more than 1400 lots!

In just half a morning, Larry's anonymous accounts took on more than 1400 long orders in one go!

Keep in mind that the margin for each lot is $2900 at this moment. Even with five times leverage, the margin for each lot is still $580. Just these 1400 long positions require a margin of $82! But that's not the worst part. What's truly deadly is that the rapidly expanding positions exponentially increase the risk.

For every cent the price drops, Larry incurs a loss of $70,000. How much money does Larry actually have to cover these losses?

If the price falls further this afternoon, Larry's account could be wiped out—he'll be called in to deposit margin, and if no additional margin is available, his account will be forcibly liquidated.

The key issue is that the entire market is bearish right now, and prices will continue to fall this afternoon. Both short sellers and long positions closing out will impact the market, and Larry can't possibly absorb all the short positions by himself.

This is a war waged by one man against all others—a war he is destined to lose!

That should be the case in theory.

Old Stone's face was filled with surprise and uncertainty. He looked up at Larry on the second floor, only to see him smoking a cigar in front of the second-floor railing!

No, what's going on?

When he was making money yesterday, he looked very serious, as if someone in his family had died and he was frowning!

Today he established an unprecedented 1400-lot long position, and while the market was still plummeting, he was actually smoking a cigar.

Still laughing?!

Old Stone could hardly believe his eyes!

Larry on the second floor noticed him, then raised his cigar and smiled at Old Stone.

Five minutes later, a staff member from the second floor came down with a box of cigars and respectfully handed it to old Stone, who was standing there dumbfounded.

"Mr. Livingston said that if you'd like to share a cigar with him, you can just tell him—"

The staff relayed Larry's original words.

Old Stone was completely dumbfounded.

Is that what I fucking meant? Watching you smoke a cigar and wanting one for myself?!

I'm worried about your situation!

I really don't understand how you can remain so calm after establishing such a large position. What is it that makes you so confident?

Old Stone took the cigar blankly, looked up at the second floor, and saw that Larry had already left.

Three hours later, Tuesday afternoon's trading ended in an eerie dullness.

As the closing bell rang, the September wheat contract settled at 55 and three-quarters cents. If Matthew had had time to draw today's wheat daily chart, it would have been a striking bearish candlestick with only a small lower shadow and no lower shadow.

This large bearish candlestick not only wiped out Monday's gains but also severely damaged the confidence of the bulls. The market was in a state of utter despair, while the bears celebrated as if victory was already in their grasp.

No one noticed, or rather, no one cared, where the persistent buying that quietly emerged below 55 cents came from in the last half hour before the market closed.

Only old Stone knew that during the two hours of panic selling that afternoon, accounts controlled by Larry Livingston quietly accumulated over 1200 long positions at an outrageously low cost.

If his calculations were correct, adding the 1400 lots Larry swallowed in the morning, his total account holdings exceeded 2600.

This brought his account's total margin to over $150 million!

That's almost everything Larry earned from Stone's account!

Is he going all in?!

The problem is that Larry spent the afternoon trading session just leaning against the railing, smoking cigars.

If he truly didn't care, the fact that he kept smoking cigars, one after another, without them ever disappearing from his fingertips, suggests that he was actually quite anxious inside.

But if you were to say he was truly anxious, he showed no sign of tension or hesitation, simply looking down at the trading pool as if everything was naturally and should happen.

Old Stone couldn't figure out what he was thinking.

Old Stone hadn't traded for two days, but his anxiety and torment now far exceeded his holdings. After the market closed in the afternoon, he recklessly climbed the stairs and went to Larry's side.

"Mr. Livingston—" Old Stone greeted him hesitantly.

"You finished it so quickly? Oh, I still have one left!" Larry pulled a tube cigar from his pocket.

"No—no, I didn't mean to ask you for a cigar!" Old Stone waved his hand, half-laughing and half-crying. "What...what were you thinking?"

Larry smiled, stubbing out the last half of his cigar in the ashtray. "No problem! The short sellers are right to use the strength of the spot market to crush the futures price. But they're too hasty. They've shown all their cards, thinking that will scare everyone away—"

"But the market already believes him—"

"The market believes in fear, not facts," Larry interrupted, raising his eyebrows. "Fear will overdraw prices, causing..."

Prices have overshot. Didn't you notice what happened around 55 cents this afternoon?

"Is the sharp drop being contained?"

"More than that!" Larry shook his head slightly. "When fear is fully priced in, when all the bears have sold, what will be left in the market?"

"—What remains—is it the true supply and demand?"

