The Conglomerate Family Became A Villain [EN]: Chapter 255

Spring of 1987.

Japan was a black hole, sucking up all the money in the world. The democratization protests in Budapest, Hungary, the crash of Polish Airlines Flight 5055, and even General Secretary Gorbachev’s proposal to withdraw intermediate-range missiles failed to capture the world’s attention.

The world’s interest was focused solely on the Japanese stock market and real estate.

When would NTT’s [Nippon Telegraph and Telephone, a major Japanese telecom company] market capitalization exceed $200 billion?
Could NTT really break through $300 billion and reach unprecedented heights?
How much of America could you buy if you sold Tokyo?
John Peer, CEO of Victoria Fund, had become a prominent figure in *The Economist* due to his earlier investment in NTT.

“Are you saying you want to partner with Victoria Corporation?”

Laira Marine nodded at Jung Hyun-woo’s question.

“Charlie, shouldn’t we share good things together?”

Her tone was somewhat elevated.

In contrast, Jung Hyun-woo’s voice was low.

“Laira, are you aware that Prime Minister Nakasone’s proposal was rejected?”

Japan’s Prime Minister Nakasone had personally met with President Reagan to request the removal of retaliatory tariffs against Japan.

This was not an unreasonable request.

Japan had agreed to the Plaza Accord [a 1985 agreement to depreciate the U.S. dollar] and raised the value of the yen as requested by the United States.

Of course, the United States had its own grievances. The Japanese government had raised the value of the yen but was suppressing it by lowering interest rates, preventing it from rising beyond a certain limit.

The United States believed that the value of the yen needed to rise further.

On the other hand, Japan believed that if the value of the yen rose any further, Japanese industry would collapse.

“Despite the rejection of Prime Minister Nakasone’s proposal, the Tokyo stock market continues to rise daily. NTT’s market capitalization has now exceeded $180 billion.”

NTT was far ahead of Jung Hyun-woo’s Victoria Corporation.

Moreover,

Investors who thought NTT was too expensive were focusing on buying up Japanese companies below it, and these companies were experiencing explosive growth, with stock prices rising by more than 10% each month.

Wall Street investors warned that the Tokyo stock market was crazy, but the Tokyo stock market continued to hit new highs every day.

“Then shouldn’t we invest more in Japan?”

Laira Marine replied to Jung Hyun-woo’s question.

“We want to invest in Japan more effectively.”

“Invest more effectively?”

“Wouldn’t we see more profit if the two companies pooled their investment funds?”

Jung Hyun-woo could see what she had in mind.

“You’re saying we should maximize profits through joint investment.”

Laira Marine put her hands together and said,

“Charlie, we have been long-time partners of Victoria Corporation. We will never disappoint Victoria Corporation.”

Jung Hyun-woo sighed briefly.

“Hoo…”

Laira Marine raised her shoulders and asked,

“What’s with the sigh?”

“I’m contemplating it.”

“Isn’t it better to invest together than to contemplate?”

Jung Hyun-woo raised his voice slightly and replied,

“Victoria Fund’s investments are high risk, high return. Looking at the investment tendencies, it’s no different from a hedge fund. I don’t think it’s right for a big bank like Bank of America to make the same investments as us.”

He meant that he wanted to refuse because the investment was too risky.

Of course, Laira Marine was not one to back down with such an excuse.

“We also know that Victoria Fund’s investment tendencies are risky. That’s why we’re thinking of limiting the investment amount.”

The one who first mentioned limiting the investment amount was not her but Bank of America CEO Paulo Giannini.

Jung Hyun-woo once again rejected her proposal.

“Laira, small amounts are unlikely to have a big impact.”

Laira Marine raised her voice at the end of her sentence.

“It’s not that small.”

“How much specifically?”

“We have prepared $2 billion.”

The amount that Jung Hyun-woo’s Victoria Fund initially invested in Japan was $3 billion, so $2 billion was not a small amount. However, compared to Victoria Fund’s current capital, it was not a significant amount.

“Two billion dollars.”

“I think it’s sufficient, if not enough. Charlie, we are partners of Victoria Corporation.”

