How Does the Global Economy work? | Planet Finance Compilation | FD Finance

Any kind of man-made or other disaster that affects planet Earth adversely may be viewed in the opposite way for those who are trading the markets. So famine, war make the markets go up. And for anybody who's playing the markets and investing, that's more of an opportunity to make money. The commodity traders nightmare is they wake up in the morning and the headline in the newspaper says, "Peace declared."

This will be a journey to a parallel world. A world with a bad reputation. When there's market dislocation, no matter how it's caused, you should try to use it to your advantage. It's like never waste a disaster. Almost. Volatility is what we need. Volatility is our friend. When things are calm, we can't make too much money. But also a world seemingly detached from reality.

"Which part of your career was the most profitable?"

"Oh, I hate this question. 9/11."

"It's gone."

"The whole tower. Holy crap."

"9/11 was knocked the whole freaking thing down. That was my best year ever. And I hate that to be honest."

[Music]

There is a world made up of numbers. A world where you have to be the smartest or the fastest. A world connected by radio waves and fiber optic cables. A world where you can make money if you think you know what the future holds. A world of fear and desire where you can win or lose. I call this world planet finance. For most inhabitants of planet Earth, myself included, planet finance is a complex, invisible but influential world and for many people a world with an enormous appeal.

"Actually, in my pocket here, I have for example, this is like a 250g of gold. Okay, I want to sell these, right? Uh, so there's this phrase, this kind of motto, buy low, sell high. That's kind of what you want to try to do. All right, you're given 1 million. The goal is to increase that amount. Um, when you look at all these numbers and graphs, it can be quite overwhelming. But there is one very important aspect to think about is about uh trading it and about trying to make money."

"Here it seems so easy to create wealth. An ever growing world where capital yields better returns than labor. But this is really where all the magic happens for me. It's a distant world that only comes into view when the financial markets crash."

"This is CNN breaking news. The Dow collapsing its worst single..."

"...as they did in 2008 when investment bank Lehman Brothers collapsed followed by the European debt crisis which brought Greece to the brink of ruin or at the start of the pandemic after the first lockdown was announced. All markets crashed at once. A unique event in history."

"...an historic day here on Wall Street because investors are expecting a potential global recession because of the Corona virus."

"It takes 2 months before the traders of the New York Stock Exchange are even allowed back on the trading floor. Lockdown after lockdown, the whole world holds its breath. And around the globe, shop windows are boarded up for protection against potential looters. But on Planet Finance, soon there is no real worry anymore. On the contrary, the stock prices skyrocket again. And not only those of the luxury brands."

"Like always, the market moves and then goes right back to normal. So if you survive the initial shock, markets tend to go back to normal."

"So while Planet Earth is still picking up the pieces, Planet Finance is already making big bucks again. How is that possible? How can the interests of Planet Earth and Planet Finance be so different?"

"Looking for answers, I arrive in the mansion-dotted woods just above New York City. Most of the inhabitants of Planet Finance aren't exactly eager to provide insights into their world."

"I wrote two books sitting here, music going, good place to write. We, we don't want to tell the truth about, you know, some of the pricing structures here and and how they impact, you know, the real world and, you know, that kind of stuff."

"This former trader does want to talk. He spent decades on the trading floor, but now has his doubts about the way Planet Finance functions. Plus, he has already made his pile, so he can speak freely to me."

"We, we create money out of pieces of paper, worthless pieces of paper, worthless. But, you know, the world decided that they had value. And so, we could, we found ways to create, you know, make a living from that stuff. You know, it's just a construct so that, you know, people can make money."

[Music]

"I tell these stories and I laugh about them and everybody's eyes roll back into their sockets and then, you know, after a minute and a half, this is boring. I got to get out of here. It doesn't hold any interest for anybody. Nobody gives a [ __ ] except for Michael. He knows the truth about all this stuff as well as I do, you know? He's, he's really the guy you should interview. I mean, he's amazing. He's a very bright guy. Michael, that's Michael Marx, another former floor trader. He turned his back on Wall Street a long time ago."

[Music]

"The nature of Wall Street is every man for himself. Kill or be killed, you know, eat or be eaten. I mean, that's the nature of the beast. And so that, that wasn't something that um, that resonated with me enough to stay there. The nature of the beast."

"To understand what that is and what Planet Finance has become today, it's important to him to first explain how things used to be on the trading floor."

"Now, let's see."

"Here we go. Is that upside down?"

"So this dates back to the mid-70s and before and these were all around the side of the trading floor. Every transaction was registered there. There were two board boys as they were called, uh, for each board. One on the left side and one on the right side. You needed one right-handed and one left-handed because they were, you know, writing as quickly as possible."

[Music]

"The exchange had a reputation of trading everything. There was silver coins. There was imported boneless beef. And there was a cotton exchange. There was a cocoa exchange. There was a, um, coffee and sugar exchange. And all of these exchanges had been set up maybe a hundred years ago, uh, as a marketplace for merchants in those particular businesses to meet and buy and sell. So, it was a marketplace where buyers and sellers would meet."

"In the 1970s, their bids were still chocked onto the so-called book."

"What you see here is the book."

"Mhm."

"This is the book."

"Yeah. This was the pre-electronic book. Yeah. Yeah."

"A blackboard. On the left-hand side, the amounts and which traders had sold. And on the right-hand side, which traders on the floor had bought and at what price, so you could read the price action. By being on the floor, you saw orders coming in and out. Uh, you would see somebody start to buy, for example, and you might know from his, his demeanor, uh, is this going to be an order to buy one contract or a thousand contracts, you know, or this guy is always a big buyer or a big seller. So just by being there, even though if you did not see the orders, you still had a sense of the flow and the feel and you would hear it and smell it. Cuz in the mid-70s was when New York was on the verge of bankruptcy. So the streets were dirty. There were, you know, drug dealers all around and and and whatnot. And the New York Merc was one of those about 10 blocks north of the World Trade Center. Then you would walk into this magnificent building five stories high and there were two enormous doors, maybe, you know, 12 ft high, uh, that were pretty soundproof. So on the outside you didn't hear much and it was almost like walking into the Coliseum and the doors would open and then you would you would be blasted by this roar of of of of noise and and and sounds and smells and I couldn't stop smiling when, when I when I walked in. I had no idea what it was or how it worked, but whatever it was, it grabbed me. There was no code. So if, if things were quiet, they'd be doing the New York Times crossword puzzle in the ring. They'd be eating their lunch and pizza in the ring. They'd be smoking on the floor. Uh, there'd be fist fights and you're sweating. You know, you're rubbing elbows. You're getting stabbed by pencils and you're getting spit on."

"On Planet Finance, traders are already a special breed. But floor traders can even be seen as a dying breed. Michael Marx has relocated to the neighborhood where he once grew up."

"The only ex-colleague he still regularly sees is Dan Dicker."

"All right."

"So, where's your car?"

"There it is. Is that, is that your driveway?"

"Yeah."

"Okay, good."

"Don't worry."

"No, no. I, I've got that house, too."

"Oh, really?"

"Yeah. It's under construction, but I needed a little more room here. So, what the hell? Buy another house."

"Good plan. Good plan."

"They did well for themselves on the trading floor and now look back with a mix of slight nostalgia and diabolical glee."

"I would go into the World Trade Center and I walk, would walk up the 10 blocks to get to the exchange. One morning I'm walking up and everybody on the street is looking at the towers. And I'm walking in the opposite direction. They're all looking at the towers and I look and there's a guy climbing up the side of the towers."

"You are trespassing on private property."

"So I get to the exchange and of course everybody's looking, uh, and they're, what do you think they're doing? They're betting."

"How many floors he'll go before he falls?"

"Yes. It's not as loud as it's not that they're betting whether he's going to make it or not. What, what floor is he..."

"...going to fall off from?"

"Yeah, that's classic. That is perfect floor trader stuff."

"Yeah, exactly. Exactly."

"So, can I describe you well as being a small trader?"

"Oh, I was minuscule. I was the smallest of the small for this and it was very, very, very, uh, stressful. Um, very exciting, uh, very lucrative and, um, and scary all at the same time."

"In what sense scary?"

"I always use this analogy and if you can't put this on TV, I understand. But imagine being a man in your 30s, walking into a place, dropping your shorts, taking your testicles out and stick them on a table, taking a cleaver and handing him to the next guy and daring him to cut him off before you can yank him back every day. That's what it was like."

"I think part of the allure was no one understood when you came in from outside, what is this? How does it work? How do you do this? There was it was pure capitalism. It was absolutely it purest form, you know, it was the Turkish bazaar, you know, come alive, come one, come all, everyone participates. It looks like a sporting, uh, event with money. The market has a sporting event with money. Apparently, that's what it takes to determine the price of a product."

"Meanwhile, Michael Marx was elected chairman of the exchange. He saw the opportunity of starting a new market, a market for a product of which the price up till then had been established in an obscure way. A market that would go on to determine the global price of crude oil and one that would even grow into one of the biggest markets in the world."

"How do you start? How do you start a new market? When you start out, you don't know. It's almost like a chicken and egg. I'll use it if you use it. You know, you'll use it if I use it. But how do we know that each of us is going to use it?"

"In the 50s and the 60s, most markets in the world were managed and price controlled. Oil had always been a monopoly or an oligopoly which meant that there was one person or a group of people who were controlling the production and setting the price. You didn't know what prices were."

[Music]

"They would meet in a tent. I'm exaggerating, but all the producing countries would meet and they would pow-wow and then someone would would emerge from the tent and say the price of crude oil is now eight or the price of crude oil is now 10. So that was how prices were set until well into the 1970s. The price of oil wasn't determined by supply and demand, but by what the powerful oil companies and oil producing countries asked for it."

"So, Michael Marx thinks there has to be another way to do this for a product that's in such high demand around the world."

"I just felt that oil should be priced in a free market environment rather than by a cartel. And it seemed obvious to me. I couldn't understand why others didn't see it that way. I mean, a couple of people who I knew said, 'It'll never work. The major oil companies will come in and they'll kill it.' After I think when the Shah was overthrown in '79, that's when things really um got out of control."

[Music]

"That created a big disruption in supply. The unrest in the Middle East makes one thing clear. Uncertainty about the supply of crude oil means uncertainty about the price."

"So those kinds of things created more risk and and that's the essence of what a futures market is. It's great to use it for speculation, but the whole idea is to offset risk. If there's no risk, there's no reason for a futures market. Without risk, you can't start a market."

"Michael Marx isn't going to sell the oil himself, but starts a market for so-called oil futures to be bought and sold on the trading floor. A future is a bet on the price of crude oil going up or down in the future."

"From now on, the global price of oil is determined through speculation."

[Music]

"So the atmosphere on the floor of the exchange was, you know, excitement, right? You know, thrilling, you know, the the market's up, uh, opportunities to make money."

[Music]

"But for me, that's when I realized the consequences of it when things were getting supercharged, uh, yeah, as they are in the markets today, you know, in some form, there, there's a disconnect between what may be happening in the stock market and the and the grain markets, uh, for Wall Street and what may be happening, uh, on the ground."

"That's, that's kind of the, that's kind of the joke of all these financial markets, right? They're supposed to be these sort of, uh, value creators, right? We use these markets so they can assign value to things that we really don't have any idea of what their values are. And that happens a lot. But what also happens a lot is is the other thing where, you know, the the monster in the machine sort of gets away from the purpose that it was created for."

"The monster in the machine. Inside that machine, traders have to make use of any unexpected event that occurs."

"He's like, and Dracula. I mean, how could you not like him? Someone who spent years doing that on the Chicago trading floor is oil trader Bob Ico."

"Whether it's the Russian currency crisis or 9/11, the London train bombings, the Spanish train bombings, volatility is what we need as active investors and act and active traders. During the attacks of 9/11, uh, the volatility was something I still haven't seen, neither before nor since. So for people who won't, don't understand what volatility is, the very simple explanation of volatility is it's an expanding or a contracting of price ranges. When volatility expands, the price ranges of that asset expand. That's what causes volatility expand. When volatility contracts, it's the same thing. Volatility has expanded in spurts in periods of time. So there is a lot of volatility when during an unexpected event the prices go all over the place and that gives a savvy trader a chance to make a lot of money because things change and the price just goes haywire. When things are calm, we can't make too much money."

"It's gone. It's the whole power. It's gone. Holy crap."

"I was on the floor when 9/11 happened. I was in the interest rate pit. The interest rate pit was one of the most active. When the planes first hit, and we had banks of phones in front of us and the phone rang and then the other phone rang and then the other phone rang. It was very common for us to have two phones at once on the trading floor. I would have four, six. I would have two in each hands and I'd be going like this yelling at someone to pick up the other phone. People just screaming, 'What's going on?' It's interesting when you hear people say, 'What's going on?' when they can actually see what's going on. There's a weird psychological thing that wants they want it to be explained as to why it's happening, but they're saying, 'What's happening?' Like you can see in front of you what's happening, but if I tell you why it's happening, how is that going to change what's happening? And that's kind of a, a shortcoming of a lot of traders is they, they ask what I consider to be the weakest question in the hierarchy of questions when you're an investor, which is why you're sitting there wondering why something's happening and while you're wondering why, it's still happening. So you have to react."

"It's..."

"So you are what person?"

"I'm a what person. Yes. Why comes later. Why is a hobby. Why is fun for me, but what is what I do for a living."

[Music]

"Our trader survived 20 years on the Chicago trading floor by not asking why something is happening on the market. Meanwhile, Planet Finance is growing ever faster in value than the real economy, and Planet Finance is starting to bulge at the seams."

"I said this is what a commodity retired commodity trader does. Feeding the birds. See, I've made, I've made the transition from what? What do you call that? Planet..."

"...finance."

"Planet Finance to Planet Earth. Thank you."

"As it turns out, Michael Marx got out right before the big market expansion."

"Floor trading was very lucrative and very profitable. You had to be a member of the exchange to buy and sell."

"So it was a club."

"A club. Yes. Yeah. A club."

"And were you like together owners of the club or..."

"Yes. Yeah. Yeah."

"It was a club. A very, uh, very interesting club. But yeah, it was like a club and just being a member of the clubhouse was a very big deal in the club."

"Until the beginning of this century, only the members of an exchange could trade directly on it. But now that system has had its time."

"So that the memberships had a, uh, a value. And so there was this transition when exchanges went from being a club to being public."

"A stock market that floats itself on the stock market. An exchange that becomes a company with shares, forcing its club members to sell their membership. Forcing. Let me put it this way. They receive an offer they can't refuse."

"I, I bought a seat very early on in my career."

"So, what did you pay for?"

"$56,000."

"$56,000."

"56. Well, I sold it. I sold it in 200. I shouldn't say this, but I sold this in 2006 for 11.5 million."

"What?"

"Okay."

"Yes, ma'am."

"It was a good investment. Uh..."

"So you were just lucky."

"H. Just lucky. Just lucky."

"It was like hitting a lottery, but it wasn't like one person hitting the lottery. There were 400 floor members that hit the lottery all at once. I mean, it's, it's a story that's never been told. Then it's, it's, it's extraordinary. If you can imagine, you can't. I mean, how can you imagine something like that?"

"So what did it mean for the exchange? Then the exchange went into electronic trading."

"Around the turn of the century, exchanges across the globe become electronic. Now millions of people have a buy and sell button at their fingertips on their computer or trading app. And along with these new customers, Planet Finance continues to grow. Of course, New York and Chicago are the mecca of the financial markets, but Planet Finance spans the entire globe from the US to Frankfurt, Dubai, and all the way to Tokyo. Here at the Tokyo Stock Exchange, floor traders used to yell and gesticulate wildly as well. Today, it is more like a spaceship where transactions are carried out by a computer. The role of humans is now reduced to keeping an eye on that computer."

[Music]

"Is it possible for a market or anyone to really predict the future?"

[Music]

"Yet, it's a creature that ping-pongs financial data between payment apps, banks, businesses, and stock markets around the world."

[Music]

"Across a high-speed network created specially for a very select group of clients, all the stock markets worldwide are interconnected. One millisecond can make the difference between profit and loss."

"To understand how this works, I visit the designer of this network, the existence of which most people are oblivious to."

"We serve the people that buy and sell on the exchange and it's mostly the professional traders. So things happen here, things happen there. People here need to know what happens here and they need to know it very quickly. We're, we're a bit the postal service of the 21st century."

"And so what types of information are being sent from one place?"

"Oh, you would be very disappointed. It's super simple information. It's really saying, 'Did the market go up or did the market go down?' Or if you don't send anything, the market didn't do anything. It's very, very simple."

"And, and so why do they come to you?"

"It's not because they love me. It's because we're fast."

[Music]

"You're either fast or you serve like, you know, second-tier people."

[Music]

"You know something's going to go up and you buy it first, you probably win one increment of price, but if you can do it many, many times, then accumulates to a a sizable revenue."

"So you are connecting the world's exchanges."

"Yes, we're really connecting the most important ones."

"Don't forget the trading floor as such doesn't exist anymore. Transactions now take place in data centers. Impenetrable fortresses where machines trade and compete with other machines. Boxes located in residential or industrial areas far away from the financial centers. In places that ideally, at least, are free from dangers such as earthquakes, nuclear disasters, and terrorist attacks."

"Have you ever been inside an exchange?"

"Uh, yes."

"Uh, how, we, we try to get into an exchange. Just how does it look like? Could you describe it?"

"It's horribly boring. It's like rows of computers with a lot of air conditioning, which is very noisy and you have all these lights going. It's not fun. Like there's nothing to see there."

