A $50 million margin call? I'll short Wall Street.

Tuesday, April 2008, 7.

Wall Street is waking up differently than it did yesterday.

Yesterday morning, the same link and the same sentiment were rapidly spreading in the Bloomberg Terminal's IB groups:

"Did you read the letter from the distant star?"

"What is he going to do now?"

"Bearsden died right after he spoke last time."

This morning, the content circulating in the IB group split up.

7:15 PM. A widely circulated message came from the chief investment officer of a large mutual fund, who had apparently spent the entire night meticulously dissecting Yuanxing's open letter:

Regarding the letter from Yuanxing, here are a few technical points.

First, he said that "commercial real estate valuations are overestimated by 300-400 billion," but he didn't provide any valuation model or comparable transaction data. Where did this figure come from? Was it just guessed?

Second, he said "some institutions' Level 3 equity exceeds shareholder equity"—this is public information, anyone can see it by looking up the 10-Q. He is simply repeating known facts and then packaging them as a prediction.

Third, and most importantly—he himself held a large short position in the financial sector. This letter was essentially serving his position.

7:22 AM. Another message, from an influential independent analyst in the hedge fund circle:

Yesterday, after reading Yuanxing's letter, I reviewed the timeline of the Bear Stearns incident. There's a detail that might have been overlooked—Walker established its Bear Stearns options position three weeks before the crash, when Bear Stearns' stock price was still above $60.

He wasn't "predicting" the crash; he was "waiting" for it to happen. The difference is that prediction requires an informational advantage, while waiting only requires patience and a deep enough pocket.

His open letter likely follows the same logic—not because he knows something we don't, but because he's already placed his bets and now needs the market to move in the direction he's betting.

7:35. A more pointed comment:

To put it politically incorrectly, if this letter had been sent not by a "legend" who had just made $7 million at Bear Stearns, but by an ordinary, unassuming fund manager, how many people on Wall Street would have taken it seriously?

Of all the risks mentioned in the letter, which one is new information? Which one isn't just old news that's been discussed repeatedly over the past six months? The only "new" element is the name in the signature section. Are we analyzing fundamentals, or are we just chasing celebrities?

These voices had already begun to emerge sporadically yesterday afternoon. But after a night of fermentation, the fund managers returned home, reopened the letter in their studies, read it sentence by sentence, checked each number one by one, and dissected it line by line.

The rebuttals have become more systematic, more reasoned, and more confident.

Yesterday's market was terrified by the gunfire.

Today, some people started getting up from the ground, dusting themselves off, and saying, "Wait—did the bullet really hit someone?"

8:45 a.m.

CNBC's morning show.

Today's lineup is even more impressive than yesterday's—the producer is clearly aware of the buzz surrounding the Farstar open letter and has arranged the entire morning's agenda around it.

Unlike yesterday, today's guests were not one-sidedly analyzing "what Yuanxing said," but were deliberately arranged to be two opposing sides.

Seated in the chair to the left is an independent credit analyst who has been calling for action on subprime mortgages for the past three years and belongs to the minority on Wall Street. He supports the core judgments in the Farstar open letter.

The chair to the right is occupied by the CIO of a large pension fund, managing hundreds of billions of dollars.

He sent an internal email to his investment committee last night, which was leaked to the media—the core point of which was that "Yuanxing's open letter is a textbook example of market manipulation."

The host was clearly excited.

He knew what kind of sparks would fly when the two of them were put together.

The debate began with the oil section.

The CIO of a pension fund fired the first shot: "Walker says oil prices are detached from fundamentals. Okay. Then let me ask you, when he started his long position in oil in April, what was the price? $105. Why didn't he say oil prices were detached from fundamentals then? He was aggressively going long then, and it's said he even had Goldman Sachs' channels help him buy several hundred million dollars worth of call options."

"Now that he's made his money and cleared out his positions, he's turning around and telling the world, 'Oil prices are too high, everyone run!' This isn't a warning; it's creating an environment for him to unload his holdings. If anyone in the funds I manage does this, I'll send them to the compliance department for investigation."

