Elijah had not yet reached the receptionist’s desk when Gabi burst into the lobby.
“Elijah!” he yelled out, taking Elijah by the arm and more or less dragging him into the corridor.
Amazed, Elijah noted the elevator that went up a single floor to the partners’ offices and those of their senior employees.
“Why bother going up a single floor?” asked Elijah. “Why don’t we just climb the stairs?”
“How would people know that we are senior executives if we did that?” Gabi smirked.
With his shock of fair hair and smiling face, Gabi radiated an aura of sincerity, like a naive farmer’s son. That and his vaunted sense of humor were enough to captivate widows with large estates to invest. Elijah noted that Gabi’s legendary shock of hair had begun to thin with age, and he took a furtive look at his own hair in the mirror in the elevator. He was not exactly impressed with what he saw, and quickly turned back to Gabi, who was addressing him.
“Elijah, what’s the sudden interest in investments? What do you know about stocks and futures?”
“Sorry,” said Elijah as he realized that Gabi was speaking to him. “Could you repeat what you just said?”
“Well, when you asked me about investing in Luria, I figured you must have finally given up on earning a decent salary at the university. I thought you must have joined the many university lecturers and professors who have seen the light and have left academia. I believe that Luria is staffed by just such people. They were highly intelligent and probably unparalleled in their knowledge of what makes things tick - or alternately, they had exceptionally good inside contacts. In any event, they excelled in their performance on the market.”
Elijah noted the use of the past tense, but decided not to say anything. He would first see where all this was leading.
Still groping, Elijah asked: “Could you explain to me their exact line of work?”
“Luria specialized in futures, and was known for the meteoric rise in the value of its portfolio. In the futures market, both sides agree that one will sell the other a specific commodity at a specified price on a specified date. For example, I might sign an agreement to sell you a hundred kilos of gold at a specific price six months from now. In other words, we agree on the quantity and the price today, but the deal will only be consummated in six months’ time. At that time, I will hand over the gold and you will hand over the price we agreed upon. Capisce?”
“I understand,” said Elijah, “but what purpose does it serve? Why can’t I buy it now or wait six months and buy it then?”
Gabi laughed. “Eli, where do you live? In the stratosphere? Come back down to the real world. Your comment shows me how abysmal your knowledge of finance is.”
“Well, you know my background. Start with the assumption that as far as I’m concerned, everything you have said makes about as much sense to me as if you’d been speaking Akkadian.”
“Where do they speak Akkadian nowadays? In Pakistan?”
“In Pakistan they speak Urdu, an Indo-Iranian language which was originally written in Arabic characters. There’s no place where it’s spoken these days. Akkadian came from Akkad, an empire in northern Iraq. It’s the first written Semitic language, and was originally written in cuneiform. Although that empire was only in ascendancy for about a hundred and fifty years, between 2350 and 2200 B.C.E., Akkadian served as an international language in the Mesopotamia region, and in actuality was still used as late as the 6th century C.E. Eventually, it was replaced by Aramaic.”
Elijah hadn’t planned it that way, but from the way Gabi looked at him, he could see that his answer was a retort to Gabi’s gratuitous denigration of academia. The answer surprised Gabi somewhat, but at the same time caused him to have a certain amount of respect for his learned friend, as if his extensive knowledge of extinct languages made up for his almost total ignorance of economics.
“It’s always good to learn something,” said Gabi. “I get your hint, and I promise to improve. Let me explain to you in simple terms about the futures market and how it operates. Let us assume, strictly for argument’s sake, that I am a company that represents orange growers in Israel. We are interested in growing oranges for sale in the winter, but are afraid of the price dropping by then. Nowadays, there’s a futures market where one can, for example, sell a ton of oranges at $1000 a ton. As it’s possible to have a rough idea of our anticipated crop yield, we would like to sell fifty tons of oranges right now, at today’s price. If torrential rains in Morocco or Spain cause a reduction in their crop yield, the global price of oranges will rise six months from now, in which case we will not have earned as much as we could possibly have earned had we waited until then to sell. If, on the other hand, the other countries have a bumper crop and flood the world market with oranges, the price will drop. In that case, our decision to sell at a fixed price now will be very much to our advantage and will save us much grief. If our company prefers stability and isn’t interested in surprises – either good or bad – we’ll prefer to sell our crop in the futures market. This way, we can plan our production goals without having to worry about unexpected surprises.
“Of course, you can simply insure your crop. As you know, nowadays you can insure anything, from a football player’s feet to a singer’s voice, but insurance is more expensive and can only compensate you for a bad crop without giving you the oranges you might need.”
“I understand, but who’d be willing to buy tons of oranges months in advance?”
“That’s a good question. Suppose, for example, that you have a factory that produces orange juice, and you know that you need a certain quantity of oranges each summer. You need to buy the oranges in the winter in order to manufacture orange juice and orange concentrate. Here, too, you don’t know what the future price will be, and you want to avoid unpleasant surprises. The best way to do this is through the futures market, by purchasing a specified quantity of oranges at $1000 a ton. The advantage to you is that you guarantee delivery of the oranges to you six months from now at a price you already know, even though in actuality you will only pay for and receive the oranges at that time. In a futures transaction, we match up a person who wants to buy in the future at a fixed price to a person who wants to sell in the future at the same fixed price.”
