Let's Play Wall Street Raider - Ep3

RakeM plays Wall Street Raider and explains the fundamentals. In Episode 3, RakeM plays seven months of game time and turns $13.5B into $18.1B. More importantly, he creates a bank and has it engage in interest rate swaps with a combined principal value of $36.8T. If interest rates decline to a more moderate level, the cash will come rolling in. Come back next time to see just how well the gamble pays off.

For maximum image clarity, please watch in 720p or 1080p.

Concepts covered in this episode:
Selling stocks short
Company mergers
Buying back stock from minority stockholders via Greenmail
Starting up a new corporation (in this case a bank)
Changing corporate management
Electing yourself as the CEO
Restructuring a corporation in distress
Covering short positions
Interest rate swaps
Database Search tool
My Corporations tool

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Wall Street Raider, Copyright 1984-2014 by Roninsoft and Michael D. Jenkins. Used by permission.

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Closed Caption:

hello and welcome to another episode of
let's play Wall Street trader I am
regularly roast
last time we bought center core and we
ran it up to thirteen and a half billion
and as I say that you may notice that my
cash on hand is 15.6 billion we still
owe two billion 2.2 billion somewhere in
that neighborhood in taxes will be
paying that momentarily before we begin
i just want to say that we're gonna be
doing a couple of new things this
episode there may be a little bit less
action than you're used to I don't think
that we're going to be making a lot of
money this episode where mostly gonna be
setting up ourselves for making a lot of
money in the next episode this
particular episode is gonna explain
short sales and interest rate swaps
you're still gonna say yes by some
stocks and whatnot but I'm not really
gonna explain what I'm doing other than
to say why I'm buying the company's I'm
buying so without further ado let's get
into it at the end of Episode two we
sold all over holdings of center core
and took a profit which cash on hand of
15.6 billion but not all of that money
is ours we still haven't paid our taxes
two billion 123 that we have to pay
intact so
we could just let the simulation run and
let them that taxes be paid at the end
of the quarter but I'm about to do a
bunch of investing and I don't want to
spend the money that supposed to go to
taxes and end up having a bank loan so I
can go to the miscellaneous menu and
prepaid income tax now it's paid so when
I invest I know that I only have 13.5
billion and I don't have to remember to
keep that reserve gonna go to the
general menu again industrial growth
rates and look for a place to invest and
it looks like these have gone negative
have few choices biotechnology still
it's good that's the one we just left
but we know that there's three companies
they are the biggest three are over
expanding their returns gonna go down i
mean that doesn't mean that we shouldn't
invest there but look for something
better
your peripherals ok it's not great but
it's ok
his return rates worked solo those
negative 37% only ever seen an average
rate Paulo gotta look at that probably
some companies in here we can short sell
definitely is way overpriced for the
amount that he's losing let's she'll
sell him short immediately so you go to
buy sell sell sell stocks short twenty
percent is the man so we sold it for
short sold it for almost two billion and
its stock price right now is 1087 so
want that to go down as much as possible
the thing about short sales is there's a
cap on how much you can earn so the most
we can learn from this is a 1987 we're
betting on the stock to go down I grew
up in there is a limit to how far down
zero as low as to go when you're buying
a stock to raise the price there's no
limit to how height
so let's look at again see if there's
any others
short so he's already dropped
sell this one also
even though we're short selling 20% that
doesn't mean we take control
still have control so we can't just
changes dividend down 20 ok with it so
have 500 shares so they're gonna lose
500 and 600 change whatever
huge portion of their net worth
short short sell him short sales
the rest of them are trading to close to
their net worth i mean they'll still go
down but I'd rather do a short sale when
I'm guaranteed to make a nice profit
just to show you what it looks like your
tax basis in the tax basis report cost
is what we paid and the value is what
it's worth now in this case the value
has gone down so that number is actually
higher than the cost and the difference
between those two is what we made the
stock was down that value approach 200
being the highest it can go on a short
sale and it looks kinda weird on the tax
basis report especially if you have
stocks that you know traditionally
bought because you're combining two
different cell types one that shows a
negative value in another positive
see what we're going to hear really any
clear winners networking telecom is all
right except for the low rate maybe
there's some discounts discount
companies to be had there let's take a
look
that's really close 0
the next Louis too much we really can't
take control of it well
I am 420 2.2 billion and then give them
a bunch of cash if they can turn around
their management is incompetent network
supply demand is deteriorating let me
look at the industry is growing at the
percent
could turn this company around from a
management standpoint
and probably get their returns up to the