"No!" Larry actually laughed, and he laughed very happily.

"What remains is the rules themselves. What I'm buying now isn't wheat, it's time. It's the fatal difference between the time it takes for the short sellers to complete the warehouse receipt registration for the wheat they've piled up at the port and the expiration date of the futures contract."

Old Stone looked serious, thought for a moment, and then asked in surprise, "You mean—you can prevent wheat from entering the delivery warehouse at the port?"

Larry didn't answer, but instead smiled, took two steps forward, patted old Stone's elbow, and continued, "You'd better be on time these next couple of days! I have something important to ask of you."

Old Stone nodded blankly, wanting to say something, but Larry had already left.

That evening, in Cargill's office.

Matthew frowned slightly as he looked at the half-smoked cigar in Larry's hand.

"Mr. Dunbar instructed me to persuade you to smoke less of this—" Matthew said hesitantly, "and I also want to formally warn you that if you really keep a cigar in your hand all day, it will greatly damage your health—"

"Mr. Morgan is the same way!"

Larry smiled, but his expression was dismissive.

Matthew frowned, thought for a few seconds, and then said, "You're still young, and I'm already a heavy smoker and drinker—do you still want to celebrate your 60th birthday?"

Larry's face turned serious. He counted on his fingers for a moment, then his expression turned to horror. "Damn, it's only 1937—the most crucial time—God! You're right—I must cherish my healthy time."

He then stubbed out the cigar forcefully in the ashtray.

Matthew's brow relaxed, he glanced at McMillan sitting on the sofa next to him, and began to report on his work.

"As you instructed, the workers have all gone out. They will help us carry the grain—"

McMillan glanced at Matthew, a slight look of surprise on his face.

"Mr. Debs has fully understood what you mean; it will make the workers do a very 'good' job!"

Matthew couldn't hide his smile. "They'll be transporting the top-quality wheat from Cargill's warehouses that meets delivery standards to the delivery warehouses in batches! This isn't just for show; they're genuinely going through the registration process!"

"Hmm!" Larry nodded calmly.

"The best part is," Matthew's smile widened, though he tried to suppress the curve of his lips, as he continued, "the workers lined up at the exchange at 9 a.m. to apply for quality inspection and weighing, they were the first batch today. The two quality inspectors sent by the exchange, upon hearing that there were over 700 million bushels of wheat ready for registration and inspection—were almost scared out of their wits!"

At this point, Matthew glanced at McMillan. "I've finished my report here. What about yours?"

"Oh, Mr. Livingston,"

McMillan, still reeling from the shock, was quickly reminded by Matthew and hurriedly told Larry, "The exchange just confirmed it! The warehouse receipts for the 700 million bushels of wheat we applied to register this morning have all been approved, and the receipt numbers have been issued. They are official, deliverable warehouse receipts!"

As he spoke, he handed the documents to Larry and continued, "These aren't the pre-registration or pre-filing orders that short sellers use; they're genuine, standard warehouse receipts with exchange codes, ready for immediate delivery. It's just that our workers have to deliver them to the exchange's delivery warehouse—"

As soon as he said it, McMillan froze. He looked sharply at Matthew, who was also looking at him.

In a flash, the fragmented information in their minds suddenly pieced together completely.

Why did Larry insist that Cargill buy so much high-quality wheat ahead of schedule?

Why did Larry book striking workers so early, lock them in with double wages for the last week of "wheat transport," and even pay a $2000 deposit?

Why did Larry insist that workers transport the grain to designated delivery warehouses instead of having it inspected locally at Cargill's warehouses and converted into warehouse receipts?

Why did he insist on continuing to slowly but steadily purchase grain when prices plummeted and the market was in panic?

Now everything has an answer!

This is not a temporary response, but a multi-pronged strangulation strategy laid out many days in advance, encompassing everything from spot reserves to exchange regulations and delivery procedures!

Larry's goal wasn't to engage in a financial battle with the short sellers in the futures market, but to strangle his opponent in the final battleground of physical delivery!

No matter how large the fleet of short sellers on Wall Street is, or how much wheat they bring in—if it cannot be converted into standard warehouse receipts recognized by the exchange within the time frame stipulated by the exchange, it is just a pile of goods on the dock, not a weapon that can be used to fulfill contracts.

Larry had already secured all the deliverable high-grade wheat along the railway line, which was a very prudent and astute consideration.

He had even pre-booked "workers to transport the grain" in order to deal with the possibility that the opponent would submit the delivery. Before that, the two of them had their own perspectives and did not communicate with each other. Today, when they were talking about their respective work progress in front of Larry, they suddenly realized that the seemingly urgent situation today was actually a result of Larry's preparations many days ago!