"Perhaps there is nothing to see. But thanks to these super-fast connections, the distance between exchanges is now so small that time and place have practically become one. Especially since the exchanges of Amsterdam, Brussels, Paris, Dublin, Lisbon, Oslo, and Milan are all located in one and the same data center in Bergamo, Italy."

"It's like Milan, you know, high fashion data center. It's clean. It's not noisy. It's just beautiful Italian design. What's interesting is it's a little bit like a, a beehive. So everyone wants to plug to the queen as closely as possible. Some exchanges organize, uh, their data centers so that the distance to the queen, to the matching engine, is always the same."

"But what's a matching?"

"It's just another computer. It's a computer which takes buy and sell orders and matches them. That's why it's called the matching engine."

"The matching engine. It's the modern version of the trading floor. The book is now electronic. Supply and demand meet here. This is where the price is set. The consecutive prices form the price action. Without a matching engine, there is no trade, no market. On a computer, information will travel from one port to another port and the routing it takes, the physical routing will impact the latency. So that's a very physical thing. It's not a physical thing that you'd be interested in or that you know 99.999% of the people might be interested in, but it's a physicality that matters to professional traders."

"But apparently for this 0.001% of professional traders, this speed is important enough to roll out a network that's worth hundreds of millions of euros. How does our physicist do that?"

"To show how this works, I've come to the east coast of Japan because this is where the global trading day opens and where from the other side of the ocean, a special fiber optic cable enters the continent. Financial data is sent through this cable, such as the closing prices of the Chicago stock exchange or a new interest rate. Where the cable comes ashore. It runs straight to a so-called landing station. And from the antenna on top of that landing station, the financial data is sent at the speed of light over the paddy fields, over the heads of the visitors of an amusement park to the data center of the Tokyo Stock Exchange nearly 100 km away."

"So how fast does data travel through this connections?"

"So the interesting thing is nobody cares about the absolute speed. People only care about relative speed. You don't need to arrive fast. You need to arrive first. And it doesn't matter if it takes a 100 milliseconds or if it takes 10 milliseconds. As long as you're first, you're fine. Speed is a relative concept, but those milliseconds can actually make the difference between billions of profit or nothing."

[Music]

"Globally, my clients probably make up for more than half the volume on the big exchanges. It's, it's, it's huge. My favorite place where we're installed is on a mountain called Jungfrau and it's an incredibly beautiful place. When I go on vacation now and before I used to look at churches, now I look at antennas, you know, it's just this, it's the only thing I seek. And, and could you show us some of the equipment that you put into the towers?"

"Oops. So that is a typical radio. It produces the signal and it's directed to the antenna and the antenna shoots to the other antenna which could be 100 kilometers away."

"If you plan a connection to one exchange and another, how do you go about?"

"It's, it's super simple. So, first you have to not be on the side of the flat earth people. You have to recognize the earth is round. So you drop a pin on one exchange, you drop a pin on the other exchange, and you draw a line between the two. And of course, it's not a straight line because it goes around the Earth. So it's called a geodesic. And what you want to do is you want to put your towers on the geodesic that they need to see each other. But my business is, is very predictable. I do a very simple plumbing in a very complex world."

"We started out with chalk on a blackboard and this is where we are now. On Planet Finance, the future already takes place milliseconds from now."

[Music]

"Any knowledge of water books? Buy, sell, bid, ask. What then is the role of the trader in this network of cables, antennas, and machines?"

"All right. Uh..."

"This former high-frequency trader who bought and sold within milliseconds initiates a group of econometric students into the game of Planet Finance."

"Let's cause some chaos. Black Swan."

"Yes. Yes. Yes. I'm in."

"All right. Here we go."

"The bid for 40,000 there. Yeah, I don't know if anyone wants to sell to that 40,000. Okay, another bid for 35,000. The 34,900 is trading. Oh, look, there's a bid of 35,000 there."

"Oh, I've almost messed up."

"It has to be about fairness. And the person who's got the lowest offer and the highest bids have the priorities. You've got to think, do you want your orders resting in the book to capture these opportunities? Okay, that's again somebody bid for 35,000."

"Where my money go?"

"You lost it."

"And, and that person's trading. The 35,000 is trading."

"Is anybody else wanting to be on that 35,000? That's trading."

"I think that's mine."

"Oh, I think it's mine."

"Hey, I got 2 million."

"I got 1.5. Damn."

"Oh, lots of prices traded all the way to 30,000. Whoever bought at 30,000..."

"...just out of everyone's reach."

"Did I get it?"

"Who's making money?"

"Did it feel like you always were in control?"

"No."

"Nowadays, it's done a lot by um algorithms. You, you've got like these bots that are doing these and it's about, but it still doesn't mean you can just leave it to the bot. It's about configuring that bot, thinking about the strategy behind that bot because in the end it's your ideas of what's going on. Um, but the main thing that I think will always be there is that requirement for being calm under pressure. So when you see a big event happening, what emotions go through in your head, it's like fight or flight kind of thing. It becomes, uh, quite incredible how markets can actually react and in certain situations. Um, how hard is it for traders to keep their footing among all these algorithms? Are there feelings of euphoria, greed, and fear different from when our floor trader voluntarily put his balls on the table day after day?"

"To find an answer to this, I travel far away from Wall Street, to the American West, to a famous ski resort overlooking Dollar Mountain, and to a woman who is allowed to look inside the minds of traders."

"Trading and investing is literally the hardest mental game on the planet. There's nothing that's certain about it. Everything's ambiguous. It can change every moment. It never ends. It's a bit like poker except no hand ever ends and no one wins the hand. Um, and there are no absolute meaning of the cards. You get marked at the end of the year. There's typically a December 31st number that artificially ends the game. So like in sports, your job is to make something happen. In markets, your job is to react to what's happening."

"This neuroscientist who once worked as a trader helps the newest generation of traders to play the game and to recognize their own emotions and then put them to use."

"Hey..."

"She regularly has sessions with her clients and by way of exception, I get permission to listen in."

"You're not the only one."

"I mean, maybe there's somebody out there that it has really made sense to, but it's not what I've been hearing. So, most of my clients are professional investors slash traders."

"Yeah. Where do your clients are located?"

"London, Singapore, Hong Kong, Australia, New York, obviously California, surely as many outside of the United States as it is in."

"Yeah."

"Okay. So, if you could just listen to your intuition, you would do what?"

"Short the S&P."

"I talked to them twice a week at first. A lot goes on in a market in a week. Many of them talk only to me about some of the things they talk about. I had one recently where he, he wanted his wife to join to talk about the stress that he came home with and how she could see whether he made or lost money that day and, you know, it's affecting the kids and whatnot."

[Music]

"He's in a really volatile market and, you know, he's working 18 hours a day and, and you can imagine his wife is like, 'Yeah, they had a nanny or even two, but help, I can't do this,' you know? So I mean, on some level, you're afraid, right? So if we did like one to seven, how afraid? The guy that's given him a billion dollars to trade. I mean, he's 40. Comes and they get on the phone with me and say things like, 'But I didn't make money today. I didn't make money every day this week. I made money 22 days before that, but I didn't make any money this week.' I'll be like, you know, they still like they held themselves to these really actually irrational and I don't use the word irrational too much, but irrational standards. And they ask you to talk to the biggest investor, that doesn't mean anything. Sorry, I'm laughing at you. So, I'm laughing at you because it's like, I don't think they're worried about your performance or your perspective. But you made money, didn't you make money?"

"The nature of playing the market game, no matter who you are, is assessing what you think you know how it will play out and being simultaneously aware there's stuff you don't know. There's usually a, a reason why a market moves happens and some group of people, meaning some amount of money, are trading on that particular reason. So you have these different groups of people with different amounts of money with different sets of beliefs and coming up with some schema or mechanism to interpret that and to evaluate the risk of what you might not know is how you win."

"Always had this kind of notion that, um, the market is, is kind of there to make you humble, you know, because every time you have this kind of, you have this winning streak, whether you're a researcher, trader, whoever, invariably the market will come back to punish you and you'll lose that winning streak. Just, it's just impossible to be this perfect prediction or machine, right?"

"There's this like constant, uh, chipping away at your ego."

"Well, first of all, it's the hardest game on the planet, you know? It's completely uncertain and it's completely ambiguous."

"It's, it's, it's, it's kind of this interplay between the super ego and the ego and, uh, or in theological terms, it's, it's like God and, and man and, you know, you're, you're trying to become a god yourself, but then God reminds you that there's only one God and you're going to be punished and you're going to be my smite will come upon you or something. Like I'm constantly asking my clients, what, what's the worst can happen? How could it go wrong? Well, what will it mean if you're wrong about this? And it's uncomfortable to, um, deal with the fact that you can't know. And it's that feeling that causes you to do something. It's that feeling that it causes you to recommend. It's the lack of that feeling, let's say concern, doubt, anxiety, fear, panic, that might cause you to hold back. So you have to come up with some lens through which you see what seems to be like a chaotic system. Just the ability to tolerate taking a risk."

"So you have to enjoy a risk."

"Yeah, that's fair. Enjoy navigating. Enjoy playing with it."

"So, it's about playing with risk."

[Music]

"Oil is always in demand and the price is always changing. But at the start of the pandemic, there aren't any takers."

[Music]

"The world's oil supply is floating around at sea. The crews are stuck on their ships for months."

"I really don't know if I can go home with this, uh, situation with the COVID. Right now, mostly of the Europe countries are locked down. All flights were closed. So, I don't think I will be home. What happened to me right now? I think I have a trauma. I want to be with my family. Nothing else."

"The tankers and their crew can do nothing but wait for better prices."

"I just want to go home. End of story."

"There is a world made up of numbers. A world where you have to be the smartest or the fastest."

[Music]

"A world connected by radio waves and fiber optic cables."

"03."

"A world where you can make money if you think you know what the future holds. A world of fear and desire."

[Music]

"Where you can win or lose. I call this world Planet Finance."

[Music]

"Clear prop."

"Wandering around Planet Finance, I arrive at a small private airport above New York."

"Weather observation."

"People want to know what the future holds in store for them. And because oil is still the blood running through the veins of the world economy, we want the price of oil to be stable above all else."

"Look around the room. I mean, everything is made from oil. Absolutely everything is made with oil. In all the world of synthetics, you know, you can synthesize almost anything in the world from something else. And the one thing you can't synthesize from anything else is oil. Of course, these are the words of a man who spent years on the exchange floor trading in oil."

"It's been, it's been fun. A lot of fun."

"The things that you can synthesize from oil, they, they run in the hundreds of things, important things."

"Like what?"

"Drugs. Plastics. I mean, think, think what your life would be like without drugs or plastics. I mean, I'm, I look around. Light bulbs. Glass. There's nothing. There's nothing. There's nothing in the world that, that I can look around and, and not see oil in. It's everywhere. I can hardly imagine anything more earthly than crude oil. And yet, it is Planet Finance that determines the world price of many raw materials. It does so on the so-called futures market. There are futures for grain, gold, pork bellies, but also for oil. On this oil futures market, there came a day when the price of a barrel of oil dropped below zero. How is that possible? How could a market go so far off track?"

[Music]

"But what exactly is a futures market?"

"Our former floor trader cannot help but get nostalgic when he thinks back to his time in the pit."

"I recall when the first time when I walk out onto this trading floor and the tumult and the noise and the roar and the numbers clicking overhead and everything had a meaning to it and people running, dashing back and forth and strange hand signs, people waving, throwing cards, tossing. Oh, was it, was an amazing place. I instantly loved it. And I scraped together from my father. I scraped together $20,000 so I could rent a seat of my own and and go onto the floor and and try trading my own. It was a club, a very, uh, very interesting club."

[Applause]

"Futures contract. It's an arrangement I have with the a person on the other side of the contract to make an agreement to deliver a certain amount of oil at a certain place."

[Music]

"Futures were invented to cover the risk you might run in the future. For example, if you are a farmer sowing grain or breeding a bull, you run a risk. Your fields could be in the path of a hurricane and your bull could have a lower libido than you had hoped."

"I will probably bid on this one. 9A. Uh, I looked at its mother. I looked at the genetics. I'm at the age now that I don't want a bull chasing me around the lot and all that. I, I need a, a good gentle bull."

"As a cattle farmer, you can sell your bull on a futures contract. That way, you determine in advance the price and a date in the future when you have to deliver. Now, traders can start speculating on price fluctuations. But as a farmer, you know exactly what you will get."

"The futures market, the construct of the futures market is supposed to be very much like an auction."

"Nobody knows the price of any one widget, anyone anything. But what you do is you get all the people who want to sell their widgets and all the people want to buy the widgets and you put them in a room and you lock the door and you, you make them argue with each other back and forth until they decide value."

"72. 72. Now $8,000 on her. 750. I appreciate what you did do. I sold her $7750 on her. 772. She goes to buyer number..."

"...both of them. 739. 739 times two. Thank you, Mr. Blinds. So, it's what's called an open auction or an open outcry kind of system."

"The contract, including the obligation to deliver, can be traded on Planet Finance. And if the price goes up in the meantime, you can sell it at a profit. But beware, on the day the contract ends, cattle or oil will actually have to be delivered. The buyer who still owns the futures contract on the day it expires is forced to accept the cattle or oil whether he wants it or not."

"Okay, very good. Thank you."

"And at the contractually agreed place of delivery. And for oil, that place is somewhere you wouldn't expect. A small town in the heart of the United States, Cushing, Oklahoma."

"So, have you been to Cushing?"

"I've never been to Cushing, but I've seen, I've spoken to lots of people who've been there and I've seen lots of pictures. I don't want to go."

"It's just, it's a strange place. There's nothing there, right? And you go there and these rusty old tanks sitting, you know, in a row and they're controlled by seven or eight companies. But the point is that you go to Cushing and you can't believe that this place is important, but it is the nexus point for the pricing of oil worldwide. When you see, for example, you turn on your television, the price of oil is $68.42. Oh, okay. Where'd you get that from? He got it from a price based on a futures market that is basing its price on what is being traded for delivery at Cushing. Where's the water? The water. Well, you know, it's pipelines going in and out. That's all there is. And once in a while, a truck comes and picks something up, but that's, that's really all there is. It's, it's, it's, it's the wrong place to base the entirety of of of pricing for global oil. And virtually everything in the world is priced off of the oil that's traded at that crazy little ghost town in Cushing, Oklahoma."

[Music]

"In the early 20th century, oil fields were discovered in Cushing. During the oil boom, one new oil well after another was tapped here. And before long, all wells were pumped dry. But about 40 years ago, because Cushing was still a major oil pipeline and storage hub, it was chosen as the place of delivery for the oil futures contracts. And at more than 1 million trades a day, these are currently the most traded futures in the world."

"So, where are you taking us now?"

"We're going to go about a mile and a half this way and then a mile back this way. And we're going to cover what I call the south section of the storage terminal. And it's a long flight. You always have to kind of keep your wits about you and know where traffic's coming from on the ground as well as in the air while keeping track of the bird."

"It is his bird, a drone, which by chance turned this retired fireman into a cog in the Planet Finance machine. That is the part of Planet Finance where the global oil price is set. This facility is considered designated by the Department of Homeland Security as a quote unquote critical infrastructure. Doesn't mean I can't fly here, but they define it in their heads a little differently. Everything we're doing is legal, but they can be quite aggressive. So when you try to approach him logically and you know courteously like I was taught as I grew up, uh, most of the time that that works. That's fine. But every once in a while, you'll get somebody who's just dead set on telling me I'm wrong and, uh, they can get a little aggressive."

[Music]

"Two, three, four."

[Music]

"Those two are about half full. Maybe a little more than half. That one's full."

"I had been working with thermal imagery on on a UAV for roof inspections. Um, that kind of thing and received a call, uh, from a gentleman overseas, um, who asked me, 'Have you ever thought about using thermal imagery in the oil and gas industry?' And I said, 'No, I really never have.' And he knew I lived close to Cushing. And he said, 'Have you ever flown out there?' And I said, 'No, I've never flown in that area.' And he explained what his intentions were and he said, 'I think I have a market for using your images as data.' I began to fly once a week for this gentleman and he was very excited about it. Someone got wind of that and then I received a call from another place overseas and they were asking the same thing and I started flying for them. So it, it just kind of snowballed. If I see a huge move, I let my clients know I think I'm seeing a change. Please look at this. This, this."

"Our trader knows better than anyone how much the floor values information about oil storage levels. Because that is what determines tomorrow's price of a barrel of oil. That is what traders are interested in, not the oil itself. 98% or even more of those who buy a contract or sell a contract have no desire to actually have that contract executed."

"They don't want the oil on their doorstep."

"They."

Don't want the oil, and they're not going to deliver it either. They don't want it, and they're not given it. What they want is they want to be out of these contracts before they expire, and you're forced to either take it or deliver it. So, in the end, all of the people that are in the world now, particularly now, trading oil, have no connection to oil. They don't care about oil. What they care about is the profits to be made from trading oil. And that was what was created when the futures market were created.

[Music]

Every Wednesday around 12:30, the EIA, Energy Information Administration of the US Federal Government, puts out a uh estimate on the storage that is available in all storage facilities across the world. When EIA comes out, then that affects the price.

>> Our drone pilots' clients in London and New York are very keen to know the current oil storage levels, and preferably before the official numbers are released. Many of the oil tanks have flexible lids which move up and down with the oil level. By measuring the shadows on the lids, his clients can calculate how full or empty the tanks are.