20 range but it would take probably
three-quarters to do it
just how we would be holding steady for
three quarters before making a profit
find something else
technology
returns or lot better and there's some
bargains to be had so he Munich's Li Gen
X and all four of those look like they'd
be ok now
guys still growing like gangbusters yeah
we could just turn the company's around
and we wouldn't have to grow very much
because the returns are still in decent
territory so
last year projected to make money this
year there grossly incompetent
highly-leveraged
ninety-four percent of the shares are
available to Li
highly-leveraged 1 percent of the stock
is owned by the public bus money that
last year gonna make money this year
area company the fact that they're
making money this year versus losses
last year means stocks are gonna go up
so I am now go up automatically and then
if we just turn around their management
gets a little bit more long-term the
last couple in runtime tape investments
we made but there's really not a lot of
options elsewhere so I'm gonna go ahead
and get back into this game industry
by these up in turn around so let's
start with Unix
and
is a lie
75%
the parent company merging with these
other three emerging I'm gonna transfer
cash to millennium so that it can pay
off the debts of the combined company
contribution
seven billion
notice the price the stock price of
millennium has jumped
229 based on that I'm going to
contribute to stock other companies
1504 in a bank loan of 55 65 years their
stocks once we just gave it to do so I'm
going to have emerged with each one of
these and then we'll buy out the
minority stockholders will do that doing
a dream start with index
merger with we have to offer all the
shareholders communiques premium
basically it's a center for them to
agree to the merger since I'm the
majority of the shares already know you
only need to 51% majority to approve the
merger and I already own that many so
the merger is guarantee so I'm gonna
keep this at the lowest rate of minority
shareholders don't get an extra but
there's no reason to give them extra
money right now we will have the
opportunity to liquidate index
yes that's the process
the combined company 5.5 trillion
billion in assets four point seven
billion in debt
now we have a much healthier company
financially
but we need to reform our management
because they're still there and there's
two ways to go about reforming
management one is the slow and steady
rain just slow n steady way where you
set your R&D for ten fifteen percent and
over the course of a year or two they
get a climb out of the day's other way
is to set your R&D to 21% and above and
not only does dad have a similar effect
is just raising it to 16 yr you make it
the more marketing you're doing there
for you return should be better but what
it's about 21% there is a random chance
that your company could experience some
kind of benefits such as a major
discovery excellent return on marketing
campaign breakthrough in some research
new discovery in medicine whatever
there's all kinds of random events like
that can occur that will immediately
take you out of the basement put you
into the very capable category
now because we're very confident
seriously considering going larger
especially since we have a surplus
surplus of cash I don't typically like
to have a surplus of cash because it
makes you in a target for embezzlement
but in this case it'll help keep us
alive until our management has been
reformed so what we do is I'm going to
make our R&D 21 percent change our gross
capacity to 1% July have a reason to
change it over expansion continues for
minor companies made it down to the one
hundred percent range scoop them up with
our extra cash as well so that's good
management
spending 20 16 percent growth
industry is still deteriorating we knew
that very incompetent 21%
a large tax carry-over so you shouldn't
have to pay taxes for a while so that's
that we still have five point six
billion to spend the next thing that I
want to do is I want to create a bank
and the reason why I want to do this
because I want to be prepared for when
it's time to do interest-rate swaps
which I hope to get to this episode so
the way you take over as one of two ways
you can go to the banking industry
and look for a bank that is right for
takeover projections this is a summary
so this bank by what else this bank is a
good buy
goodbye
and something I think I feel failed to
explain these underscore see that means
it's open owned by corporate entity ages
the computer player your competitor and
a p/e would be so let's look at how big
Banco Santander is and it's too big for
us
it's too expensive too
Bank of Australia Austria
that's too much money to put looks like
our best bet is to just create our own
do that
financing then you start up and
the minimum for banks is $1,000 yes
making
and 1000
start-up costs the first quarter gonna
be huge but will start earning money in
the second quarter I'm just going to
leave the name is singing for right now
and I'm gonna contribute an extra
billion dollars in
when we do interest rate swaps maximum
amount that you can base the swap on his
sixty percent sixty times your net worth
but the maximum is $100 thousand four
hundred billion billion and I want to be
able to do the maximal so if our net
worth is two thousand times to 60 is a
hundred and twenty billion so we'll be
able to do the full amount so that's why
giving extra billion dollars so here's
the bank has 1670 in cash as business
loans consumer loans and mortgages