“I still have a few questions,” said Elijah. “First of all, what happens in the event of a crop failing? Or if the buyer goes bankrupt? In such a case, the sides have not guaranteed anything for themselves.”
“Also an excellent question, but in reality such futures transactions are not really made between two parties – the seller and the buyer – but through an agent, who is like a middleman or a broker. It is he who is responsible to both the seller and the buyer. The buyer buys from the broker, and the seller sells to the broker. The broker receives a percentage for his work and is responsible for having the terms of each contract carried out.”
“But how does he ensure it?”
“The fact is that anyone who enters into a futures transaction has to put down security for part of the amount. Let’s take our example. Let’s say the price of oranges right now is $1000 a ton. We can be almost positive that the price per ton will not go up or down by more than $200. In such a case, the broker will require both parties to the agreement to offer a security of $200 per ton. Let’s say that you go bankrupt and cannot buy the oranges. The broker will sell the oranges in the summer at whatever the market price is. The most the price can go down is $200 a ton. If the broker can only sell the oranges for $800 a ton, he’ll use the buyer’s security of $200 a ton to pay the seller, so the seller gets the $1000 he was guaranteed.
“Let’s say someone has $1000 to invest and the price of oranges is $1000 a ton. He’s convinced that the price of oranges will go up within six months to $1200 a ton. He can buy a ton of oranges now and store them for six months. He’ll then gain $200 when he sells them at $1200. Still, there’s an alternative. He can take a risk and with that $1000 he can buy fiv
e tons of oranges on the futures market, for six months from now. In such a case, each $200 of his money serves as security for a ton of the oranges that he guarantees to buy. In six months, if the price goes up to $1200, he can sell the five tons for $6000 and wind up with a $1000 profit – not bad for a $1000 investment!”
“Yes, but what happens if the price drops below $1000?” asked Elijah.
“Then he’ll lose his entire investment,” Gabi replied. Investing in futures offers the prospect of making a sizable profit – but also of losing your entire investment. Life is hard.”
“And can one actually buy oranges in Israel on the futures market?” asked Elijah.
“Funnily enough, to the best of my knowledge one can’t buy oranges on the futures market in Israel. You have to realize that the Israeli market is small with only a few big players. On the other hand, there are many other commodities that can be bought or sold that way. Throughout the world there are markets for platinum, gold, silver, and many other metals. Also many agricultural products, such as wheat, barley, coffee, sugar, flour…there are also markets for shares, various currencies… all based on the same principle.
“If, for example, you’re a US company that sells goods to Thailand and your contract specifies that you will be paid in bahts, which is the national currency of Thailand, in thirty months from now, how can you be sure that the baht doesn’t suddenly depreciate? You can take out insurance, which will guarantee that you receive a certain exchange rate, but an easier way is to enter into a futures transaction for the money you will receive, and sell it now. That way you can protect yourself against any depreciation. Theoretically, you can regard a futures transaction in currency as a way for your company to protect itself from any danger in the future.”
“I understand,” said Elijah, “but who are the buyers and sellers in these deals? Are they the people who need the goods? Or just speculators? Or gamblers?”
“Not necessarily. Most of those involved don’t really want the items themselves. When the time of the actual sale arrives, the buyers and sellers pretty much balance one another out, and only a few percentage points change hands. Most of those in the futures market are businessmen and risk-takers. I don’t think the word ‘speculators’ is appropriate here. We’re dealing with businessmen who see which way the market is moving and act accordingly. The market needs these businesspeople and investors in the futures market. They can be regarded as a certain kind of insurance agent.”
Elijah looked at Gabi but said nothing. To him, they were all speculators and gamblers, and he couldn’t understand why Gabi would want to defend them. Gabi continued to expound on the importance of those investors.
Finally, Elijah asked him, “By the way, do you personally invest in futures?”
“Oh, no! I don’t even have enough funds to invest in many more certain ventures. However, I must admit that if a client asks me, I would invest in futures on his behalf. I suppose that’s the whole point, isn’t it?”
Gabi pushed a button and called out, “Rina, could you bring us something to drink?”
Rina, dressed in tight-fitting jeans that left very little to the imagination, came in and took their order: two cappuccinos and croissants.
“What point is that?” asked Elijah, surprised.
“The point, Eli, in case you’ve forgotten, is the Luria Company.”
“So I am to take it,” said Elijah, “that that company invests in futures.”
“That has to be the understatement of the year. Luria was by far the biggest player in the field. It had become a legend, until it suddenly dropped right off the radar.”
“Are you telling me that it no longer exists? I don’t understand...”
“Eli, let’s stop playing games here. I’ll give you a brief review of what I know about Luria and then you will tell me what you know. Is it a deal?”
Elijah nodded, although he had no intention of keeping his part of the bargain.