>> I fly Monday, Tuesday, Thursday, Fridays. If I miss a Friday or Thursday, they'll accept a Saturday collection. If investors might have an idea what the government's going to report before they report it, then they get a head start in deciding, am I going to buy long-term or short-term? Am I going to buy a lot, or am I going to sell? What's the market going to do? They kind of get a head start before EIA comes out. It's not at all illegal.

>> But your data is giving someone an advantage.

>> Yeah. If they want to pay to get the information, it costs them money to buy this information. It is hard to imagine today, but not so long ago, a barrel of crude oil was free for a very short time on planet finance. That is.

[Music]

And the run-up to that moment already starts in early 2020. During the first lockdown, the North Sea is one of the many seas that fill with oil tankers. They lie there as storage, waiting, waiting for the moment when they can get rid of their oil. And this oil trader knows all about it. He used to work at the so-called wet oil market where he had to cover the risks for clients who actually did want the oil.

[Music]

He knows how many barrels of oil a tanker can hold, the speed at which it flows through a pipeline, and why you cannot simply stop the oil from flowing.

>> Physical oil drilling, physical oil wells are not faucets in a sink. You don't just turn them off. It's a pressurized release. You can't just turn it off and let it, oh, you know, when the price goes up, we'll turn it on again. Doesn't work that way. So when especially shale, but just wells in general, when they're drilled, the oil has to come out. So when the oil comes out, it has to go somewhere. And if all of a sudden the entire world stops driving and stops flying, stops taking trains and buses, that oil is still coming out of the ground. So you have tanks and tanks and tanks of oil. And then when those filled up, they started filling up tankers and letting them float. And then like, can you buy my oil? Well, I don't I don't need your oil. Well, I'm paying every day to store it. How about I just give it to you? Well, you know, well, can I give you $10 a gallon to take it off my hands? If you think about it, if every barrel of oil costs $20 to store per day and no one's buying it, you'll give somebody $18 to take it off your hands because you're saving $2.

>> At a data analytics agency in London, the so-called floating storage is closely monitored.

>> I mean, the price was already dropping from like beginning March, right? Because of the the supply war between between Saudi Arabia and Russia.

>> The crude price.

>> Yeah. And I think it's that direct sort of inverse correlation between here when the crude price really started dropping and that contango really appeared in the market, and you can see those floating storage volumes shooting up. Because

>> These guys also gather information for the oil market. In this case, by following all fuel tankers around the world.

>> Really light crude to blend it with.

>> We can see every single tanker in real time carrying crude

>> In the world.

>> In the world. 985 vessels, and we can see about 80% of these tankers are currently in floating storage.

>> You were keeping an eye on this floating storage.

>> Of course. Yes. Um, everyone was pretty much every vessel was taken. People were doing it with whatever they could. Um, land storage, floating storage. Um, and that was the play.

>> I think people were positioning ahead of co.

>> I think a lot of people vessels.

>> Few players had figured it out before the others.

>> Yeah.

>> Everyone was really, really happy to float. The the ship owners were very happy. They were getting ridiculous price for their vessels. The oil companies knew that the price was going up. So they were just sitting on their their barrels and it was just a waiting game and people just sat it there, sat it there, wait until you get a good offer or the market rebounds. How long's a piece of string, really? It's year, 18 months, as until you find a buyer. Ultimately,

>> I can see close to 20. And I know unfortunately at the moment that number is far higher, 'cause there are about 130 uh tankers stuck in front of the Belgium and Dutch coast. Uh, but I can see about 20. There's still a ship out there where, unfortunately, circumstances because someone had passed away, and that ship has been in that same spot now for several weeks. But I also know there are a couple of ships there as well that have been there now a couple of months. And so this is becoming a real crisis because that means for seafarers, they're unable to leave the ship. Logically, because you're surrounded by sea, there's nowhere else where where you can go. This is what your what your daily reality is.

The crew members aboard the floating storage tankers are waiting for a better oil price. Normally their contracts expire after 11 months, but now due to co, terms are increased sometimes up to 18 months involuntarily. And the only unexpected visit they can expect is from the port chaplain.

>> So, we're approximately 25 minutes from your location, and we have one on-signer for you.

>> So you have one guy attended.

>> Yeah, that is correct. Uh, one the priest to come up, and if you could rig your pilot ladder.

>> Okay.

>> They're ready for us. They say at the moment there's there there's a lot of people basically stuck on their ships. Stuck on them. And to be stuck on a ship at anchor out here.

>> Yeah.

>> Not great.

>> I guess they're they're hoping that the that the oil price rises.

>> Yeah, it is a hard one, for sure. The chaplain visits ship after ship to offer solace, but also to hand out prepaid SIM cards for the crew to stay in touch with their loved ones back home.

>> My name is Dennis.

>> Hello. I'm a chaplain on board of Rotterdam.

>> Okay. Hello. Just come to say hello. You're from the Philippines as well. How many months are you into your contract?

>> Six months.

>> And do you still expect to be at anchorage, or will you be in port?

>> From now, I don't have no idea. I don't know. If there are any Christians among you, I would love to say a prayer for you. Heavenly Father, thank you so much for my friends here on board, Lord, who work so faithfully, so diligently to serve you. Thank you. They are a long way from home, and yet, Lord, you've called them here. They are serving you. And I pray particularly at this time for their safety, also during co, for all of us. Pray for our families back home.

>> Thank you. Yeah. Go well. Take care.

While the crew keeps waiting and waiting, the oil demand keeps falling and falling. And it is this sea of oil that will eventually result in very different, unexpected losers, like this day trader. I trade full-time, and I um am financially stable through just trading.

[Music]

Ever since I was young, I would buy and sell. I started with Pokémon cards in grade five. I started with one, and I ended up with uh, I think like a hundred of them until uh, until my parents took them away from me 'cause that's all I would do.

[Music]

Now it's with cryptocurrencies, you know. So when you, when I first started, I didn't have a life. I don't like, my life was trading. I would trade so much that when I slept, I would dream about trading. It's an emotional roller coaster every day. You, you feel fear at times, you feel greed at times, you feel euphoric at times. And for me, it was an awakening of some kind uh, where I realized that this is something if I get into it now, uh, it's going to have a huge impact in the future.

But then comes the day when Sed Sha is persuaded to try trading on a market other than Bitcoin, ignorant to the fact that this is the day the oil futures for the month of May are about to expire.

>> So if you say it's the 20th, that means there's like 2 days left or 3 days left before I got to, I got to deal with oil, not just paper. Okay, we're trading paper, right? I've told you this, right? We're not trading oil, right? We're trading paper. All right, so we've got all sorts of paper that we're, you know, we're we're passing back and forth. I've got some paper. You've got some paper. We all have paper. It represents contracts of oil, but it doesn't, it's not oil. It's paper. You know, I've been dealing in paper my whole life. It's only paper. So, fast forward to April. Okay. It's getting towards the end of the month. This is when this contract becomes a real thing that needs to be translated into real physical oil. Okay. No longer is it just paper. Now, if I'm holding this, I'm going to have to take oil from somebody. I'm going to have to give him money, and he's going to give me oil, and he's going to give it to me in Cushing.

>> So, do you remember where you were?

>> Yeah, I'm here. I'm here. I'm watching this and laughing. It was before 420. It was back in February or March when I knew something was going on. I didn't know what. It's been a long time since I've seen this much storage. All the tanks you see in this picture here in this thermal image are fixed roof tanks. You won't ever, if they to take a draw, you're not going to see that from outside because it's all on the inside. This is where thermal imagery comes into play. Thermal image can see what the level is. There's the level of that tank. That's a 250,000 barrel storage tank capacity. This one's relatively full. That one's relatively full. That was beginning to look more full than what I had seen. I'd need to notify my clients. And then it is Monday, April 20th, 2020.

>> So it was April 20th, and in the wee hours of the morning, I believe the premier of Canada came out with a little note saying that oil prices, a certain kind of grade of oil, which comes from the tar sands in Canada and trades below the US oil price usually. There was a little note that went out saying we have gone negative, and that was sort of the canary in the coal mine. That was sort of the first indication we are moving into negative territory.

[Music]

>> I was like sound asleep 'cause I had been trading Bitcoin the night prior, and I was up all night uh because there was a lot of price action because of co. So, I got a call from my uncle, and he told me, "You should you should check out oil. It's gone down to $5."

>> From where was he coming?

>> Uh, he used he lives in Pakistan.

[Music]

And he just uh said to me, "Hey, you should check out oil. It's gone down a lot. It's crashing right now. You should get in on it." And I bought a few contracts from that. And then it went down to $2. And I bought a couple more contracts.

>> And had you ever bought an oil futures contract before?

>> No, never. No.

[Music]

>> The 20th of April, 2020.

>> Where were you at that moment?

>> Right in front of my computer, sitting in my office, right in front of my computer, staring at it in somewhat disbelief. Even though I knew it could happen, still when you see things move that fast, you, you still I've seen a million crazy things in the market in 30 years, and every time something new happens that I think is crazy, it's the same reaction. It's like, this is crazy. And you're just watching it just go and go. And then eventually the price had gone down to 1 cent. I ended up buying 212 contracts at 1 cent.

>> So how many barrels is there?

>> 212,000. And at that point, I felt fairly confident the price can't go below zero. One, I've never heard of oil going below zero. And I, I would never imagine just because there's no storage that they're giving oil away for free.

>> One of my traders told me that the White House called asking what on earth was going on and what were they going to tell the president.

>> It has never happened before, but it is happening now. The price of an oil future is negative.

[Music]

So crude oil ch trades, you know, $65.61, $65.62, $65.60, and it fluctuates around those prices. It can move 5, 7% in a day very easily. This, it was going zero, $1, $2, $3.

>> But the market closes at 2:30 p.m. So it's 2:08 p.m. and there's just, you know, minutes to go, and it just falls off a cliff.

[Music]

And technically, all futures markets can go negative. It's just none of them had ever done it before. I mean, no exchange-traded contract had ever gone negative in the history of markets, in the history of the world. CNN breaking news. Oil prices have turned negative. The most extraordinary development that took place today when the US main blend, West Texas Intermediate, fell more than 306%. It is negative $3.763 a barrel. It's a really harsh reality. I never thought I'd see in my lifetime.

>> No. Well, absolutely. I mean, when I saw these numbers, I, I had to give the machine a whack.

>> So, at first, I think I was in shock. I was frozen. And I was just thinking, so does this mean that my contract is going to close at a negative price?

>> Sed thought he had bought 212,000 barrels of oil for 1 cent a barrel to sell them later, of course, at a profit. He does not realize how thin the ice beneath his feet really is.

>> And what about retail traders?

>> In futures? Retail futures? You mean like for customers, just plain ordinary customers? Yeah. If they had positions in that marketplace at that time, they were stupid.

>> Nobody, nobody plays in the in the front months at those time. Even even really, um, um, experienced traders like like me, you know, was very, very careful in the last couple days of of front month trading. Often I wouldn't even begin to venture the last couple days of a front month market because it was so thin, you know, and you were at the the mercy of, you know, lots of big guys who had a lot more money than you did.

>> So, at midnight when my, our account, my account was updated, uh, it showed a balance of around minus $13 million.

>> And what was the amount that?

>> Every barrel that I purchased at a penny, I had to pay $37 and some and some change for each barrel that I purchased.

>> Sed loses 13 million Canadians or 7 million in a single afternoon. Imagine instead of winning the jackpot, you have to pay it out. So the account that uh we were using, um, it was funded by me, my father, and my brother, and we were using it as a joint account to trade. And the biggest issue for me was, um, if they're going to try to claim this money, we're all basically going to have to file for bankruptcy, all three of us. And on top of it, all our assets would be taken away. And my father, who's in his 60s now, and he's been working since he was 13. Everything he's worked for would just be gone.

>> Hello. Hi.

>> Is this your father?

>> Yeah, it's my father.

>> So, what was your initial reaction when it first uh, when you first found out what happened?

>> Oh, the first time, honestly, I thought maybe it's a joke. Or once I realized that this is a reality, it was a complete shock. $13.5 million loss. I'm a normal person, you know, I'm a salary person type of. So it was like a disaster, catastrophe, you know, it's like Armageddon. My future generations will not be able to pay that amount, even they work like day and night, 24/7. And I talk to, you know, my friends, my lawyers, everything, and they say that, okay, first of all, you may lose your, your every belonging, and you could be on the road, and you could be looking for the shelter, and everybody is toast.

But if someone loses, someone else has to win. But who, who was on the other side of the trade?

>> Right? The whole industry is hilarious to you and me only. You know that?

>> Yeah. Well, that's so why did anybody? Why would anybody want to hear what we have to say?

>> Right. Right. Nobody gives a [ __ ].

>> Yeah.

>> Take a look at this. If you were going to price the most important commodity to man over the course of the last 30 years, you'd take one look at this chart and you'd say to yourself, I don't know what's right, but that can't be it. You know?

>> Yeah. So, who made money?

>> Somebody made it. It's a zero-sum game. One guy loses, somebody wins. This is not, not like stocks where if they continue to go up, everybody wins. The futures are not like that. Somebody has to lose for everybody that wins. Every dollar that's made is a dollar that's lost.

>> So, who won? Even though there was hardly any demand for oil during the lockdown, strangely enough, the winners were energy and oil companies, Shell and Total, for instance. Because they own the entire chain from source to storage tanks plus the financial resources, they can easily sit out a low price period. On top of that, their own traders can also speculate on a higher oil price. At the quarterly results presentation, the Shell CEO does not want to divulge exactly what they made, only that it was substantial.

>> I think we do contango on steroids. So, it is a very sophisticated machinery that creates value that others cannot create. That's not ordinary trading. That is actually optimizing market positions that we know better than anybody how to take advantage of.

Other parties made money as well because you can also speculate on falling prices, which is called going short. This means that you make money when the price goes down. A lot of money in this case. Our oil price specialist thinks he has an idea who these smart people are.

>> So the people that were short this contract, that were selling it, ultimately the market was coming off, and it was great, really, for them because there was, they were buying back at a negative price.

>> Could anyone have seen this? Um, so there, there have been some stories of some like paper traders, um, across the world, actually in in the UK, was some, um, I think it was some people in Essex, some guys in Essex, five, six of them, they literally just, yeah, they, I think they did their biggest trade they ever done. They just saw it happening and just kept on selling the contract, kept on selling the contract. Um, but that's people. That's what trading is, really. There's a lot of risk to it. So it's very hard to make a successful trade. So if you're confident on something, why not go all in? And these guys did that. But can those traders also manipulate the market by working together to deliberately push the price below zero and maybe make the deal of a lifetime? That is difficult to prove, but our investigative journalist is one of the few people who has retrieved the so-called tick data from that day. These data are so detailed that you can see every single trade. So, if you look at the tick data from that day, which on April 20th, this really only captures when the market went into negative territory at 2:08 p.m. New York time. And we're talking just fractions of seconds. So, you're not going to see all that if you're just watching minute by minute. So, you do have to get the tick data to really see what happened. And so, you can see lots traded there. And then at zero, you see it's just one lot. Somebody was nibbling. Let me see if I can trade at zero. We'll try one. The very next one was, oh, right, let's do 20. Then they did 10. And then it just did a bunch of little nips, and it kept going like that until it got, you know, you can see here they pushed it into negative territory. You know, was somebody trying to make it go negative right there? Um, we don't really know who that was, but yeah, somebody was, somebody was testing pretty hard right there, for sure.

>> Can you see who traded what?

>> No. Uh, and we're not going to know.

>> Why?

>> Oh, because it's non-public information. If somebody wants to to admit that they did those trades, of course, then we'll know.

>> Two years later, Vega Capital London is taken to court. Duped traders accuse them of intentionally causing the market to crash. There is no verdict yet, and we don't know who the traders are. But how they made €600 million that afternoon, we do, because their group chat was made public.

[Music]

[Music]

[Music]

>> Your clients. Have you ever met them?

>> I have never met them. Uh, not a single client I have have I ever met. I've talked to one or two of them on the phone. Uh, but it's all been through email. None of them have ever been to Cushing. My images are sent by uploading those to the client. We don't talk about money or any of that kind of stuff. I like being detached from what my data can produce.

>> So, what do you know about oil futures market?

>> I know nothing about them. I would not invest in them. You can make money doing it, but you can make money just doing what you're doing.

[Music]

>> If there is one thing I've learned from this infamous day on the oil futures market, maybe it is that nothing is ever really free. Not even a barrel of oil. Because if something is free, you'd better wonder who is paying the bill. Uh, right now I have an appointment with the doctor.

>> Why are you going to the doctor?

>> I've been dealing with uh high blood pressure uh ever since la, ever, ever since last year after the whole oil trade happened. The first time I found out was my heart rate was very high, and I, I had constant headaches. So, I went to the emergency, but they didn't take it too seriously uh because of my age. I'm very young.

>> And how do you get high blood pressure at such a young age?

>> Um, they told me it's due to stress.

>> And and why do you think it's related to the the day of the negative oil price?