No wonder he can leisurely smoke a cigar!

"You—you planned this all along, didn't you?" McMillan's lips trembled slightly, his face filled with awe. "From the moment you had me buy wheat under the 'Agricultural Revitalization Plan,' no—even earlier, back when we were buying No. 1 and No. 2 wheat—you were preparing for this moment. You even anticipated that the short sellers would launch a counterattack with physical goods?"

Matthew's face showed a look of sudden realization. "—On September 14th, you went to put down a deposit for Debus and booked workers to transport grain. You even said that even if the workers returned to work, it wouldn't delay your grain transport." Back then, you foresaw today.

Oh, no! God—I remember now, when we first arrived in Chicago, you were asking around the warehouses about whether there would be many rainy days this summer, and you personally checked the moisture content of the wheat with the warehouse workers. Didn't you already foresee that although this year's wheat harvest was bountiful, the amount of high-quality wheat meeting the No. 1 and No. 2 standards would actually be much less than expected?!

It's working! Now everything's connected!

Larry's seemingly meaningless and random actions after coming to Chicago have finally been explained today!

His audacity in setting a short squeeze during the wheat harvest was not out of mere luck or a spur-of-the-moment gamble.

Instead, they were setting up the scheme from the very beginning with thorough research and a steady, step-by-step approach!

This guy has been playing chess ever since he set foot on Chicago soil!

Larry glanced at their intense gazes, his tone as calm as if discussing the weather, "Regardless of who the opponent is, he's very clever; he understands the principle of using physical goods to pressure futures. But he forgot that in Chicago, from having physical goods to being able to take delivery, there's a whole set of rules, procedures, and manpower involved. And all of these things—"

His gaze swept over Matthew and McMillan's shocked faces as he continued, "—It can be reserved in advance!"

Matthew and Larry nodded and waited for Larry's explanation.

"We used our own real grain to reserve the registration slot in advance. The exchange only has a limited number of quality inspectors, and they can only verify a limited number of items per day—we reserved ours first, and the short sellers have to wait."

In terms of rules, we are fully compliant, and even actively fulfilling our obligations. Time is on our side. Every extra hour of delay means the grain on those ships loses value by one cent on the scale of the futures contract.

This time, Larry's eyes shone, and that confident smile reappeared on his face.

Matthew and McMillan held their breath.

At dawn, they saw the "invincible fleet" of short sellers turning around at the dock, and they also saw the unbridled short sellers in the market during the day.

But now it seems that the other party has simply stumbled into a giant, invisible net that has already been woven, consisting of rules, procedures, and advance planning.

The person who weaves the net sits right in front of them, calmly controlling everything.

It turns out that the plunge in futures prices was not a crisis, but a trap!

The chaos in spot delivery was not an accident, but a strategy!

All their seemingly trivial and incomprehensible actions were pieces already placed in this decisive game of chess.

A feeling of shock, excitement, and trembling swept over the two of them! Their eyes, when they looked at Larry, were no longer filled with doubt, but with utter admiration.

Larry withdrew his gaze, his tone returning to its calm yet undeniable tone, "According to the Chicago Mercantile Exchange's three-day settlement rule, tomorrow is the last day for warehouse receipt registration—tell Cargill warehouses everywhere that they can stop purchasing!"

After a pause, Larry suddenly smiled and said, "But we still need to let our workers work hard; they are our key to victory—in crucial moments, the workers are the ones we can rely on! They are full of strength."

"Will the short squeeze start tomorrow? But do the traders in the market understand this logic?" Matthew asked.

"Whoever wins, they'll side with them!" Larry chuckled, leaning back on the sofa with a cold smile. "But you're right—I'll use every channel to explain the 'warehouse receipt crisis' to them."

It doesn't matter if they don't know, because once prices rise, they'll find reasons for the rise themselves.

Matthew nodded. As Larry's closest aide, he knew that Larry was currently managing funds that included money from the governor and Senator Kennedy.

They will spare no expense in leveraging their media connections and helping to generate buzz in the market, provided Larry makes the request.

Macmillan suddenly warned, "But you must also be careful. Since they can turn back grain ships that have already been sold to Europeans, they may have other tricks—or deeper schemes—"

Larry nodded his thanks for the kind reminder, then smiled and said, "Remember that boxing example? If they obediently give up, they'll only get hit once—but if they dare to parry my attacks—then they'll suffer my barrage of blows. I'm not without my right hand—"