consumer loans credit card debt so if
you want to look at the loans go to
here's a list of a close associate decor
and credit card mortgage and subprime
mortgage and the interest rate loan
interest rates
business
still have three point six billion
might do at this point yes go ahead and
make centrust bank or bank but we have
too much cash regulators will allow it
so we need to spend some of this before
we can make centrist our bank not really
anything from this invested so what I'm
going to do a database for stock that
has trading for less than a hundred
percent industry that has good supply
demand situation it is not fully owned
by another company that has earnings
going up next quarter
10%
25 and now we only have 36 billion to
spend so what's changed this to two
billion so that when we buy it we can
contribute our excess cash to display
the results
heavy machinery office equipment
computer peripherals there's two in the
household and personal products
take a look at that is usually when
there's multiple ones industry is it a
good situation for investing
so what's
a lot of our growing at a negative rate
stock prices or a good situation for us
to buy his shadow
he's got a decent return just got too
much debt
his dividend is too high for bringing in
so let's look at his financials
so we can buy them for two billion and
then give him the extra wouldn't have
his death
money and he's reasonably competent so
let's buy him and can't profit off it
its contribute 1300
1300
we need to eliminate our dividend
growth rate we can said 20 and then we
cut it so we can bags is down 26 percent
0
will become more profitable after that
we can worry about growing provided that
the situation supply demand situation is
still be alright so we've been going for
almost 25 26 minutes and
we have even turned on the ticket
so let's turn on the ticker the first
thing that's going to come up is basic
earnings reports that we created
and let's clear this
so
we want to put this in the largest
responsibility and is our biggest
by shadow
and then the bank
after that
short sale
just to show you what I was talking
about with tax basis in film
here's my I've made a billion dollars
here and there
and
there when you look at it
it says that my total net worth is
whatever in that would be over here its
12 and change so it's a little bit
confusing because this is not a direct
let's turn on the particular
so the bank lost 250 million
but we expected that with all the
startup costs but one thing I didn't do
was it just gets R&D spending for a bank
its marketing its projected to make
money for the next quarter
but management is reasonably competent
we want to keep it there or increase it
so we're currently spending only 2% on
advertising so we want to change that 26
percent to reach very capable status 25
percent
if it were very incompetent I would
raise it up to seven or eight usually 10
as the maxim that I go on banks and the
benefit that you get is that the cost
overhead expenses are currently two
percent of deposits that's right down
the middle but 1.5 126 is where I would
like it to be
will be more profitable if its expenses
for those two things are low
so the next report coming up as on
january tenth 4:11 a.m.
the 10th to the 11 somewhere in there
it is 57 cents
have plenty of cash on hand so let's
take a look at the
management situation it's dropped good
we are projected to make a profit and we
lost last year so that should help
increase our stock price which right now
is to 64 which is undervalued 292
network
look at the industry again just to make
sure we don't have to adjust anything
because of the amount pending
but being that were grossly incompetent
not gonna lower
that's what the purpose of our cash
reserve weather the storm until we reach
a profitable level can change the
management
try to turn this company around 425
million to change managers furthermore
I'm going to
collect myself as the sea
or that I will collect the celery doing
that and maintaining our R&D and 21%
hopefully the company
company that expecting
last quarter
if the numbers are getting smaller left
to right then you need to make some kind
of adjustment for getting bigger left to
right
you're doing just fine
manager companies is good news
so we're going to fast forward now to
november of ninety
dollar-a-share and that we can pay
towards our debt something happened
while we are fast forwarding that I want
to point out your member ID Union
Pacific at $10 a share and now it's up
to 40 and I think Norfolk shortage in
the $50 range and now it's a 40 I'm not
really that concerned about it there's
no way that the industry could have
turned around as bad as it was a short
time I think they did a reverse split
what we get done looking a shadow when
you go over and check those and see if
it's time to cover or short sales we're
gonna go to shoot out and take a look
there a situation
changes
going now at three percent return is
good
need change their let's go to industry
as you can see they're all still
negative not as negative as they were we
might want to cover or short sales he
backed up to two hundred and seventy-six
percent profit because he was 25 when we
bought him his net worth is probably
come down so even that 276 isn't the
same as the 276 it was four billion
dollars in equity so let's look at our
tax basis in fluency we could make 1.2
billion by covering it now that's what
we really haven't made any money on
these two done okay
going down as much but he still going
down
actually in bankruptcy at this point got
a negative value