>> Um, that's when my stress really shot up. But that's the most stress I've ever felt in my life. And it was ongoing for over a month. The rules are set, and those are the rules that we all have to play by. And that day, the rules were broken. That day, the market goes off track. Planet Finance did see that the oil futures price went below zero. It even received a warning from the exchange about this, but our day trader did not. The trading platform of his broker simply could not show prices below zero. The software had not been adjusted in time for that. Eventually, the SHA family did get compensated by their broker, save for a 100,000 loss. Our floor trader is a fan of the free market, naturally, but he also has his reservations. Because if a market can go so far off track, is it still the right instrument to determine the global price of oil? Every market has a beginning, but I wonder, can it also have an end? No, too much interest. Like I say, it's just, it's, it's too much of the world. See, I'm, I'm sort of of a different place. I've been a market maker and a market taker and a market observer for 30 some odd years. To me, the the market isn't, isn't the source of the problem. The market can be used to find solutions, too. It's just in, it's just in who's working the market. You know, I don't want to be this, this guy who's made his living in markets talking badly about markets. It's, it's an amazing tool. All right. And, and, and it can be for, you know, for oil, too. It's just it's been left in the hands of of the the wrong folks for too long, and it's kind of, it's kind of, it's, it's, it's necrotic. It's necrotic. It's like, like dead flesh. Necrotic. It's just become old and, and, and rusted like the, like the barrels in in Cushing. We've outgrown this construct, the way it's set up right now. Well, it goes to $145. It goes to $30. Goes up to $110, come to $22. Now it's back up to $80. Where's it going from here? I think it's going to $200. But it could go down to $2, right? If enough things go wrong. That's crazy. That's no way to build a, you know, a a structure for energy that's going to make sense for the the long haul. That's, it's just stupid. That has to be stopped. Carbon tax is one way to do that.

>> Carbon tax. Does our floor trader think taxing carbon dioxide emissions is a good idea?

>> I did not expect that from a man who owes everything to oil. He even goes a step further.

>> Will you have futures on carbon tax?

>> They already do. It's a small market, but I'm investing in it. I think it's the future.

>> The future? Simply create a new market?

>> Another market for people to speculate on? Wasn't the market supposed to make the price of a barrel of oil more stable?

>> How are you guys doing on board? I'm sorry about your loss. Since the start of the war and the energy market turmoil, the price of a barrel of oil has been its old volatile self again. And that gives Planet Finance every chance to make a profit. And the tanker crews, their lives are still bobbing on the rising and falling waves of the oil price.

>> A deep sympathy for a loss of one of your fellow crew members. God decided to call him home. He leaves behind a loving wife, two devoted children, and he leaves a band of brothers, a group of seafarers.

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I'd be up at 4:30 in the morning, and I would be finding out, you know, what's going on in the market, and we kind of know how things are trading. It's what we call the feel of the market.

>> The market feels like a vast ocean.

>> What an adventure it can be to set out on it. Main Street wants to participate in what Wall Street does. People jumping in and not having enough education at the start. Markets aren't only one way, right? They don't always go up.

>> For fortune seekers, navigating this market is not without danger. I just worry about, um, you're going to get like run over, almost. It's a tough position for a retail trader to be in.

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There is a world made up of numbers. A world where you have to be the smartest or the fastest.

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A world connected by radio waves and fiber optic cables.

>> A world where you can make money if you think you know what the future holds. A world of fear and desire where you can win or lose. I call this world Planet Finance. Wandering around Planet Finance, I arrive at a temple not far from Tokyo. People come to this place to increase their chance at fortune.

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And who wouldn't want that?

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In Japan, there is such a thing as a Mrs. Watanabe. And this is also a Mrs. Watanabe. And her her name is also Mrs. Watanabe. At least that is what she's called in the glass towers of London, Sydney, and New York. Mrs. Watanabe is a household name on Planet Finance. Japan now has 1 and a half million of them, and they all want to earn from their savings. Mrs. Watanabe is a collective name for Japanese retail traders, and she's not alone. Since the pandemic, tens of millions of new traders have jumped into the market worldwide. I wonder how tempting or dangerous it is to navigate Planet Finance. In Japan, Mrs. Watanabe arrived on the scene early. When the Japanese bubble bursts in the early '90s, it's the first country in the world where you receive 0% interest on your savings. So, when the men are at the office, she starts to speculate on the exchange rate differences between her yen and other currencies. But people don't enter the market overnight, right? On our way to Tokyo, I ask this Mrs. Watanabe.

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Come on. Her road to Planet Finance runs past a game show and a less fortunate encounter.

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Our Mrs. Watanabe decides to make a clean break. She enrolls in a course to learn how to speculate on the foreign exchange market.

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All these Mrs. Watanabes and Mr. The Watanabes as well dream of making a fortune. They hang on every word of this night nurse who hit the jackpot with her trades.

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The perfect trade. Wouldn't we all want to make that? Looking for a way to pay off her debts, our Mrs. Watanabe decides to not tie her fate to a man anymore, but to the largest market in the world, the foreign exchange market. A market where more money is traded in a single day than in the entire Japanese economy in a whole year. Not every fortune seeker realizes that on the foreign exchange market, the value of one currency always goes up or down compared to that of another currency. Where someone wins, someone else loses. It's a zero-sum game. On the forex market, the week begins on Monday morning when the sun rises in Asia, and euros are exchanged for Turkish lira, South African rand, or Japanese yen. As a trader, you take a position. You buy €1,000 worth of Japanese yen. Then you wait till the fluctuating exchange rate increases the value. Then you exchange your yen back to euros. Easy money. If you can predict how much a currency will be worth tomorrow, you can earn a nice profit. On Planet Finance, banks are the most important players on the forex market. And someone who works for a large Australian bank to assess the fluctuating exchange rates is this forex strategist. On an early Monday morning, when the rest of the world is still asleep and the Asian markets haven't opened yet, he's already recording a podcast for his bank's clients.

>> Hang on. Hang on a minute, 'cause I need to get. Yeah.

>> Okay, I've got recording going.

>> Right? Okay. Well, here goes. Get on with it.

>> Well, it was quite a week last week, wasn't it? Particularly for bond yields in the United States, 10-year Treasury. Well, the foreign exchange market arguably is the biggest financial market in the world. The most up-to-date figures that we have, I think, plot that at 6.6 trillion US per day. Just to give you an idea of how much foreign exchange trading takes place. So anybody in business that has a cross-border activity, if you like, as an importer or an exporter, um, has a need to manage the risks around future changes in exchange rates. So that's the sort of, you know, to some extent, the fundamental premise of why exchange rates, while they exist.

>> Yeah. So that's for the payroll number.

>> My job is to try and inform clients to allow them to really think about their their their risk management that they want to apply. So I will tell you where the Australian dollar is going to be in three months, six months, nine months, 12 months, three years. You know, the chances of getting that right, you know, day in day out are obviously fraught with with uh, you know, a lot of risks or uncertainty, but obviously we bring a wealth of experience. So when unforeseen things happen, um, you know, as John May said, you know, when the facts change, I change my mind. So, you know, we have a set of forecasts subject to an underlying set of assumptions, and if those assumptions are challenged or proved incorrect, then we change our forecast.

>> H so if Planet Finance already has such a hard time making predictions, what about Mrs. Watanabe?

>> The Japanese market is quite unique in terms of the the size of the retail foreign exchange traders, the Mrs. Watanabes, if that's what we we're calling them, their trading activity represents more than half of all of the turnover in the Japanese yen in the Tokyo market. I've heard various stories of Mrs. Watanabe being hired into the bank because their ability to make money has been has been legendary in some cases.

Legendary and infamous. Because while Planet Finance is still asleep in London and New York, Mrs. Watanabe can already influence the market.

>> She keeps storming Planet Finance in droves. You should make your money work for you, right? Then it's nice to fall back on someone who already knows the tricks of the trade. Like this mentor who once started out as an ordinary Mrs. Watanabe, but who is now seen as a real foreign exchange guru.

Who writes books with titles like "My Way of Making 1 Million Yen a Month."

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Yet even to our mentor, the forex market is erratic and hard to predict.

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Our forex guru overcame her own financial woes, and by doing so, she is showing the Mrs. Watanabes in the room that they can also change their fate for the better by creating their own fortune on Planet Finance. And how can they learn this? That's explained to them through a lesson in recognizing patterns in price fluctuations. The method Planet Finance uses to visualize prices was developed three centuries ago by a Japanese rice trader. He studied the past price fluctuations of a bag of rice in the hope of being able to predict the future price. He wrote down the opening price of the day and the closing price, but also how much the price of a bag of rice changes during the day. He uses the color white when the price rises and black when it drops. The rice trader starts to recognize patterns.

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He gives these patterns names like the morning star. That's the moment when the price picks up again. Or three white soldiers, three days of rising prices, a profitable period. Or the hanging man, which speaks for itself. Then the price is on the edge of a very deep precipice. Tomorrow, a bag of rice will be worthless.

[Laughter]

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Yet in Japan, making money with money isn't a very obvious choice for everyone.

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According to our Forex guru, anyone can become a Mrs. Watanabe. You download an app and start trading as if it's a game. And if you play it well, you can get rewarded instantly.

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With a trading app, you are seemingly in direct contact with the foreign exchange market. Seemingly, because for a small fish like Mrs. Watanabe, all trades go through a broker, a middleman. As the connecting link between the Mrs. Watanabes and Planet Finance, he has a unique understanding of how they behave on the market and how much risk they are willing to take. Can I? Because remember, on the market, as in life, things go well as long as they go well.

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Our guru is confident of the opportunities the forex market has to offer and even gets her manicurist to take her first step on Planet Finance after a lot of practice.

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[Laughter]

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After a few tentative attempts, tonight is the night our manicurist becomes a true Mrs. Watanabe and really enters the market for the first time. In Europe, it's still morning. She has bought euros and is about to experience the emotional roller coaster every trader goes through, amateur or professional. A trade always starts with optimism.

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Followed by excitement.

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And even euphoria. Euphoria, which could make you do something reckless as a trader, something that's better avoided. Then anxiety strikes.

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The European Central Bank has announced a new interest rate.

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After anxiety comes disbelief.

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Followed by fear. Suspicion, and finally capitulation.

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When the price plummets, there are people who, shocked by their sudden loss, decide to sell everything on the spot. Whereas in hindsight, that might have actually been the moment to jump in. And even though our Mrs. Watanabe has lost €25, she can't resist the urge to try again.

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Think of the market as a game for Mrs. Watanabe. Every round is a new chance. However, she has to learn to recognize her own overconfidence or fear and bear these emotions in mind when she decides to take another roll of the dice or not. Planet Finance believes emotion increases the chance of making mistakes on the market and even thinks it can easily brush these emotions aside.

>> I think the key trait for for you know, almost anyone in markets, but certainly those that are analysts and strategists like me, is to be able to be objective and not apply any kind of emotional lens to, you know, to what is happening in the markets. The dominant players really are what I would call institutional investors. You know, the the 10 biggest banks in the world, you know, probably do well in excess of half of all the foreign exchange trading that takes place. So, on an average day, they may be, you know, effectively $3 trillion worth of buying and $3 trillion worth of selling, and and really not much happens in a way, but beneath the surface, there is an enormous amount of of transactions that take place. Beneath that surface, the Forex market is a global network that's open 24 hours a day and only briefly closes on weekends. There are few rules and no central regulator to suspend trading when something goes wrong. I guess there's an old adage in markets. It's very easy to get into an investment position. The door is very wide when you want to go in, but when everybody's trying to get out at the same time, the door to the exit can be extremely narrow. So in an environment where most of the market participants, um, all want to sell something, that's when the market can become very disorderly, and you do see these these dramatic moves in very, very short periods of time. That's what can trigger some, you know, incredible volatility and price action.

Every trader should always take into account the risk that at any given moment, something totally unexpected can happen. And on Planet Finance, that's exactly when opportunities abound.

Fully aware of this principle is this forex strategist who spent years on Wall Street working for the largest banks in the world. But since the pandemic, Wall Street is not the same anymore. She can now work from her house on the beach. It's Sunday evening in Florida, but in Asia, it's already Monday morning, so the forex market has just opened. As always, Planet Finance is on the alert for things to come.

>> All right, so I'm going to put on Bloomberg in Hong Kong. And I like to put it on the TV as opposed to my computer because it feels more like a trading floor. See what the lead is. It's probably Afghanistan.

>> After 20 years, the Taliban entered Kabul as Afghanistan's president flees.

>> Yeah. So just a minute ago they were in the green, and now they're in the red. Dow, S&P, and NASDAQ futures are just slightly negative.

>> BHP's petroleum division.

>> Yeah. So we do have some clients like writing into us. They're like texting us, and they're just asking, um, will the events in Afghanistan have any market impact? And because we have so much, um, going wrong globally with COVID, that's a destabilizing influence that when you add anything more geopolitical onto it, it can create volatility in the markets. We're not really off too much. You see very closely, um, the VIX could rise. So that's pretty much what we're going to watch for for tonight. The VIX, um, in terms of the volatility index, if that rises and if that impacts the dollar at all, maybe strengthening the dollar from like a safe haven perspective.

>> Right. The VIX, Planet Finance's tool for measuring uncertainty in the market. The higher the VIX, the greater the fear of turbulence. In other words, volatility, which can create interesting opportunities for traders.

>> Could an event like the American withdrawal from Afghanistan make the VIX peak again?

>> Of course, if there's a tragedy, if there's really bad optics, if there's a couple of children that get burned or whipped, we could really see this coming back in a nasty, nasty way. Um, but right now, the answer is no.

>> I think today we've just seen not too much of an impact, but it has been risk-off today, which isn't surprising. Um, the visuals coming out of Afghanistan, the actual photos of the people at the airports trying to leave Kabul are just, they're obviously not good photographs. They're obviously these people are in trouble. These people are fleeing. These people are in pain. So these aren't the type of photos, um, that anyone wants to see, and so they are creating, um, some destabilization. So it doesn't have a big market impact, but maybe a little bit.

Through the lens of the market, all that matters is whether bad optics like crying children or fleeing people will affect the market prices. This might seem like a cold reaction, but this is Planet Finance, where you shouldn't get distracted by feelings of empathy or disgust. This worldview probably won't make you a nicer person, but it might make you a good trader.

>> So really, what traders are, whether you're at a hedge fund or whether you're at a bank, you're a risk manager. So you need to be aware of the risks, and you need to be able to mitigate the risks. And you also need to be able to use the risk to your advantage. So when there's, um, dislocation in the markets, which can come endogenously or externally, these are the times to make money. Like, you know, um, it's like never waste a disaster, almost. And I don't want that to be taken the wrong way. I don't want to say capitalize on a humanitarian crisis or something. That's not my point. But during these times of dislocations, markets do move, and so you don't want to be caught wrong-footed. But still, never waste a disaster. Does Mrs. Watanabe realize that a disaster could also present a source of opportunities?

This Mrs. Watanabe is a jewelry designer. It's hard to make a good living out of that. So, she also speculates on the foreign exchange market. She found out the hard way how frightening Planet Finance can be.

To find out how she came to that conclusion, we should go back to early 2011.

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With the money from her sister, whom she shares a small apartment with, she enters the market.

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And then on March 11th, 2011, everyone is caught by surprise.

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An earthquake off the east coast of Japan causes an exceptionally strong tsunami. The impact is so great that Japan literally shifts 2 and a half meters east, causing thousands of fatalities, total destruction, and billions worth of damage. On Planet Finance, such a disaster is called a black swan: a disruptive event that no one saw coming. Something you can't be prepared for, but that does have a major impact. Also on the market, and this time mainly on the exchange rate of the Japanese yen.

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At such a moment, empathy is something you don't need on Planet Finance. Meanwhile, our forex strategist is in the US on the trading floor of one of the largest banks in the world.

>> It's an external shock, right? So you have no idea it's coming. It's something not of the market that comes to the market. So on the trading floor, we obviously watch all the currencies and you know the equity markets on our screens, and you get a feel for when you watch them tick by tick every single day for hours a day.

You get a feel for how things are trading. There was so much buying of yen, and that kind of happened in the sense because externally, they knew they had to pay for the costs of the earthquake and the tsunami. So that, um, people were selling, or Japanese companies were like selling assets abroad and repatriating them to Japan. So that caused, like say, maybe selling of US dollars, buying of Japanese yen back to Japan. The foreign currencies bought by our Mrs. Watanabes are now quickly dropping in value, especially when on Monday morning, the rate of the yen goes through the roof.

Of course, the whole world is holding its breath, and everyone thinks the Fukushima nuclear power plant will become a second Chernobyl, but the exchange rate keeps going up. [Music] A financial fallout continues to follow the crisis still unfolding in Japan. And early Thursday morning, in the wee hours of the morning, the Japanese yen hit its strongest level against the dollar since World War II. [Music] So there you go. When all of planet finance starts to speculate on the exchange rate of the yen, strange things can happen. The yen skyrockets so fast that the broker's computer cannot process the huge number of trades and crashes. And in that crash, the foreign currencies owned by the Mrs. Watanabes are automatically sold for Japanese yen at a great loss. Liquidation is what they call this on planet finance. Stop computer, minus I, I don't know. On planet Earth, the loss is much, much greater.

But the foreign exchange market is still a zero-sum game. Where someone loses, someone else wins. Planet Finance assumed that the central banks of the world's seven largest economies, the G7, would come to Japan's aid by stabilizing the exchange rate of the yen. Our forex strategist looks back on what happened with a colleague who worked for a large hedge fund at the time. Here we see the difference between the big fish and the little ones because she had something Mrs. Watanabe will never have: a phone with a direct line to the Fed, the American Central Bank.

"I remember at UBS on the trading floor, we obviously had direct lines like to the Fed, and so they can just call for the intervention. And I just remember people like waiting for the Fed line to light up on the board, you know, like on your, your board, like the Fed's going to call. And we already had planned like who would answer the phone, you know what I mean? Because we knew it would be the intervention. So, yeah."