Jung Hyun-woo crossed his arms at her words.

“Hmm…”

Laira Marine was frustrated that Jung Hyun-woo wouldn’t readily agree to join forces.

‘Could the short selling incident have created a barrier?’

The short selling incident in which Carney Paul attacked Victoria Corporation with Damon Furman was a weakness for Bank of America.

‘But after I expelled Carney Paul, we became even closer.’

Jung Hyun-woo, who had been contemplating, opened his mouth.

“I will reject Laira’s proposal.”

Laira Marine’s eyebrows shot up.

“Charlie!”

Jung Hyun-woo raised his right hand with the palm facing out.

“Of course, I’m not *just* rejecting it.”

Laira Marine’s eyebrows lowered halfway.

“If you’re not just rejecting it, then what?”

Jung Hyun-woo lowered his right hand and replied,

“I’ll tell you a little about what we think about the Japanese economy.”

“What Charlie thinks about the Japanese economy?”

“Not just me, but what the executives of Victoria Fund think about the Japanese economy.”

Laira Marine nodded.

“Hmm, the executives of Victoria Fund. I’d like to hear it.”

She thought that perhaps the answer she wanted might be in what he was about to say.

‘Over the past few months, Victoria Fund’s executives have achieved returns that no hedge fund has ever achieved. Their analysis of the Japanese economy might be meaningful.’

The secret to Victoria Fund’s returns and how they were achieved might be contained in Jung Hyun-woo’s story.

Jung Hyun-woo began to speak in a calm voice.

“We strongly believe that the current Japanese economy in 1987 is a bubble.”

The story that the Japanese economy was a bubble and that investment should be approached with caution was not just one person’s opinion.

Many investment institutions on Wall Street were already warning about it.

Laira Marine had heard such stories ad nauseam.

“Ha… Charlie, isn’t that too ordinary?”

She thought he was trying to brush her off with something that sounded like it was straight out of a textbook.

Clack.

Jung Hyun-woo placed both hands on the desk.

“Laira, many people talk about the bubble in the Japanese economy. But has anyone accurately predicted when that bubble will burst? They just say that the Japanese bubble is dangerous and could burst soon, so don’t invest. Isn’t that all they say?”

As he said,

Wall Street only issued investment warnings and avoided making accurate predictions.

“So, is Victoria Fund predicting when the bubble in the Japanese economy will burst?”

Instead of answering yes, Jung Hyun-woo talked about the timing.

“The bubble will not burst this year.”

Laira agreed with his answer.

‘If the bubble were to burst this year, I would never have considered investing.’

She asked Jung Hyun-woo,

“What about next year?”

What would happen to the Japanese economy in 1988?

She thought that many things depended on this answer.

‘If the Japanese bubble bursts next year, it would be dangerous to expand investment any further.’

Jung Hyun-woo paused for a moment before answering.

“The bubble in the Japanese economy will not burst next year either. We calculated the probability of the Japanese economic bubble bursting next year to be around 20%.”

As time moved into 1988, a probability finally appeared.

Only after hearing his answer did Laira Marine begin to think that Victoria Fund was not a company that invested based on gut feeling.

‘20%, not a negligible probability, but… the opposite probability is 80%, so it can’t be said to be a high-risk investment.’

It seemed that investing in Japan would be okay until next year.

“20% isn’t a very high probability. Can I ask about 1989?”

If she could get an answer for 1989, she could get an answer for the next three years.

“The risk increases in 1989.”

“How much does it increase?”

“I think it’s 50/50.”

Fifty-fifty.

A hedge fund might invest, but a general investor would probably not invest.

“That’s high.”

Jung Hyun-woo nodded and said,

“We had many debates about 1989.”

He said they had debates, but no one had ever debated with Jung Hyun-woo about Japanese stock prices in 1989.

All the probabilities and predictions he was talking about came from his head.

“If you ask me if the bubble will burst in 1989, I would answer like this. The possibility of the bubble bursting is high, but it won’t burst yet.”

Laira Marine received his words in a somewhat softened voice.

“Charlie seems to have cast his vote on the side that things will be okay out of these two 50/50 probabilities.”