The credit analyst countered, "What you're saying might be true. Walker may indeed be acting in his own interest. But that doesn't negate the accuracy of his analysis. You can't automatically dismiss someone's analysis just because they have a conflict of interest. Otherwise, every sell-side research report on Wall Street should be in the trash—because every investment bank is just marketing its own inventory."

"What I'm saying is, setting aside Walker's motives, just look at the arguments in his letter—the valuation bubble in commercial real estate, the lack of transparency in Level 3 assets, and the over-reliance on overnight repurchase agreements—these are real structural risks supported by a wealth of data. You may dislike the person delivering the information, but you cannot deny the information itself."

The CIO of a pension fund scoffed: "I manage $60 billion in retirement assets. I don't need a 26-year-old hedge fund manager to educate me on these risks. My team of analysts assesses these factors daily. Our conclusion is—the risks exist, but they are fully priced in. The market has already reflected these factors in the current stock price."

"and,"

He emphasized his words.

"Let me remind you all of a fact. When Bear Stearns collapsed in March, the Federal Reserve and JPMorgan Chase completed the bailout within 48 hours."

The government will not allow systemic risk to turn into systemic catastrophe. Walker's letter completely ignores this point—he pretends the Federal Reserve and the Treasury do not exist.

The host interjected, "So you think yesterday's market decline was an overreaction?"

"A complete overreaction."

The CIO of the pension fund said this with absolute certainty.

"You'll see funds flowing back in after the market opens today. Smart money won't be scared away by a four-page letter."

9:30 AM. Market opens.

The pension fund CIO was right. At least for the first fifteen minutes after the market opened.

The S&P 500 opened two points higher than yesterday's closing price.

It's not a major rebound, but the direction is upward.

Crude oil showed an even clearer picture. WTI opened more than a dollar higher than yesterday's closing price.

Someone is buying at the bottom.

They're not retail investors; retail investors wouldn't go to buy crude oil futures at 9:30 a.m. on the second Tuesday of July.

It is an organization.

Those funds that sold off their shares yesterday due to the first wave of panic have, after a night of calm evaluation, decided that "what was mentioned in the letter does not constitute new negative news" and have bought back their positions.

The rebound in financial stocks was particularly noteworthy.

Lehman Brothers rose by four percent.

Not because of any good news. Just because it dropped too much yesterday.

Technically, oversold signals have emerged. Some short sellers are covering their positions, while some bargain hunters are testing the waters.

Merrill Lynch rose 2%. Citigroup rose 1.5%. Goldman Sachs rose 1%.

The XLF Financial ETF opened 2.3 percent higher.

CNBC's scrolling text updated the headline at 10:00 AM sharp:

[Market Watch] Financial stocks rebounded across the board in early trading; analysts say the impact of Yuanxing's open letter has been "basically digested."

270 Park Avenue. Farstar Capital.

Lin Tao looked at the slightly greenish numbers on the big screen and felt very uncomfortable.

It wasn't because of losing money, it was the atmosphere.

That atmosphere of "it was a false alarm" is solidifying in a very specific way.

He could see it in Bloomberg IB group messages, hear it in CNBC commentary, and even sense it in Matt's indifferent "everything's normal" expression when he occasionally looked up.

Although Matt always has this expression.

He wanted to say something, but strangely, he felt that everyone on the distant star seemed very calm, which sometimes made him feel out of place, so he swallowed his words.

He glanced in the direction of the main office. The door remained closed.

Lu Ze is still not over it today.

No instructions have been issued yet.

10:45 a.m.

The rebound began to gain its own narrative momentum.

When a market rebounds after a period of panic, the rebound itself creates its own "explanation," just as water flows to find low-lying areas, the human brain automatically seeks narratives that can explain price movements.

It fell yesterday. It rose today.

So...it was a false alarm.

The narrative is extremely concise, extremely compelling, and supported by data.

Look, the S&P 500 is back, Lehman Brothers has rebounded by 4%, and crude oil has also recovered.

More importantly, this narrative has a strong psychological basis—people want to believe it.

The more panicked we were yesterday, the more we long for "everything to be alright" today.