And so from the bank side, that's what we see on the trading floor at a bank. But like on a hedge fund side, like what, what are you experiencing?

"You see like a headline come or what do you see on Bloomberg and Reuters? You just see red headlines pop up, you know, flagging that this is an important thing. And in that instance, I mean, you'd have to check the tape, but I think it would say, you know, Fed to ECB, Bank of Japan announced coordinated intervention in Dian. And then boom, it's, it's, it's over in 10 seconds."

So, as soon as the rumor starts to spread that the central banks will intervene, the yen immediately drops. And right after the G7's official announcement, the exchange rate falls back to its former level, leaving the losers in shock.

Do you recommend any way, um, to make money throughout this period?

So I guess on the way down, because we didn't know about the nuclear disaster would happen when the earthquake and tsunami happened on the Friday. So it was almost like catching a falling knife where dollar yen kept going lower. So I imagine some people tried to pick like a bottom.

"So I remember going into it, we were short dollar yen, as it were, and I think we added, actually, but we added through options."

"Oh, you added to the short position?"

"Yeah. But there was so many things going on, it was so uncertain. And when things are uncertain, ordinarily, you know, volatility picks up. So that's the classic difference between risk and uncertainty. Like this was a truly uncertain situation. I mean, the whole time could have gone down at one point. It was, it was really quite scary."

Risk and uncertainty. They might seem the same, but on planet finance, these two are very different things. Risk can be calculated, but uncertainty is dangerous and unpredictable. Only a select group of experienced traders still dares to enter the market then.

"Good. All right, let's go get your gloves on."

Sometimes using the risk to your advantage means not losing a ton of money because this black swan event is approaching, right? Something awful is going to happen. You're either going to lose a ton of money, or you can hopefully make a lot of money. So what you should do is either mitigate the money you lose or use it as an opportunity now to try to generate alpha. And you really have to look at it that way.

"Alpha, you know, um..."

"What is alpha?"

"Alpha is profits."

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If there's one thing I've learned, it's that on planet finance, you can only survive if you keep a cool head. Empathy, greed, euphoria, fear. You have to learn to recognize these feelings to become a good trader. Even if it's only to repay the debt to her sister, our Mrs. Watanabe cannot help but to return to the market. You can get a Fore! Fore!chch! [Music] Mrs. Watanabe continues to seek her fortune on planet finance, and many others with her, and they accept the risks and uncertainties as part of the deal. [Music]

There's 1.3 billion people in in China. I think 1 billion of them have used Alibaba. You know, you look at a company like that in the United States, that company would be worth what Amazon's worth. But it is answering, it's not answering to shareholders anymore. It's answering to another power. There's a million reasons why things don't happen in China, and we probably don't know 99% of those reasons. I mean, you know, it's still the forbidden kingdom. [Music]

There is a world made up of numbers. A world where you have to be the smartest or the fastest. [Music] A world connected by radio waves and fiber optic cables. "15." A world where you can make money if you think you know what the future holds. [Music] A world of fear and desire where you can win or lose. I call this world planet finance.

Wandering around planet finance, I arrive at the most renowned of all financial markets, the stock market. In a place where you wouldn't immediately expect it. Here in Shanghai on Friday nights, you can see a lot of online stock trading going on. The edge of the central people's square turns into a trading floor. Everyone can share in the profits in a country that calls itself communist, but that also seems very capitalist to me. [Music] China has opened its doors wide to planet finance. As if the country has overcome its fear of capital flowing freely around the world. But now that the country is a contender to become one of the world's largest economies, I wonder who is going to set the rules of the game: China or planet finance.

The capitalism the way we have it structured works for us. Whereas China, they're thinking more on the whole as opposed to the individual. Anybody could learn from that. Not sure if I believe in any of the other stuff that goes on in China, but I think that that believing in the whole and making sure the whole works is, you know, as far as business, I think that's a good model.

For years, Wall Street has been giving China plenty of room to make money on the international capital market. In recent years, the most valuable newcomers have mainly been Chinese. A good example is the large e-commerce company Alibaba, founded by the well-known Chinese entrepreneur Jack Ma. "Happy birthday to you." In 2014, he decides to list Alibaba, not in China, but on Wall Street. [Music] At the time of Alibaba's IPO, this trader was on the floor of the New York Stock Exchange as a direct eyewitness to this historic moment.

"For Jack Ma, bringing it to the United States was very important. Knowing that the coverage he would get, the brand exposure, there was a lot of things going into it. But at the end of the day, I, I kind of think it was about ego, too. I mean, it's very impressive to list your company, you know, build a company from scratch, you know, with 15 of your friends, and next thing you know, you're listing on the New York Stock Exchange."

If you want your company to grow, you go looking for capital. You can sell small portions of your company on the stock market. These shares can then be traded. The greater the demand, the higher the price.

"I had never heard of the company, and a friend of mine who worked on the trading floor said, 'This is, this is awesome because Alibaba is the most exciting company to come across in our careers. Everyone is looking at it and saying, 'Well, this is the same thing as Amazon because it's a very similar business model.' And the investors are jumping over each other because they feel this is, this is their, uh, chance to invest in the Chinese miracle."

In 2014, Western investors such as our pension funds are licking their lips at Alibaba's IPO and the company's potential for growth. "Just to begin, we have probably about 350 reporters outside. They may be yelling, they may be screaming. This is just, just part of it." "Jack Ma rings a bell and then, uh, the first day is where all the action is. And you know, people were jumping over each other to try to get shares." "It's the largest IPO in history." "Certainly, this is a big deal. This is a global deal. This is by far the biggest, uh, IPO event extravaganza that we've had down here. I would say probably since I've been down here." "It's basically the purest example of a functioning market. It has supply, has demand, supply meets demand, demand meets supply, and that's that's all it is. It's stressful in the fact that you got to be there. You got to listen, and there's the craziness of an IPO."

Meanwhile, I have Jack Ma and I started talking to him. I congratulated him and everything, and he was, you know, talking. He goes, "This is so exciting." You know, he was like, he was thrilled. And I told him, I said, "Well, let me show you what I'm doing on my handheld, so this way you have an idea." And I was, I had like maybe four and a half million shares to sell and maybe two million to buy. And I said, "These are the smart guys." So, I made them feel good to all the buyers. The black are those smart guys, and the guys in red, they're not so smart. He was dying laughing.

Of course, Jack Ma is laughing. The demand is much, much higher than the supply. And so on the day of the IPO, the Alibaba share price immediately goes up. "Opens at 92.72." [Applause] But not all the shares are put up for sale. A large portion remains under the ownership of Jack Ma and a select group of early investors. They hit the jackpot that day.

"He became, I mean, on paper, everything is on paper. No matter what, any gain is on paper until you sell it. Uh, but I believe it was 15 or 18 billion."

"Billion?"

"Billion. Yeah. So I mean, I could be 100% wrong about that. You could look it up, but I think it was roughly about 15 or 18 billion, give or take a billion. Um, so he was a very happy man."

That makes Alibaba's IPO the biggest one ever. The dollars flow into China, and the doors are open wide for planet finance. [Music]

Fast forward six years. Jack Ma is the richest entrepreneur in China, but he still can't resist the urge to score it big again. Now he wants to take his fintech company, Ant Group, public. But this time, he doesn't choose New York. Ant Group's IPO should have been the biggest one ever again. But things didn't work out as planned. To understand how the IPO put the relationship between China and planet finance on edge, I'm taking you to Hong Kong. For a long time, this was Asia's main financial center and an outpost of Western capital. And this time again, Western investors are first in line for Ant Group's IPO. Because in China, the entire country has become dependent on the financial super app Alipay, developed by Ant Group.

Door and Amy shows her unique Alipay code and has it scanned. Done. There are so many other functions to explore. Because with this app, you can make payments, but also take out a loan or insurance, save money, and even trade. A super app that Western tech companies can only dream of. "The open telephone." This fund manager clearly sees the potential of the IPO as well. As always, he is looking for returns, also on our pension money. So, he is assessing at what price he would want to get on board. "Extremely sensational." "Yeah. So, thanks a lot for that. And, uh, let's make lots of money." Arnold Van Rein has worked in Hong Kong for years and shares his considerations with me in the run-up to the IPO, and due to the pandemic, he does so at a distance. [Music] "For the book building." "I hope it's more than 200 billion. Actually, it is. I think." "Mhm." But there is no planet finance without small investors. Even this taxi driver wants to get a piece of the pie. By buying shares in Ant Group, our taxi driver gets himself a wafer-thin slice of the pie as a co-owner of the company. And with a little bit of luck, the IPO is such a big success that he can make a huge profit. [Music] In order to even qualify for Ant Group shares, everyone has to sign up through a special app nine days before the IPO. [Music] "Okay. How you come up?" Fore! Foreign! Foreign! [Music] [Music] [Music] This is all popular IPO in China in the Star Market in Shanghai. A dual listing that doesn't happen very often in Shanghai and at the same time in Hong Kong. Why does Jack Ma want to do this? [Music] Jack wants to butter his bread on both sides because China has built a virtual wall between mainland China and the rest of the world. This wall is supposed to protect the Chinese market from outside influences, but it mainly has to make sure that Chinese capital stays within the nation's borders. In Hong Kong, Jack Ma can rake in international capital. And in Shanghai, he gains access to the piggy banks of the new Chinese middle class. By day, these new investors are shown their way around planet finance by this wealth manager. But at night, he becomes a so-called financer. Through his TikTok account, Liu Ping keeps his millions of followers informed of the market's ups and downs, and I can join him for a session. [Music] Fore [Music] speech. Bye-bye. [Music] Liu Ping himself is also part of this new Chinese middle class. He earned an opportunity to study in Canada and now has a good job at a large asset management firm. But to get there, he had to come a long way. [Music] Don't for [Music] Liu Ping. It must be a huge contrast from where he came from to where he is today. Chocolate. The company our wealth manager works for helps the Chinese newly rich to become even richer. Although the financial industry is still in its infancy, investing is popular in China. 7% of the population invests, and each month they are joined by millions more. The date of Ant Group's IPO is approaching. And Liu Ping and his colleague are not only charting the possibilities within the Chinese money wall, but also those beyond. Because in the end, Chinese money will also flow wherever it wants to go. [Music]

While in Hong Kong, it is getting harder and harder to speak freely, Jack Ma addresses the Chinese financial elite. It's this speech that will lead to his downfall soon after. His words about the failing government reverberate strongly. Jack Ma says things that hardly anyone dares to say in public. He claims Beijing is holding back the growth of a healthy financial market. And he emphasizes the need to embrace innovation. I wonder if Beijing's policies are also felt on planet finance. Our fund manager in Hong Kong seems a little nervous about it.

"Um, now over the last year or so, yeah, things have intensified quite a bit with the introduction of the national security law. You can really see that things are changing, and people are doing a lot of self-censorship in what they say. So that's really different now. But for the rest of Hong Kong, like I said, as a financial center, it's still very much alive and vibrant. But, uh, yeah, for people that don't like China, it's, it's becoming more and more difficult."

In Hong Kong, the freedom of planet finance seems unhampered for now. [Music] [Music] for public. [Music] Yeah. [Music] Meanwhile, our taxi driver is eagerly awaiting things to come. Don't for soon, he could become the lucky owner of 50,000 shares of a total 368 million shares that Ant Group will bring onto the market. [Music] It still remains to be seen whether he will actually get these shares because he's not the only one. In Hong Kong, one out of five inhabitants sign up for Ant Group's IPO. And for small investors, the only way to do that is through a so-called broker. The broker's clients are at his office doing trades as if it were a casino. They are speculating to earn as much as 10 cents of profit per share with their margin account. These fortune seekers can greatly increase their chances with all the risks involved. Fore. [Music] So they can sign up for a much higher number of shares than they can afford, which only increases the demand for Ant Group shares. Our taxi driver has also put himself in debt this way. His 50,000 shares amount to half a million. And all of that only to be able to play the game on planet finance. [Laughter] The hype around the IPO is reaching great heights in Hong Kong. The demand is now nearly 400 times higher than the number of available shares. So now the game of supply and demand really starts because what will be the price of the share? Retailers. This psychological game is what planet finance is crazy about because in the end, the value of something is what a fool is willing to pay for it. And that's exactly what Beijing is scared of. After all, in the days of Mao, there simply were no stock markets in the communist country. So for China, joining the game on planet finance is a relatively new and above all risky endeavor. And given the deep poverty Liu Ping has pulled himself out of, I wonder how he deals with the risk that he too could lose everything again. Fore speech. Fore! Foreign! Foreign! [Music] For Beijing, it's harder to deal with the prospect of potential loss. And Jack Ma. After his warning about the power of the Chinese government, he continues his speech by taking things one step further. The laughter of the Chinese financial crowd sounds uncomfortable. And three days before the planned IPO, this discomfort reverberates around Shanghai's business district. Yeah. Foreign speech. Foreign speech. Foreign speech. Those are the main [Music] Our wealth manager and his colleagues are clearly worried not only about the tone of Jack Ma's speech but also about the powerful position of Ant Group. Lie down. But meanwhile, the interest in Ant Group shares only continues to grow. In Shanghai, the demand is now 800 times higher than the supply. And then 2 days before the long-awaited listing, something happens that nobody could see coming: Beijing slams the emergency brake and pulls the plug on Ant Group's IPO.

"The largest initial public offering of all time, not listing here in the United States, but would be listing or was said to be ready to list in Hong Kong and on the relatively new Star Market in Shanghai. All of that appears this morning to be going up in smoke." [Music] Fore! Foreign! Foreign! IPOP. [Music] Come on. [Music] I feel speech. [Music] The regulator speaks with restraint. Never before was such a large IPO called off at such a late stage in the process. And this completely unexpected move by Beijing leaves planet finance speechless. [Music] I think you don't want to [Music] Our [Music] broker also thought he hit the jackpot with his commission on all those transactions. She's on business model. Yeah. For if something seems too good to be true, it usually is too good to be true, especially on planet finance.

Meanwhile, in Shanghai, our wealth manager obviously has heard the news of the canceled IPO. He has been busy with his TikTok channel all night because everyone wants to know why those mountains of gold they were promised have now vanished into thin air. And he tried his very best to answer that question. But to actually share his insights with his followers proves to be a not-so-easy task. Where' you Apparently, TikTok also quickly realized that the canceled IPO was a sensitive topic. [Music] [Music] [Music] Okay. What Jack Ma was really hoping to achieve with his speech isn't entirely clear to Liu Ping and his colleague. [Music] [Music] I can hear it. [Music] Super Before the scheduled IPO, Jack Ma was a busy man. The flight data of his private jet show that immediately after his infamous speech in Shanghai, he is being summoned to Beijing. And while all of China is still a buzz with the upcoming IPO, two days later, after a short stay in Hangho at Ant Group's head office, Jack Ma is again summoned to Beijing. That's when Ant Group's IPO is called off for 12 long days. His private jet doesn't leave Beijing. Jack seems to have dropped off the radar.

"Hey, hey, hey. Take it easy, buddy."

I wonder what people on the other side of the ocean think of Jack Ma's disappearance.

"Calm down, Stinky."

"The only time I've ever seen him is when he finally came out, you know, when they, whatever they, wherever he went on vacation. Um, he seemed, he looked happy, but I didn't hear anything he had to say. I don't think there probably is, you know, him, it's speeches because his last speech was very, um, negative as far as the Chinese banking system."

"Did you watch it?"

"I saw parts of it. I didn't see the whole thing."

"What do you think of it?"

"Well, I, I think he's right. You know, I think he's right, but I don't live in China. Um, you know, I'm free to say what I think about Jack and the Chinese banking system here."

"Hey, here you go."

"I mean, we don't see everything that goes on in China. Hey, I know. I know. I know. There's a collar underneath his collar, he has a, it's, it's a shock thing. It has two metal prongs. And if you walk around the property, right, right on the other side of the fence, there's a little metal wire, and and basically if he goes over that line, it'll, it'll like shock him a little bit. And it just reminds him that he's not supposed to go, because that he was trained to not go over that past that spot. The similarity is, is striking." [Music]

One year later, the celebration of the 100th anniversary of the Chinese Communist Party draws near. Besides Ant Group, Beijing has also subjected other Chinese tech companies to stricter rules, and Jack Ma's pride and joy still isn't listed. [Music] [Music] All-mighty Beijing clearly doesn't want to leave everything to the power of the market. As a result, the Wall Street share prices of Alibaba and other Chinese tech companies are falling. I wonder why Beijing puts so much pressure on its own large tech companies. [Music] foreign. [Music] Yeah. [Music] Yeah. And it's all new. In the end, our taxi driver gets reimbursed by Ant Group for the interest he paid, but his dream of making a fortune in a single day is gone. for [Music] [Music] With the benefit of hindsight, I wonder if Jack Ma already suspected that his company's IPO wasn't viable when he gave his speech. Did he realize that his days as a successful entrepreneur were numbered? Is that why he overcame his fear of Beijing and dared to say what others can't? But in the light of history, that doesn't matter anymore because Beijing stays its course and splits Ant Group into different parts. The company has to submit all user data to a state-owned agency and comply with the same strict rules as banks and insurance companies. If there's one thing I've learned from this is that the cancellation of the IPO was a watershed moment. Perhaps not altogether unexpected, but China itself now determines the rules of the game that's played on planet finance. Meanwhile, Beijing forced Jack Ma to give up his control of Ant Group, potentially opening up the possibility to set a new date for an eventual IPO.