“Does it seem that way to you?”

“Yes.”

Jung Hyun-woo nodded and accepted her words.

“That’s right. I thought 1989 would be okay too.”

Laira Marine quickly asked,

“Then what about 1990?”

Jung Hyun-woo took a step back without answering her sharp question.

“Laira, at this rate, you’ll be asking about 2000.”

Laira Marine said with a refreshing smile,

“Okay. Then I’ll only ask about 1990.”

The reason she considered 1990 important was that 1990 was likely to be the investment deadline.

Jung Hyun-woo lowered his voice.

“Laira probably has some idea.”

Laira Marine could roughly guess why his voice had lowered.

“The bubble in the Japanese economy bursts in 1990.”

Jung Hyun-woo bit his lower lip slightly after hearing her words.

“I can’t say that for sure.”

“What is the probability of the bubble bursting? 70%? 80%? Surely not 90%?”

Jung Hyun-woo replied in a dry voice,

“Victoria Fund predicted it to be 60%.”

The possibility of the bubble bursting in 1989 was 50%, so Laira Marine expected the possibility of the bubble bursting the following year to be around 70%. However, the possibility of the bubble bursting that Jung Hyun-woo revealed was lower than she had expected.

“Hmm, 60% is ambiguous.”

“That’s why I said I couldn’t say for sure, didn’t I?”

Laira Marine decided to synthesize Jung Hyun-woo’s answers.

“Charlie and Victoria Fund seem to be predicting this. There is a high possibility that the Japanese bubble will burst within the next three years. But I can’t say for sure that it will burst. However, it will be very dangerous in 1991.”

Jung Hyun-woo didn’t talk about 1991, but she was talking about 1991 based on the probability of 1990.

He did not deny her opinion.

“Our conclusion is roughly similar to Laira’s conclusion.”

Laira Marine was sorry that she couldn’t embark on a joint investment with Victoria Fund, but she thought she had achieved considerable results from today’s meeting.

‘Victoria Fund’s investment plan will be based on Charlie’s story today.’

She wanted to conclude the meeting at this point.

“It’s a pity that I can’t invest with Charlie… I shouldn’t ask for more than this.”

Jung Hyun-woo said with a relieved expression.

“Laira, the responsibility for investment always lies with the investor.”

The one sentence he mentioned was an investment warning that was most widely used in the securities industry.

Laira Marine smiled and stood up from her seat.

“Of course.”

She had no intention of following his words exactly.

‘I should at least do some cross-validation.’

Laira Marine wanted to verify his story through a task force composed of Bank of America’s research institute as well as academia and experts.

* * *

John Peer said that Jung Hyun-woo’s decision was dangerous, but the Tokyo stock market and Japanese real estate continued to rise. He even complained to his friend and colleague, Jeremy Spin.

“Everyone’s crazy.”

The place where he and Jeremy Spin were sharing drinks was a small bar in Manhattan.

“Aren’t we making money thanks to that?”

Victoria Fund’s returns for April and May were tremendous. This was to an extent that not only Jung Hyun-woo but also Yuu Tanaka had not predicted.

Clack.

John Peer emptied his glass and replied,

“We’re not a hedge fund.”

It wasn’t just about making money unconditionally.

Jeremy Spin said soothingly,

“John, you may be exaggerating the Japanese bubble.”

“I’m exaggerating the bubble?”

“Look at Japanese products: automobiles, home appliances, textiles, materials, even semiconductors. There isn’t one that isn’t the best.”

John Peer narrowed his brow and asked,

“So, are you saying that the Japanese economy is overvalued, but not quite a bubble?”

“Looking at the current situation, I have no choice but to say that.”

John Peer shook his head at his answer.

“Absolutely not. No matter how highly you rate it, NTT’s market capitalization cannot approach $200 billion. NTT *is* the bubble itself.”

The Tokyo stock market continued to rise in April and May, even threatening the New York stock market.

End of May 1987.

The number of Japanese companies among the top 20 companies in the world in terms of market capitalization reached 12.

This meant that Japan’s influence exceeded the majority when looking at the top 20 companies alone.