Gabi smoothed down his remaining hair, and Elijah smiled.
“The company was established in the mid-eighties. In the nineties, when everyone started taking an interest in it, they realized that in the eighties alone it had earned over a billion dollars, all of which was available in cash. What infuriated everyone was that it had done so totally within the law and absolutely aboveboard. The process it had used could be seen easily and clearly. Its original capitalization was about two or three million dollars, and all it did was buy and sell futures. It might buy sugar and sell gold, buy gold and sell diamonds, unload cocoa and buy wheat.
“All these were small transactions in terms of the market - maybe two- or three-million-dollar deals, sometimes even smaller. It didn’t even have its own offices. Instead, it worked with a number of small agents in various locations worldwide. We have no idea how many such agents there were and where they were located. Luria never took out a bank loan, and as a result was never subjected to an in-depth investigation.”
“So what went wrong?”
“The truth is that, had there not been computers, no one would ever have even taken an interest in Luria. However, at the beginning of the nineties the company bought two supercomputers in the United States. At the same time it ordered highly sophisticated, state-of-the-art encryption tools, the best the market had to offer. At that time, the only ones who needed such computers and encryption tools were members of the defense establishment, and anyone desiring to export either of these from the United States would need a specific export license issued by the Defense Department. It soon became known that these items had been shipped without any such authorization. Purely by chance, some of these components were found in a shipment sent to Luria, and everything came crashing down.”
“Where were the computers meant to go?”
“That is a question to which there is no clear answer. Some people claim that the computers were meant to go to St. Kitts, which was where the company had been incorporated. Others say that they were destined for Spain, and there are even those who say they were being sent to Israel.”
“To Israel?”
“Yes. The computers were impounded without a struggle. Luria lost hundreds of millions of dollars, and simply seems to have disappeared. The Defense Department did not complain, because the amount that Luria paid in fines was way beyond what it had expected to get. Had Luria gone to court it would have stood quite a good chance of having the fine reduced substantially, because it could have used the computers in the United States or sold them within that country. The press had a field day, and there were all sorts of hypotheses as to why the company acted as it did, but Luria remained silent. There was no press release, no authorized spokesperson, not even the venting of a disgruntled employee. Nothing. Nada.”
“One second,” said Elijah. “Isn’t it possible to find out who signed the incorporation papers and who the directors were?”
Gabi smiled forgivingly. “Elijah, between the two of us, do you know St. Kitts? Do you even know where it is?”
“Well, not exactly,” Elijah admitted.
“St. Kitts is one of a series of islands, whose total population is about thirty thousand people. There’s no income tax there, because so many companies are incorporated there.”
“And where does Gabriel Moldovan fit into the picture?”
“About three months before the company collapsed, in 1992, I happened to be at the office of Joshua Abadi, an investment adviser from a competing investment house. He left the room for a while, and I was in the room by myself. I saw an open envelope on the table and looked inside. It contained an order to buy five million dollars’ worth of Japanese yen at a date three months hence and to sell them at noon exactly forty-one days later. The risk was enormous, as the five million dollars were only meant as security on a figure fifteen times as large, seventy-five million dollars. I had to replace the paper in the envelope immediately, so I couldn’t read all the details. You have to understand that in the futures market, prices change from hour to ho
ur and often from minute to minute. The most sophisticated computers in the world can only provide investors with marginal help. Investment counselors change their recommendations on the spot, and here we are, finding out about someone asking for an investment three months in the future? Has someone gone crazy here? The order was on Luria stationery!
“When Abadi returned, I tried in every way possible to get him to talk about the contents of that envelope. On the envelope there was a picture of a lighthouse. If I remember correctly, it was white with silver print. I asked him jokingly if he was suddenly involved in shipping companies. He said, ‘No way! That’s a personal letter from a relative in Spain.’ From that point on, I followed what Luria was doing. I kept tabs on that particular transaction, and found that on it alone Luria had made twelve million dollars. I went nuts. There was no possible way to forecast changes like those of the yen that far in the future. Two days before the buy date, the Japanese government fell after a major scandal. The yen took a nosedive. Three weeks before the sell date, the yen began climbing, reaching its highest value an hour before the scheduled sell time. After that, it started dropping. There’s never been a case like that in the history of the stock market...”
Norman! Thought Elijah to himself. How come I didn’t realize it? A man who can read people’s thoughts, who can forecast events and foresee the different possibilities, why shouldn’t he be able to use these same powers in the world of finance? Suddenly, another thought occurred to Elijah. It was on the tip of his tongue, but he couldn’t quite formulate it. Gabi’s voice receded into the background, and he appeared to be some alien creature whose lips were moving, with a hand that every so often pushed back its hair from its forehead. What was the thought? What was the thought? Elijah did everything possible to retrieve it, but without success. It irked him, like a pebble stuck in his shoe. There was another man he knew, who could foresee where to invest. The man had made millions. Who was that man, darn it? Where had he met him? Or had he just read about him? Or was it a movie he had once seen? He decided that his search through his mind was fruitless at that time, and decided he’d come back to it after the meeting.