In the old days, say, pre-1990s, uh, capital was king or queen. You called the shots. Now capital is a burden. I estimate that globally there's roughly 10 to 20 trillion dollars in excess capital that has no useful home, no place to go. It's, it's just roaming the world searching for, uh, a use for those who possess that capital. Uh, it, it's a little bit of a nightmare. So it can kind of make up its own opportunities or it can allow crazy financial opportunities to arise solely to put that money to work.

There is a world made up of numbers. A world where you have to be the smartest or the fastest. [Music] A world connected by radio waves and fiber optic cables. "A world where you can make money if you think you know what the future holds." A world of fear and desire where you can win or lose. I call this world planet finance.

Wandering around planet finance, I arrive at a place where they really love risk. Here they speculate on the chance of a wildfire, flood, or other catastrophe happening. "You want to try? Go from there?" "Come on, boys. Let's go." This man lives off disasters.

"I married while I was in college, and I started my family while I was doing my PhD. My, my first child, he cost the insurance company half a million dollars, uh, being born prematurely. And so the person at the insurance company told me, 'Your next child won't be covered.'"

"Oh, so good."

"Someone whispered to me and they said, 'Hey, go to Wall Street. Um, you know, a lot of math. They'll give you healthcare just for solving one equation.'"

"Okay. So in the first interview, the person comes in, he said, 'John, does money motivate you?' And he went on and on, a 10 or 15-minute speech that culminated almost, 'Do you worship at the altar of money? Does money mean more to you than anything else on this planet?' Etc. And I was, I was like, 'Wow, this is a very long speech.' And so I waited for him to finish and I said, 'No, no. See, then why are you here?' I said, 'Oh, I just need health insurance, and I'll do anything that you ask me to do.'"

That was my start. And that led directly and eventually to my getting a phone call from Lehman Brothers one day for Catastrophe Bonds. I said, "Oh, wow." I go, "Okay, so I have no experience in that." And he said, "That's the great thing. Nobody does."

On planet finance, there is a market for nearly everything, even for a future disaster. A disaster that hasn't happened yet. A disaster that might never happen. There are people who spend all their time calculating the minimum chance of such a disaster happening and, above all, the extent of the damage.

What is a crisis or a catastrophe or a hurricane? What happens is it causes chaos. And chaos is the breakdown of typical systems. And it's this feeling of, you normally walk around, you're like, I know the subway is going to come at this time. I know that I have to go to work at 9:00. I have to leave by 5:00 and go to the grocery store. And then a crisis hits, and none of that is known anymore. Suddenly, it's all in the world of the unknown.

To show you how such a chaotic situation can give rise to a market, I will take you back to a dark autumn night in 2011. [Music] Hurricane Sandy reaches the shores of New York. A state of emergency is declared, and all traffic comes to a standstill. The south part of Manhattan is flooded, and power goes out. The next morning, the extent of the damage becomes clear, and even Wall Street is forced to close trading for 2 days. A rarity. The last time that happened was after 9/11. The aftermath is a process of how do you go from chaos back to understanding or back to some sort of stability. It's not going to be the same as it was before, but hopefully a little bit more stable than, than, uh, than that moment of chaos. The storm leaves New York with 43 dead and billions of dollars of damage. The flooded tunnels are the greatest disaster to ever happen to the city's public transportation system.

"Be careful, 'cause you want to have some grease in it. So it might be a little slippy."

So how do you make a business out of that? What, what is the business? Well, the business is being able to predict that risk and price it. How can anyone make money out of a disaster? A disaster that only seems to leave losers in its wake. The tunnel filled with water for about 2/3 of its length. We estimate there were about 60 million gallons of salt water entered the tunnel. I think it was about a week of solid pumping just to just to pump the water out of the tunnel. That was before we started doing any repairs or cleaning or anything like that. I don't think anybody, anybody knew what the intensity of it was going to be when it actually came. And, you know, we weren't, weren't really prepared for it, I guess.

Today, New York is prepared to be able to pay for the damage when the next hurricane happens. A former banker has found the solution. She spent years on Wall Street and now works for the Transportation Authority of New York. For the uninsurable damage, she goes to planet finance for help.

"We all hear about hurricanes in the Caribbean. We know about damage in Florida occasionally. And we never thought that it would come here, but it did. [Music] Of course, our system was devastated. The inside of our tunnels, um, have a lot of electrical, um, equipment that was all, um, ruined. Our, um, damages were like in about $800 million range, I think. We were only able to get about $500 million, give or take, in coverage, and the premium doubled, actually more than doubled. So we were concerned that we were not able to get enough coverage. That's when we started working on our first cat bond transaction."

Let's explain that one first. Cat bond is short for catastrophe bond. A bond is nothing more than a loan that has to be paid back before a specified date. I lend you a sum of money, you pay me interest, and at the end of the term, you pay me back the borrowed amount. But a cat bond goes further than that. If a disaster occurs before the end of the loan's term, the money lender loses the entire sum, which is then used to compensate for the damage and save New York.

"It, it's exactly like insurance, right? Insurance collects your premium while everything's okay. It's supposed to pay you when you have pain and loss."

So now New York pays interest on a cat bond instead of an insurance premium. And if you want to buy a cat bond, you go to John.

"So I described the deal, and I fairly quickly got to the size. I'd say, 'Oh, nothing, just 500 million.'"

Years ago, John couldn't get health insurance when his wife was expecting a second baby. Now he owns a hedge fund specialized in cat bonds.

"Even the hedge fund there is losing, leaving 400 basis points on the table, right? It's why he's like, 'Cuz we're done.'" CAT bonds that should cover the damage of future disasters. Reasoning is that there are all these opportunities, and you just have to give examples like I gave, right? But as I say, to get in on the game, you need at least 100 million.

"Hold on a second. This is a billion and a half commercial mortgage that's backed by the collateral of the building itself, the complex, and the, but the complex itself is not insured against earthquake or flood, even, or all these."

There are even cat bonds to cover the damage of solar storms and meteorite impacts.

"So this is, uh, our main room. We're 31 people, and, uh, we invest in bonds. Now, bonds are usually very simple. Uh, these bonds are called catastrophe bonds, meaning earthquakes, hurricanes, floods. We lose money when they occur. So, uh, we're not profiting off of destruction. We're insuring, uh, destruction, uh, that is otherwise too large for traditional insurance companies to handle comfortably. So there's a, a lot of computation that's involved in this."

This server room is the heart of the company. The computers link the widest range of data sets together and continuously calculate the probability of a future disaster happening, plus the damage it might cause.

"It's set up so that my older brother, who used to sit right over there, can actually see all the status lights from his desk. So, it turns out running a server room is very complex because you have software to see if software is broken, but then you need software to look at that software to see if it's broken. And usually the, the, the whole chain doesn't work all the time. So, the best, uh, indicator of failure is actually a red light. So, you want to be able to stand up and see the red lights."

Investors around the world are looking for something new to invest their money in. And then they find us. Once they find us and allow us to invest, uh, their money, then, then the really, the rest is relatively easy.

"I'll stop over here. Oh, hey. Hello."

"Right."

"That 10 to 20 trillion dollars of capital roaming the world is urgently looking for returns."

"Our clients are wonderful. They, they come from every continent, from every investor class, uh, in, in the world. Uh, so it's everything from, uh, giant national pension funds, corporate pension funds, sovereign wealth funds, uh, insurance companies, banks, endowments, charities, and, and wealthy individuals."

"What would happen if the normal traditional bonds witness higher yields? How would it affect the cat bonds?"

"You know, our, our market is interest rates on other bonds go up. As they do today, the interest rates on CAT bonds automatically go up as well. So the returns remain high."

You know, in a sense, catastrophe bonds are the only thing left over to absorb that extra risk. The, the demand for cyber risk coverage is going to explode over the next year. John SO's clients invest millions in his hedge fund, and throughout the term of the CAT bond, they receive an attractive interest rate in return. But first, the conditions under which they can lose their money are precisely defined. There are so-called triggers for that. What the minimum damage should be after a wildfire, or what the minimum water level should be during a flood.

The trigger was created specifically for our area. Basically, the modeling firm did the analysis where potential storms can come from, and they analyze about 100 years of data. They model 100,000 storms based on all this data available historically, and basically they're continuously measuring water levels. The triggers are in: if in area A, the trigger level, the water hits 7.75 feet, or in area B, it hits 12.75 feet above Nava 88, then the transaction triggers. Another condition for the transaction to trigger is that there's got to be a named storm. Every new hurricane season, the first tropical storm gets a name starting with the letter A until the end of the alphabet is reached. Anna, Bill, Claudet, Danny. Many named storms have swept across New York since, but the water never reached as high as it did during Sandy.

"It, it actually never triggered. So, so far, investors didn't lose any money on us. We hope it is going to happen at some point. I'm, I'm joking. But, um, yeah, so so far so good. Um, so far it hasn't triggered. We, we didn't have another Sandy."

So this cat bond is not only a solution for New York, but planet finance is happy as well. A typical win-win situation. A catastrophe bond. It's brilliant because it's so simple. Uh, there was no complexity for the investors. You know, when you, when you set a high, uh, water mark there and you tell very clearly to the organization, if the water comes to 8 feet, not 8 1/2 feet, then we have no insurance. The, the engineers know how high to make the sandbags, to design all the flood barriers for all the entrances to. So, one of the, the mitigation measures that we put into place after Sandy was these floodgates right here. These are steel-hinged floodgates. Each of these gates weighs approximately, um, more than 40,000 pounds. So, approximately 20,000 kg. This floodgate seemed to be the, the best combination of cost, strength. As long as we maintain them and replace the gaskets, these should last for 7,500 years.

John's job is to make sure that even if there is a big storm, there is no damage to his tunnel, our tunnel, I should say. Right. So my job is to make sure that if there is damage, we have money to fix it, right? Investors who invest in CAT bonds, they are just used to investing in this kind of risk. That's what they do. And to be honest, because it's such a risky asset, right? Um, they enjoy much higher interest rates that are currently available on other assets. You know, they will invest a little bit in MTA CAT bond, and then invest a little bit in the earthquake in Mexico CAT bond, and a little bit in Japanese typhoon CAT bond. And this is how they diversify their portfolio so things don't hit all at once, and they don't lose everything. So there is a market for disasters all around the world, each with its own risk, and therefore its own price. Managing catastrophe risk is, is very, very particular, and this was originally what drove my perception of the opportunity here. The opportunity not just for profit, but actually create a whole another industry that never existed before. It was driven by the fact that traditional finance actually, uh, is very uncomfortable dealing with catastrophe risk and effectively sweeps it under the rug, right? They want to think about the opposite, which is, you know, uh, the winning lottery ticket, hitting it big, you know, big upside. Who wants to think about downside? So the very first task I set myself to, even before I went to Lehman Brothers to manage a catastrophe, uh, trading group, was to actually redevelop all the mathematics outside of the bell curve. Right?

So there it is, the bell curve. A graph in the shape of a church bell. Traditional banks and insurance companies use the bell curve to calculate their risk. In the middle, you see what is most likely to happen. For instance, the chance of people paying off their mortgage. The sides of the curve show you the chance of what is less likely to happen, like mortgages that aren't paid off due to unemployment or illness. The business model of planet finance is built on the most likely risks, not on the so-called tail risk. That's where it becomes much harder to make precise predictions because what are the chances of an airplane flying into the World Trade Center, or of a tsunami crashing straight into a nuclear power plant? These are the unexpected events. The traditional part of planet finance isn't prepared for. But John lives off these fickle chances.

The reason why they're stuck on that framework is because they don't have anything else. And it terrifies them because if you can't rely on that, uh, there is actually no academic framework for dealing with systemic, uh, catastrophe risks because if you don't have that framework, then you can only deal with emotion or relying on old-fashioned techniques that are that are known not to work. Head, and you need to break with that if you're going to survive, uh, in the catastrophe bond arena.

So John SO's algorithms can be used to calculate the chance of a disaster happening, but to me, human behavior seems much harder to capture in an algorithm.

"Because, uh, individuals are too wild and wet and non-uniform, uh, to be conquered with simple mathematics." [Music]

To show you how those planet finance algorithms affect planet Earth, I travel to the village of Bonny Dune. [Music] A close-knit community on the American West Coast, a place where the threat of wildfires looms every long, dry summer.

"Here's Josh."

"Hey. Hey, I heard you. Are you going to be there for a few minutes?"

"All right, I'll be around."

The community has a village elder who lives off the wood from the forest. "Johnny, did you see there's three deer in the orchard?" His wife, who grows flowers for weddings and celebrations. "Those darn deer might go up over the road." We have to shush some deer out of the garden. Uh, okay. And this man who makes his living drilling water wells. "I think we're set. Okay. You want to get fuel? You already got it." And a teacher who gives lessons to convicts. When one fateful August night, a wildfire came straight at them. They decided to fight it themselves. It was the night that marked the beginning of the Santa Cruz Lightning Complex fires, which started with as many as 11,000 bolts of lightning.

"In all the 50 years or more that we've been here, we have never seen so much lightning. And we thought, what is going on? But we still, um, the fire hadn't really become a reality."

"Well, it was never have. It hadn't started."

"It hadn't started yet."

"And there happens to be some lightning, chain lightning by the Monterey Bay. Got to check this out."

"We looked out our bedroom window and..."

"Oh, yeah."

"...we had never seen anything like it."

"Well, it was lighting up the sky everywhere. There wasn't even in one spot."

"There's the wall of clouds coming towards us. Uh, something's coming. Something big. Something's going thunder clouds. It's humid. Huge."

"I mean, it was behind us. It was up north of us. It was everywhere. There were big lightning bolts going off all over the place. And that's why there were nine different fires started, you know, and the thunder claps were loud. They weren't just, you know, way off in the distance. They were right on top, right around us."

The fire department. Well, we didn't ever see them, to be truthful, because they were all going to these different fire locations. I took Nancy, our daughter, and all the kids and everyone up here evacuated. And then fire was hitting. It was hitting the upper part of B. It was coming up that swat area and starting down this way.

"Get a chunk here. It'll drop."

Every human being is constantly making his own personal assessments. How to deal with the risks of life. John was up on the mountain by himself. His son had left. His daughter had left. Everybody was gone except for John. All the neighbors left. John was the only one who stayed. There was one night when John was the only one up there. He's also kind of this, uh, patriarch of our community and, and a really well-respected elder, I would call him. And so I felt the need that I needed to go up just to help John if help was needed. And when disaster suddenly strikes, you can freeze, flee, or fight.

"Most of us, even though we're hermits, just kind of we're like, 'Okay, the government's going to handle it. Let's get out of the way.' And then when, um, John Lingaman decided to stay, uh, and, you know, he let us all know that nobody was here. You know, it's kind of like that, uh, age-old story like no one's coming to save you."

"Oh, cop. Don't know what he's doing here. Maybe we're all in trouble. But we kept getting, uh, refused by the police. Um, and, uh, so we ended up sneaking up here."

"I'm so curious about that, sheriff. We rarely, rarely get cops up here just because, you know, why patrol? We're not super interesting."

"Um, yeah, to, to start, we'll be, uh, revisiting some notable wild."

Many miles away, John SO and his team are trying to calculate the possible damage of the wildfires to see if any triggers could be activated.

"The, the Tubbs fire from 2017, the Campfire from 2018, Woolsey from 2018, and the Santa Cruz Lightning fire from 2020."

"So then, let me see here, where the, where are the property counts there? The actual property counts are there in line six, right?"

"You obviously see in green the fire perimeter for the Santa Cruz fire, the CCU fire."

"What, what's in green?"

"That's the, the green is the, it's not forest. It's"

Actually, the fire perimeter. That's the, that's the fire perimeter, which I'm, I'm going to turn on and off, toggle on and off.

>> Okay.

>> And, um,

>> did you create a different color for that? Make it red. So,

>> you know what you see is a bunch of yellow dots and each of those dots represents properties in and around, in this case, this Santa Cruz County.

>> We know what resources are. At the very beginning of that event, we tested a, uh, a new satellite imagery processing technique to try to predict what the, the losses of that fire would be. But would you say the burn ratio in those areas, total number of structures versus, you know,

>> it will be quite high.

>> It would be high.

>> Yes. Yeah. Yeah.

>> So that's what'd be interesting to find out because now you're basically coming up with a, a resource,

>> kind of, uh, dependent view on what the burn ratio is going to be,

>> which I like. Wildfires are very common and they are relatively straightforward events. You have ignition, you have burn, and then you have damage. So where most people actually think the, the greatest uncertainty lies is in the damage itself. Right? If you, if you burn a certain area, then how many of the homes are destroyed? And there is some uncertainty in there, but there's surprising patterns in that.

>> Maybe those patterns can be recognized in the data, but I wonder what good those calculations are to you when the fire is coming your way. No one knew how bad it would get. All night long, I would go up to the top of our property and during the night, I kept hearing these explosions that I thought were the propane tanks. I mean, it was a boom, you know, ash was falling on me, but it was still a tiny breeze on the back of my neck. The, the little breeze was actually blowing the fire slightly away from us.

[Music]

In the morning, it came over the ridge and then I could see trees flaring up. Um, I was walking around and I guess partially because my daughter was emotionally, um, I guess she was tweeting and calling people and telling them to get me out of here.

>> It was a very surreal experience. Rodents, uh, mice and rats literally like running through your legs, just fleeing the fire. And then the, um, butterflies, a lot of monarch butterflies were just, they were just landing on me in the woods. And they didn't seem, I mean, how can you read a butterfly's, uh, personality? But they didn't seem panicked. You know, the way a butterfly is just so light in the way they live, it seems like. And so they're just kind of cruising along and they would land and then they would move on. But there was a lot more than I have ever seen in the woods. And obviously, they were just moving away from the danger. They don't have necessarily decent roads coming in, going out. Calire won't be able to reach there.