“It’s not good for your health, so don’t stress out.”

Jeremy Spin said that good things are good, but John Peer didn’t think so.

“Jeremy, there could be a Great Depression.”

“A Great Depression?”

“It’ll start in Tokyo and sweep across the world.”

Jeremy Spin swirled his glass and said,

“John, if you’re like this, my position will be difficult.”

John Peer frowned and asked,

“Why will your position be difficult?”

“Because I have no choice but to tell the owner that the CEO is having strange thoughts.”

John Peer chuckled at his answer.

“Charlie already knows.”

Jeremy Spin’s eyes widened as if he was surprised.

“Charlie knows about your condition?”

“I’ve already had several arguments with him.”

“I see.”

Jeremy Spin could only admire Jung Hyun-woo for reappointing him as CEO even knowing about John Peer’s condition.

‘Maybe Charlie thinks the same way as John.’

He thought that Victoria Fund’s withdrawal from Japan was not far off.

Click.

As the door opened, a tall man entered.

“He’s here.”

As Jeremy Spin raised his hand, the middle-aged man smiled.

“Jeremy, John, you’re all here.”

The man in the dark green suit was Peter Lynch of Magellan Fund.

“Peter, come and say something.”

John Peer thought that Peter Lynch’s opinion was the same as his.

“What kind of story?”

“That the current world economy is wrong.”

Peter Lynch ordered a drink from the bartender and sat down.

“The current world economy is wrong. I don’t know what you mean.”

John Peer said, raising his glass.

“The Japanese economy. Japan.”

Peter Lynch received his words in a soft voice.

“Another story about Japan. I hear nothing but stories about Japan everywhere I go these days, so I’m not feeling very good.”

Jeremy Spin asked him,

“Peter, why do you say you’re not feeling good?”

“I haven’t invested much in Japan.”

Jeremy Spin raised his voice at the end of his sentence with a suspicious look.

“Didn’t you invest in Japan with Charlie from the beginning?”

“I started early, but wouldn’t you say the scale isn’t big?”

John Peer was listening to the two of them and asked,

“How much did you put in that you’re calling it small?”

Peter Lynch replied briefly to his question,

“$500 million.”

In the past, he would have said that he had put in quite a lot of money, but as of 1987, a $500 million investment in the Tokyo stock market was not a large amount.

“Hmm, that’s really small.”

Peter Lynch said in a dejected voice,

“See? I told you it was really small.”

John Peer ordered more drinks and raised his voice.

“So, you talk too. Say that the current Japanese economy is wrong.”

Instead of accepting his words, Peter Lynch turned his head to Jeremy Spin.

“Jeremy, how much has John had to drink?”

At his question, Jeremy Spin shook his right hand.

“John’s not drunk.”

“Not drunk?”

“John’s serious.”

The CEO of the fund that invested the most money in Japan in the United States was talking about the Japanese bubble.

“Then he must be using irony.”

It was when Peter Lynch received his drink.

Jeremy Spin sighed deeply and said,

“Hoo… He’s serious.”

“John’s serious?”

“John is really arguing that the Japanese economy is a bubble and will collapse soon.”

Peter Lynch turned his head to John Peer.

“John, how did you invest tens of billions of dollars in Japan while believing that?”

John Peer frowned deeply and replied,

“Because Charlie wants it.”

Peter Lynch smiled gently and said,

“Hehehe, Charlie is the culprit who made John like this.”

John Peer frowned.

“That kid’s crazy.”

“John, don’t disrespect the owner.”

“No, he’s really crazy.”

Peter Lynch raised his voice slightly.

“Isn’t Charlie the best gambler based on Wall Street standards?”

“A gambler? No. He’s just crazy.”

John Peer had no intention of changing his claim.

“This friend is drunk.”

Peter Lynch had no hesitation in evaluating Jung Hyun-woo as the best gambler on Wall Street.

‘That friend has been like that since the first time I saw him.’

He couldn’t forget the day he first met Jung Hyun-woo.

The boy with black hair was raising his voice towards the future in a clear voice.

He thought he would never forget it, perhaps even until he died.