>> So the burn ratio is going to be 60%?

>> Sure. Yeah. Right.

>> The fire was finally starting to come around and approach us. Anybody that knows how to go towards the empire?

>> No, I don't know.

>> I think I realized probably on the second day of fighting the fire that we were going to control it as long as the weather didn't change. The information was so poor from social media. On their iPhones, they were seeing pictures of that very aggressive fire. And so from social media, there was these satellite images that showed what they said were hot spots of where it was burning and where it wasn't. So you would, you, it was kind of an overlay of the topography of the land and it just had a bunch of dots. Red dots where it was really hot, orange wasn't as hot, yellow maybe it had already burned, and then green was okay. And when you looked at it, it showed red dots all over our house and all over our neighborhood. People were hyper-focused on this image and they're just like, "It's burning right here." And then we would get texts from them saying, from people in town saying, "It's burning on Back Ranch Road. You need to go check it out. You need to get out. That's your only way out." And we'd go out to Back Ranch Road and there was no fire and we'd say, "There's no way it's burning on Back Ranch. We can see the fire. It's right here." You know, and then we would tell them, and then, "No, it's burning on Warren Drive. You need to go get out." And then we'd go look and be like, "No, it's not burning there either." And it wasn't until I think probably three or four days in, we realized that the satellite image was transposed improperly. It needed to shift east by about a mile or so.

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The fire went around. I came up the backside and all of a sudden we got a desperate hollering. There was a draw there. It had come up and it caught one of its outbuildings on fire. By the time I got up there, it had taken off. It was really burning. We weren't going to stop it. It literally sounded like some jet plane preparing to take off. And that's when I decided,

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you know, this is ridiculous. Let's get the bulldozers and we push this fire break through. And with those bulldozers, the Bonnie Dune residents create a wall, a fire break between themselves and the approaching flames. It almost looks like that upper left lobe.

>> Yeah, the,

>> look, go to the left there. Yeah, that lobe right there.

>> That looks like they were the ones that actually successfully built a perimeter.

>> So, I'm going to, I'm going to zoom in on that and actually see if I can see, uh, the. And then

>> the human behavior is a fundamental part of the modeling. It's actually already taking into account that there's millions of sometimes very stubborn and independent, especially here in the US, uh, homeowners who are defying orders to leave and evacuate, uh, running around, you know, putting up boards over their windows and defending their homes. If it weren't for that behavior, uh, then the losses would easily be double or triple what we're observing. So it's actually, in a sense, priced in this human behavior.

>> Right. So John, so has already factored in this behavior of large groups of people. But what about the behavior of a single individual? Because whether our village elder can be insured against wildfires is decided today by algorithms. In New York, a fintech startup is confident that it can calculate the risk of a wildfire down to the smallest detail and therefore determine whether something is insurable or not.

>> And the first version of our model didn't really take into account the randomness of lightning.

>> So it didn't really consider lightning as, as a, as a major variable. Um, so when

>> the reason we exist is because

>> the old way of doing things isn't really working anymore.

>> The traditional way of understanding risk is, let's look at this spot on the map, this zip code, and we look and say, "Okay, over the last, uh, 500 years, this has burned five times. So it has a one in 100 chance of burning." And then you price it accordingly. The problem is, it's right there in the word climate change.

>> See right here, -4 is extreme drought, right? -3 is

>> So you can't really use the last 500 years and expect to be able to predict the next 10 years off of that. You have to do a much more

>> bottom-up physical model, uh, using machine learning, looking at the reality of that place. Now, this is what the trees look like. This is what the weather looks like. This is, uh, where the fire breaks are. This is how close the closest fire engines are. And all that's being done by the, the model, the AI model. So it's, to give you an idea, the traditional way of doing it, they might run a 100,000 simulations to get to that one in 100 number. They might say, "Run a 100,000 different simulations and say, 'Okay, I, I think that this has a one in 100 chance of burning.'" We're, our machine learning models, our models, they're running 682 billion simulations. To build a well-functioning AI model out of 682 billion simulations, you need all kinds of things.

>> I'm losing money. I don't know how to model this anymore. The models aren't working. I'm going to leave. I'm just, I'm not going to do this anymore.

>> First of all, you need investors' money.

>> Where else can you go with?

>> But also brains with a background on Wall Street.

>> I started my career at Goldman Sachs and I'm a doctor as well.

>> A climate scientist, a mathematician. A probability that a fire will spread to a great in California.

>> And the founders who zealously promote their AI model.

>> There is significant alpha that we could find in the industry as we've seen as they all pull back because they say, "All right, we have no idea what the future's going to look like." There's a far more measured and, and data-driven approach that that we could really take towards it.

>> Yeah. A lot of the traditional finances. So places like pension funds and hedge funds and, and family offices looked over and said, "Well, here's this whole world that that's writing insurance policies. It's not focused at all on the stock market or, or, you know, in commodities or something like that. They're just focused on whether or not a hurricane happens, an earthquake happens, or, you know, wildfire happens." And why that's so valuable is because it's a non-correlated asset. And what I mean by that is the stock market can be doing whatever it is today that's almost completely unrelated to whether or not the wind is blowing in Florida and there's a hurricane happening. And one of the best things you can have as an investor is something that's non-correlated because even if you think you're diversified in your portfolio, but it's all in the stock market, well, the stock market blows up tomorrow, then everything's going to go down. So, the appeal of a CAT bond is that it's a completely different type of risk. Even if Wall Street crashes tomorrow, the CAT bond will still bear high interest rates.

>> We're headed out to Last Chance Road to, to get people water. Um, we work on, work on water wells and, uh, repairing water wells. Virtually every water well out here melted. Fire came through there, uh, very fast and very hot. Very different than the, than the fire that we dealt with at our home. Sorry for the dirty windshield. It's only going to get dirtier today. It used to be you couldn't see any of this. This, this was all trees. That was a house there. There was a house right here. That one survived.

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One gentleman died out here.

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It was an elderly guy who went back in to get stuff from what I heard, and he didn't make it out. He tried to hike out through the state park and he didn't make it. They found him. Some of the neighbors found him.

[Music]

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After the disaster, there is nothing of value left. But when lightning strikes a bone-dry forest, or when a hurricane is on its way to the coast, and the extent of the insured damage isn't clear yet, that's when John So swings into action. Whether it's a, a hurricane, wildfires, or an earthquake that just happens in the middle of the night, I get a phone call and I'm woken up. We have software and tools in which we bring up our portfolio and immediately access the impact to the portfolio from the event. So, um, if I zoom in,

>> if it looks like a trigger is activated, and as an investor, you could lose all your money, then you naturally want to get rid of your CAT bond as soon as possible by putting it up for sale. That's when interesting opportunities arise.

>> If you're not able to estimate the, the losses of, of a live event like this, then you have to question your ability to estimate the risks, hypothetical risks to this bond and pricing it. So, it's, uh, it's a little bit like a Formula 1 race.

>> Worldwide, very few players have the knowledge, computing power, and reaction speed necessary to play the game at this level.

>> Just before the fire, and then as soon as possible. I wonder whether that would be it.

>> A typical, uh, catastrophe bond portfolio will have roughly 200 positions in it.

>> What do you mean by that?

>> Uh, we'll have 200 different catastrophe bonds in it. These databases available.

>> And so in a major event, um, roughly 80 of those are potentially exposed to the event.

>> That narrows it down from 200 to 80.

>> And then, um, we are immediately estimating what the intensity of the event is going to be and, and therefore what the financial losses will be.

>> And then from that next cut, the 80 bonds that are at risk suddenly narrows down to 10. So that final list of bonds that are potentially at risk, the seller really just wants to sell.

>> A lot of media attention. We saw a lot of

>> like a hot potato, no one wants to burn their fingers on. These CAT bonds are now being resold for less and less money.

>> The, uh, the market maker will call us and say, "I've got an offer on 5 million of this bond at 60 cents on the dollar." So normally, if the bond was not in trouble, it would trade at full value, 100 cents on the dollar, but it's offered at 60 cents on the dollar. So if John So thinks he is better informed than the rest of the market and he is sure that the trigger won't be activated and he won't lose millions, then he can seize his opportunity and buy a CAT bond for a bargain price. It's a, it's a tricky business because roughly every other year, you have a catastrophe bond that loses money. And I've been doing this for over 20 years. So we've lost, um, a lot of money on, on, on those cumulatively. We've made more than we've lost on net, but we've had significant loss experiences for sure.

>> So, if a CAT bond is really triggered, you lose a lot of money as an investor. Therefore, John has to constantly test the most recent climate projections against his own data and calculate the extent of the potential damage of those projections.

>> So, here are the different end-of-century temperature projections. So obviously the 8.5 scenario is the highest.

>> Okay. So 2 degrees by 2050, 45, 40, etc. Right.

>> And we tweaked those historical storms and ran it through their model and on average that increases by 3, 1.34. So 34% you were

>> So it's a 3, no, it's a 35%

>> 34%. Okay. 34% increase in, in damage, right?

>> In damage.

>> And what did you do? Did you, Oh, that's annualized.

>> And then you annualize it from today or from 2020? Oh, okay. The world is getting riskier for sure. So that is driving growth in our marketplace. By our estimation, uh, the, the world needs roughly 500 billion of catastrophe of finance. Largely, it's for the time being a US-centered market, but the potential worldwide is, is immense. You know, whether it's flooding in Germany, flooding in Asia, particularly in China, you can calculate what the exposure is because, in the end,

>> it's physical. So really, you, you need effectively Google Earth and to look at all the property around the world and understand its vulnerability to earthquakes, hurricanes, and floods, and you can do the calculation.

>> Right? But what is the bottom line for the people of Bonnie Dune? For a lot of people up here, it was a huge surprise to them that the firemen didn't come. I think it really is a numbers game on people and then the amount of wealth within an entire community. So, you know, we might have some affluent community members, but it's not the Silicon Valley or, you know, it's not all affluent comm, so it's not worth it for them. I think it must be, uh, how close it is to a city that you know that they care about. For most of my community, it was the first time that they realized that they were not significant. Um, and, uh, that they were deemed easily disposable.

>> Not significant, disposable. The fire department wasn't willing or able to save many of the houses. So, CAT bonds at Bonnie Dune, no one noticed their existence.

>> They only work for you if you own insurable property.

>> This is Bonnie Dune.

>> Yes. Uh, yes. Zoom.

>> Last Chance Road.

[Music]

>> Last Chance. Last Chance. No. Yes. This still shows us like an extremely high risk. We see that historically this place has burned in the past. So actually our model shows that this, uh, Bonnie Dune location, uh, is like a 1.18% chance of burning. So that's actually within the 95th percentile in terms of the risk. Yeah. So 95% of California has lower risk than this particular location. The distance to, um, wildland and urban interface is too, too close, and then the Palmer J severity index is too low, and those are the reasons behind, um, we think this location is actually too dangerous for sure. So, this is my little bunker. I've got four compressed air bottles there that are full of air. I'm never gonna, if I stay in here, I could stay in here hours with those tanks with no outside air, but my house would be burnt down, and I've got to come out of this as soon as that big wave burns over. I've got to be out there putting out the fires. But anyway, this is just a little, there's a little insurance policy, is what it is. You know, I doubt 90% of the time I'm never going to use this, but if, if that one, two, 5% of the time I need it, it could save my life. So that's why I got the compressed air tanks and the water. And, and it also gives our loved ones the assurance or the feeling that, oh yeah, grandpa's got it together. He'll get in his little pizza oven and sit there and eat pizza, you know. So,

>> yeah.

>> And I've got hoses and I got a little can of gas there. So, I'm, I'm ready.

>> The people of Bonnie Dune ensure their own lives and rebuild them if they need to. Because if you live in Bonnie Dune or by the Mass River or in Pakistan, you'd better build your own bunker or levy.

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If there's anything I've learned is that it is hard to calculate the risk of a war, a pandemic, or climate change. Yet on planet finance, even this kind of risk is a good business model. Because the capital that's roaming the world is always looking for a way, creating new arenas for profit.

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You could call it perverse, but for a few years now, the demand for CAT bonds actually exceeds the expected catastrophes.

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Do you know the feeling of drinking too much coffee or drinking too many Red Bull energies where your whole skin gets to feel a little bit tingly and your heart is bumping? Well, I've been feeling like that the whole last six days.

>> Oh man.

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Here we go.

>> As a trader, you have to grab your chance at the right moment. Buy low and sell as high as possible.

>> And then you make the net income of someone who has a master's degree in two hours.

>> What if everyone jumps into the market? So in the, by the time that we, that we started talking, it made of €8,000.

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There is a world made up of numbers. A world where you have to be the smartest or the fastest.

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A world connected by radio waves and fiber optic cables.

>> A world where you can make money if you think you know what the future holds. A world of fear and desire where you can win or lose. I call this world,

>> planet finance.

>> Wandering around planet finance, I arrive all the way on the other side of the globe. Although the mood is determined by prices on the market, some days are calm with hardly a ripple, while on other days you suddenly get dragged along by the current. As an individual, it seems your influence is limited here. But even on planet finance, there are always people who can't resist going against the stream.

>> The desire to be rich encourages people to be stupid. If people didn't do stupid things, then there'd be no role for me.

[ __ ] it.

>> Vultures are very useful animals. They clean up the mess. On planet finance, so-called short sellers are often compared to these carrying birds. They live off other people's mistakes. They win when others lose.

>> Most people when they buy a stock, they buy a share for $10 and hope it goes to 100. I instead sell a share for $10 and I hope it goes to zero. But essentially, all I'm doing is the opposite of long investing. In long investing, you're buying a share and hoping the future's a lot better. In short selling, I'm selling a share and hoping the future's a lot worse.

>> So our short seller is hoping the future will be worse. He profits from the fact that many retail investors are swayed by the fads of the day. After all, hope is easier to sell than the harsh reality. I wonder what forces do you come across on planet finance when you sail solo, going against the emotions of the masses. Oh, [ __ ] Oh, [ __ ] Okay.

>> I used to do tax policy and I became an expert on tax avoidance.

>> Um, okay. The issue is hectic. And having become an expert on tax avoidance, I became an expert on fraudulent accounting. And having become an expert on fraudulent accounting, I then became a short seller.

>> That's weird. They've changed the data on us. This is the most interesting job I've ever had because the world is full of interesting people. And yeah, I actually find psychopathic people who will steal your money interesting.

>> Let's just double.

>> So John Hemp likes psychopaths.

>> They are

>> and liars and built his business on them. Are you a listed company and your share price seems too good to be true? Then he sets out to find the reason why. Have your numbers been tampered with? Then he screens your company without you even noticing it.

>> I'm not interested in tearing down a company with good prospects. I'm interested in finding companies that are lying about their good prospects because they really have no prospects. They've changed the data.

>> We identify more frauds than almost anybody in the world, right? We have hundreds and hundreds of them. And I'm kind of proud of the fact that several people have gone to jail as a result of frauds that I've uncovered.

>> How our short seller made his very first million. To answer that question, I travel to late 1990s Flanders when the bubble reached its peak. Superch is now the Flanders language valley.

>> From far away Australia, John's eye is caught by the Flemish tech company Lernout & Hauspie. The big favorite among Flemish investors at the time, the pride of the nation. Lernout & Hauspie was a software company designed to be a world-beating company that beat Silicon Valley at its own game. The idea was the holy grail of speech recognition where you could speak into a phone in one language and it would speak out of the phone in another language.

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Fast forward 20 years. After unsuccessfully trying to sell chocolate pralines in the Philippines for years, one of Lernout & Hauspie's founders is now pacing a backyard in the top.

>> Your Royal Highness, as a humble computer, I also want to welcome you.

>> Lernout & Hauspie built speech recognition software that could instantly translate conversations. Their technology was so advanced that even Microsoft showed interest. Morning from an easy dreams. He found himself transformed in his bed into a gigantic insect. He was lying on his cart as it were armor-plated back, and when he lifted his head a little, he could see his bone-like round divided into stiff arched segments. Bill Gates, and that is what, uh, it's a fantastic concept and we're very pleased to be a partner with them. Z of some

>> Besides wanting to profit from Lernout & Hauspie's rapid growth, the shareholders are also proud of their company in the Flanders language valley.

>> It met a European need at the time because at the time we're in the middle of, there was all this amazing innovation coming out of America, and Europe would like to play it too. The wasn't, um, it's done. Well, I worked out that it was a spectacular fraud. I worked out that the management had a debt obligation that was due at a certain date.

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The cash that was meant to pay that debt obligation probably wasn't there. All of which turned out to be true. At the end, there was 100 million missing. And then I bought for about $30,000, which was a lot of money, a short-dated speculative bet that Lernout & Hauspie would fail. What does a short seller do when he goes short? It seems complicated, but in essence, he bets that the price of a share will drop, and if it does, he makes a profit. Let's say he borrows a €100 share from a pension fund and immediately resells it on the market. Then our short seller hopes that the price of the share will drop, let's say, to €10, which is when he buys it back from the market. If he then returns his borrowed share to the pension fund, the price difference of €9 is his profit. But the financial press does have to pick up on the fraud because the share price will only go down if the news reaches the rest of planet finance.

>> And from then it was a one-way trip down. And it was like this lesson that you can be right about a massive fraud and you're going to get paid immediately. Fore. The company made up buyers in South Korea to exaggerate sales. And as it turned out, their speech technology wasn't nearly as advanced as they had people believe. Status fundament.

>> Eventually, the share price plummeted to zero. While Yolo Lernout maintains his innocence, all of Flanders, including the dentist, the shop owners of Ieper, and Bill Gates, see their dreams of mountains of gold up in smoke. Fore into [Music] basic. One in six people, adults in Flanders, bought shares in Lernout & Hauspie. They bought them on fictional stories and lost their money. There are people who have been duped by phony religions or cults, and they always want to blame the person that points it out. If they want to blame short sellers, at the end, that absolves them from their own responsibility for having been duped. Whether the shareholders blame the short seller or the fraudulent entrepreneurs, they simply want to be recompensed. 20 years after the company went defunct, all these duped shareholders, mainly small Flemish investors, are still trying to get even with Yo Lernout and his fellow founder Paul Hauspie.

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Is complex.

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For the disappointed shareholders, it remains a hard pill to swallow that part of what led to their downfall was their own naivety, greed, and nationalism. For the years of trials that follow, they need an army of lawyers to support them. Lernout was a very spectacular process. Forc. and this [Music] financial criminal. [Music] Stockholm syndrome. [Music] I've never met a fraudster I don't like. It's a really strange phenomenon. They are unbelievably charming. Almost every fraudster is just a lovely guy, right? They'll steal your money. [Laughter] CL fantastic. Fantastic. Needed for me saychech. [Music] After already having served a prison term and after 20 years of trials, Yo Lernout is also sentenced to pay 655 million in damages. But there is nothing to be got from Yo. He even has to be treated to his muscles and shabi. And our short seller, he made a fortune.

>> I thought, "Oh, goody. I can find frauds. I can probably hand some of the information over to the regulator and people will go to prison for ripping people off. I was very smart. I got it completely down pat. And I made a lot of money and I thought, 'Oh, this is a good job.' But the, the worst thing that can ever happen to you in life is you walk past a poker machine and the first time you put a dollar in the poker machine, you win the jackpot and you take home $2,000. That's the absolute worst thing that can ever happen to you in your life because now you're going to think that the poker machine is an easy game and it's fun and you really don't want to think that because it's not an easy game and it's not fun and you're going to lose.

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On planet finance, there is a fundamental difference between being right and being proved right. With Lernout & Hauspie, our short seller was proved right. But that's surely not always the case. Sometimes the whole world seems to turn against you.

>> My question is, what the hell are they saying to the regulators that's different? Now, there are probably a few hundred people that short sell on any scale at all, meaning more than a few million dollars worth, but the number of people that short sell within our pool trying to find criminals probably numbers 50 or 60. And the number of people that do it on a global basis and on the scale that we do it numbers a few. Right? We are really fleas on the edge of a vast financial market.

>> No offense to my friends because these are some of these people are my friends, but most of them are weirdos. It's the least communal sort of activity I've ever seen.

>> Still, as a short seller, you're not always on your own. Sometimes you even get help from a colleague across the globe. There was a very good champion boxer who was nicknamed the Dark Destroyer, and a journalist began calling me the Dark Destroyer. Um, quite why I'm not entirely sure because I'm certainly not dark and, uh, uh, and I don't seek to destroy things, but, uh, but stuck.

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Short sellers investigate listed companies. Companies that are spurred on by their shareholders to present even more positive numbers each quarter. The biggest frauds in Europe in the last 30 years were Lernout & Hauspie and Wirecard. After the Flemish had Lernout & Hauspie, now all of Germany is proud of the success story of their very own fintech company. Germans buy Wirecard shares en masse.

>> Wirecard was a credit card processing company. Credit card processing is not normally a very profitable business.

>> For our short sellers, that hype is the first red flag.

>> I started looking at Wirecard in late 2015. There was a significant wobble or movement in the share price in 2010.

>> When our short sellers investigate further, they discover that on March 30th, 2010, there was a sudden inexplicable dip in the Wirecard share price.

>> So you think, well, that's quite interesting. What's prompted that significant move? And what became apparent was that there was a criminal investigation performed by the US Secret Service. And they investigated a money runner for gambling companies. And what was fascinating was that not only was the money coming from Wire Bank, but it was always transmitted through another company. And that company was a company called Blue Tool Limited. Where's this company based? Mr. Google. Enter the address. Some sort of mastermind is responsible for sending millions of dollars, if not hundreds of millions of dollars, of gambling-related monies over to this red brick house in County Durham. This is crazy. I mean, this is how can this be?

>> Meanwhile, in Sydney, John Hemp receives a tip that eventually leads him to illegal activities in the Philippines. The first thing that we discovered that they did was what are called high-risk payments. The classic high-risk payment is pornography. If you're selling pornography online, because the margins are so fat, it doesn't matter that you might pay 5% to get your credit cards processed. If you're doing high-risk payments in the Philippines, it's almost certain that you're doing some child abuse material. And because no, no, no ordinary bank will process a credit card in the Philippines for a pornographer, you can charge 25% for that. And the, the usual explanation as to why Wirecard was so profitable was that it did high-risk payments that no one else would process.

>> And then they were also discovered to be fronts for all sorts of different companies, like whether it was gambling companies, pornographic companies. I'm just seeing where the trail goes essentially. And I'm making notes and filling in spreadsheets as to all these companies. What you end up with is this. This tells you flows of money, ownership of companies, and as you can see at the heart of it, you've got Wirecard. So, we shorted a little bit, the usual little bit that we're working on on average, the sort of rule of averages, and the stock went up on us. In fact, then it went up a little bit more, and then it went up a little bit more, and the lie got bigger.

>> And to expose the lie and make the share price drop, our short sellers pass on their research to the Financial Times.

[Music]

Wirecard denies everything and even strikes back. They accuse the short sellers and journalists of market manipulation. What happens next seems to come straight from a spy thriller story. They used the former head of Libyan intelligence as Secret Service to manage quite a large surveillance operation against who they thought were the chief critics who were a threat to them to Wirecard. I had vehicles parked outside my house. Um, I was being followed everywhere I went. Uh, they would film me. I didn't know what their intentions were, whether it was to bundle me into the back of the car and I'd never be seen again. Obviously, my wife was traumatized, um, with the school because we didn't know their motivations. We had to request passwords to collect our children from the school. The police, they took it so seriously that they put our home line, telephone line on rapid response. So if we dial the police 999 and even if we hung up, they'd send a police car around. Yeah, it was horrifying. And it lasted, I think, on and off for the next three years or so.

>> And the stock just continued going up and up and up. Remember on planet finance, being right doesn't always mean being proved right. The German financial regulator, the large shareholders, even the German chancellor who lobbies for Wirecard in China, all stand by Wirecard. As one woman, despite the many allegations. When we first found Wirecard and was short, sure that it was a fraud, the stock was €9. Several years later, the stock was €191. And in that time, billions of dollars of German pension money had been used to buy the stock from fraudsters on the market.

>> Timing is everything. To make a profit, the Wirecard share price has to go down. But now that it's going up, Jon has two options: pay a higher deposit to the lender of the shares or cut his losses and buy the shares back for a much higher price. On planet finance, this is called the short squeeze, as you are literally being squeezed dry. And the second thing we found was what we thought was Russian mafia. And once you found something that we think was Russian mafia, you don't look any further because the last thing I want to do as an individual is upset the Russian mafia. That's a good way of not living very long. It turns out that Wirecard wasn't Russian mafia. It was the Russian state, and they were using the access to the German banking system to launder money, to get around, say, the American sanctions on certain Russian individuals. It became apparent that in the market, very few cared. I mean, it became parody in that the more accusations that were leveled against the company, somehow the, the, it still had the ability, retained the ability to deflect those, and it became sort of perceived as invincible, really. The government of Germany was extremely encouraging of Wirecard, and people wanted to believe because they wanted to believe, fill that need.

[Music]

It's not going to go. It really isn't going to go. So Wirecard was this sort of situation where we were absolutely right, and we were destined to lose money. Can you not feel my misery all the time?

>> In the end, John is proved right, but too late. The Wirecard share price plummets on planet finance. Sometimes you win, and sometimes you lose. Matthew Earl had timed his short position well, and he made, in his own words, a substantial amount, which he prefers not to share with me. John Hemp's timing, however, was a bit less well-chosen. If you fulfill an emotional need and you allow a person to think that they're going to get rich,

>> then you've got this sort of la palooza effect where all of their sort of emotional needs are met at once.

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From my perspective, Wirecard is a failure. In fact, it's the biggest loser in the history of my firm.

>> I just wish I'd never heard of a company. I really dislike them.

>> John Hampton lost tens of millions of euros. To him, Wirecard is another example of emotion being able to inflate the value of a share in the form of naivety, greed, or nationalism.

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Apparently, it's very complicated to estimate how precisely those emotions affect the price of a share. But how complicated? That becomes clear at the start of the pandemic. As we, those worries and those fears, you know, no one really knows what's going to happen with the coronavirus as far as economies and businesses go.

>> Initially, the first lockdown causes the global financial markets to crash. But soon, the share prices on planet finance are skyrocketing again. And because millions of people around the world are housebound, bored, and have money to spend, they jump into the market in droves. They also want a piece of the pie. This is one of those new day traders, Vincent Stok.

>> Just like the rest of the world, this student of economics is forced to stay home. Stuck in his student house, he gets lucky with a Tesla share trader. With a simple click on the button of his trading app, all of planet finance is at his fingertips. GameStop. Vincent hears about that share, a chain of video game stores on the internet forum Wall Street Bets. That's where the new generation of traders meets and where a dislike of hedge funds with large short positions arises.

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Gucci slippers.

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And this is Josh. He too is new to the market, and he too joins the fight against the short sellers. But how can a chain of video game stores be the stake of such a fight? It was just like in the midst of like, very dark and seemingly horrendous dystopian end days. You know, everyone's locked inside. There's people dying and pandemic and all that stuff. And all of a sudden, this thing comes up. Well, so we can have some fun and buy a few stocks each, and we're going to bankrupt some hedge funds.

>> Man, these are ridiculously cheap. Let's go for a throwback to someone I gave in from a kid.

>> GameStop is not the sort of thing I'm interested in, but I don't understand why retail investors are interested in GameStop either. I mean, this is a company that sells DVDs with video games on them. I mean, I play the odd video game. Every one of them gets downloaded, right? The idea of selling DVDs at all feels like 10 years ago. And what you should normally be trying to do is invest in tomorrow.

>> Invest in the future. That's John's advice. But I wonder if he fully grasps the extent of the anti-Wall Street sentiment among this new generation of traders and how this generation wants to try to beat planet finance with its own mechanisms. This whole movement started on Wall Street Bets, and they were, yeah, targeting companies that sold short the, the Wall Street Bets, like supposed members on Reddit, like swelled to about, I think it was 13 million people on there. That's a lot of money that can be thrown around. You know, I mean, they, they may all just be individuals, but they're competing with a hedge fund as a collective. Julian, welcome to the show, and it's, uh, exciting to get to talk.

>> How can you make the planet finance mechanism work for you? The Wall Street Bets buy GameStop shares en masse, which makes the price go up, while the short sellers actually speculate on the price going down. The rebels then hold on to those shares for as long as possible. Hold the line because that's how you can squeeze the short sellers. Remember the short squeeze.

>> The coffee machine, mountain bike. I was like, "Yeah, sign me up." He's like, "Well, so we're going to have some fun, make some money, and take down some hedge funds. Where do I buy? Where do I pay?" Like, I find it fascinating how we've moved from like joke to to meme to idea to theory to what's actually happening. It's like such a cool, um, like thing to witness, like the evolution of this idea. I've spent my entire, like, adult life growing up in the shadow of the crash of 2008. Everything has been in, in the shadow of that because it was so huge. I mean, it's, it, it kind of wrecked the economy for quite a while.

>> We are the 99%. We're awake now.

>> We know what it's like to be poor and broke. We, we, we're all very aware that like things aren't getting better and more prosperous in the way they had for a few generations. The gap between like the rich and poor has, it just continues to grow. And that's what I mean by the shadow of it. Because normally, what you would like, if you, when you got a big crisis like that in previous eras of human history, we would have said, "Okay, how did we end up with this problem? Let's do something about it. Let's punish the people who were responsible. Let's make some really ironclad laws to make sure it doesn't happen again. And let's like, correct the system a little bit. Like, push it back in the good direction." What has taken us by surprise is just the scale and vehemence of the current mania, retail mania. It's just bigger and nastier from our perspective than we've ever seen. If you're going to appeal to their needs, you're going to find people who, who feel downtrodden, who feel that life has dealt them poorly, right? And they're very good to whip into a frenzy.

>> Whether holding on to the GameStop share is driven by ideology or by sheer boredom, the new generation of traders tries to squeeze the major short sellers by artificially keeping the price high. And their plan works initially, at least. In the meantime, of video game retailer GameStop,

>> right?

>> It's like a David versus Goliath story. It's almost like a populist trader uprising to support the stock and really hurting the big guys. So, it's just been this interesting revolt that somebody's making a lot of money on, someone is not. If you think that there's one thing called Wall Street Bets, you're wrong. Right? It's a, it's a giant poker table with 9 million people that look at it and subscribe, and tens or hundreds of thousands of people who post. And in that hundreds of thousands of people are an enormous number of sharks, tens of thousands of them. Right? Almost every scumbag we know in financial markets in the world is on Wall Street Bets. And why wouldn't they be, right? That's where millions of people are now taking their financial advice. Nevertheless, for a number of hedge funds with large short positions in the GameStop share, things are getting harder and harder. But as it turns out, for the new generation of traders, it's not always easy to play this game on the market either, because how long will they manage to hold on to their shares? Hold the line. I'm handy. But a lot of the people on Wall Street Bets should be remembering the old adage, which is, if you're playing poker with a whole lot of rich people, you know, a whole lot of people who are used to playing poker, and you look around and you don't know who the psy is, then you're probably the psy.

>> The psy, the the dummy on the poker table who's not very good at it and is going to lose all their money.

>> The plan by the new generation of traders is partly successful. A number of major short sellers lose billions, and some even go bankrupt.

>> Yeah.

>> And then a whole bunch of like CEOs and billionaires and hedge, uh, hedge fund managers were like on CNBC like crying that they'd lost like their hundreds of millions of dollars. Like, "Won't somebody please think of the billionaires?" Like, it was so ridiculous. Yet, in the end, the rebels show less solidarity than expected. When you try to play the game on planet finance, it proves hard to hold on to your ideals. Eventually, Vincent also takes the money and runs when he decides to sell part of his shares. Hooked the gun. Also coughed.

>> And our short seller, he thought twice and didn't go short on GameStop.

>> It was a demonstration of the mania of the crowd at the moment and how easy it was using social media to whip the crowd into a frenzy. Why is it possible to whip any crowd into a frenzy? You appeal to their prejudices. You appeal to their needs. And sometimes the crowd will come with you. You know, here's your opportunity to get back at all these rich people. There's been anti-short seller rhetoric for 400 years. And most of the people doing anti-short seller rhetoric across. This was the first time I'd ever seen millions of people believe anti-short seller rhetoric. Crowds are dangerous. Crowds on the other side of the planet are less dangerous. I'm glad there's a long way between me and the crowd at the moment. And with John Hemp's sigh of relief, I've almost reached the end of my journey around planet finance. What has it brought me? I managed to get closer. Here and there, I was allowed to peek behind the glass facade. Planet finance is a complex world, but less abstract than I thought.

>> A shortcoming of a lot of traders is they, they ask what I consider to be the weakest question in the hierarchy of questions when you're an investor, which is "why" as opposed to "what." And "what" is the strongest question you can ask.

>> You are a "what" person?

>> I'm a "what" person? Yes.

>> "Why" comes later.

>> "Why" is a hobby. "Why" is fun for me, but "what" is what I do for a living.

>> My journey started with the question, how could the market get so detached from reality? I thought planet finance was a world made up of numbers where you have to be the smartest or the fastest. Where you can make money if you think you know what the future holds. But actually, planet finance is all about emotion.

>> What?

>> Fear and desire are expressed in a graph.

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And what surprised me most was that risk is the essential commodity of planet finance. Risk is a product that can be traded. It's like, "Never waste a disaster," almost. And I don't want that to be taken the wrong way. I don't want to say capitalize on a humanitarian crisis or something. But during these times of dislocations, markets do move.

>> I mean, that's the nature of the beast. And so that, that wasn't something that, um, that resonated with me enough to stay there.

>> Now that the risks keep piling up, some traders feel that things are starting to go too far.

>> We, we create money out of pieces of paper. Worthless pieces of paper. Worthless. You know, it's just a construct so that, you know, people can make money. We use these markets so that we can assign value to things that we really don't have any idea of what their values are. And that happens a lot. But what also happens a lot is, is the other thing where, you know, the, the monster in the machine sort of gets away from the purpose that it was created for.

>> The monster in the machine. According to Planet Finance, we are living in the biggest bubble ever.

>> The market is at the moment the biggest casino I have ever seen in my life. And it's more dominated by the casino function than any other time I've seen in my life. It's a bad allocation system for resources. It's not doing the societal jobs that it's meant to do. But it's a great casino, right? The best casino that humans have ever invented.

>> In the end, this casino is about all of us. There is no us and them. We all live on planet finance. You often hear people say, "Leave it to the market." But what kind of planet are we living on if no one is interested in the "why," but only in the "what"? Because after all, that's the nature of planet finance.