calculations are in MF mean that it's no
meaningful figure you have a division by
zero vision by a negative number of
these
other downside is january 10th whenever
earnings report comes out so fast
forward to January
share is still reasonably competent so
we'll leave the advertising the way it
is I don't really care if this bank
makes money or not it doesn't lose money
I'm happy primary purpose for this bank
is as a entity to engaging interest-rate
swaps when the time comes
until then I really care what happens
this one as long as it doesn't
last bunch of money that's because of
what we're spending on R&D we still have
any cash reserves
management's doing now
jumping growing their growing even
faster it's just ridiculous as a result
our percentage of earnings has gone down
if we were very capable this would be a
positive number but for a little while
until we can turn that around I made up
the percentage a little bit more money
we might as well
25
give us an even greater chance that we
get lucky with a major discovery a
breakthrough in the R&D department let's
look at their earnings report comes out
on the January into January so we have
to pay dividends again let's take a look
they're still losing money hand over
fist so tax bases report see how much we
can make now so even more by hanging
onto it here and here and since we're
not paying dividends on this one we can
hang on to it and just cover these two
so we don't have to pay difference
let's do that cover short position
and the one that we were gonna cover is
the one with no dividend Canadian
railways were gonna cover
79
we bought it back but it was about one
and a half billion buyback that other 3%
did we forgot to do that so here's the
shareholders 97% Softbank 1% and
healthcare equities fund 22 percent and
while our stock is trading below the
value let's go out and buy it out
100% we have the cash to so the way
that's done by cell menu and you choose
greenmail and just pick the stockholder
you want to buy out the percentage that
you want to buy out and this is just
like buying buying out a shareholder
when you're purchasing the company
except this time this the company itself
is buying back stock that's been issue
so we're going to offer 25%
during it
thing for the other
25%
and that was 25% over the Curren price
that further tightened up for shares
total amount of shares outstanding I was
only 2011
basically canceled those ships
shares
so that we own a hundred percent
other option was for me to spend my cash
to buy them but since the country's
company has more casual
alright so next one up his shadow
there are projected to be 2007
it's good news
so fast forward to that
300 million this time it'll put a dent
in this over 10% of what we owe so we're
gonna be that down
next quarter to go up even further
so
negative
situation
so
continue to pay down our debt
growth is only get a hint or profit
margin
fast forward now to January
until april fourth but we've got a
situation coming up hopefully we're
gonna get interest-rate swaps are prime
rate has jumped and if it gets to 12
we're gonna start doing some swaps
has reached a level and a half percent
which is not ideal percent or higher to
engage in interest rate swaps but it's
close enough so doing the transactions
they work there's two kinds
and a long position
a fixed rate
short position you pay so in the
interest rate is high
to receive it so we're gonna be doing
long position and so what you do is you
when you enter into this transaction
basically what it is we're gonna receive
whatever percentage based on the primary
today and then whatever the interest
rate is for the duration of the
agreement so if you're receiving 11
percent interest rate goes down to eight
billion dollars received eleven billion
will pay out the difference over time by
the way the maximum length interest-rate
swap is five years that's the maximum
out you can make it over five years so
we put two billion into our bank and
we're gonna only
have the bank engage in these so the
maximum were risking his two billion
dollars if the interest rate goes up
then we'll go bankrupt and will lose
that two billion but if the interest
rate goes down you'll make money based
on this table if the average rate over
that four and a half years five years is
10% will come out ahead to the two to
three trillion dollars if the average
rate is 5% that will make close to 19
trillion dollars just the average of 8%
almost nine and a half trillion dollars
so it's a huge upside with very little
downside some people might say well
aren't you kind of gaming the system
here with a green to the swaps when you
know you can pay future streak was up
now because the companies that I'm
entering into these agreements with baby
in the same situation some of them are
gonna go bankrupt if it was down 25
percent
in the real world peace watch take place
it's known as derivatives trading and
its takes place on mortgages straight up
interest rates a number of different
securities the basis for these types of
agreements
and it's pure gambling there's no
question about it but it's a good gamble
so we're gonna take it easy for a fourth
and here's the earnings report for
SunTrust made some money and interest
rate is at eleven and a half percent
we're not gonna wait anymore we're gonna
go ahead and do our interest rate swaps
as high as we would like the interest
rate to be but it's close enough so
first thing we're going to do is reset
the takers be 20 or 21 positive girl so
and now we're gonna go to our interest
rate swabs we have the wrong candidate
we need to slug debate so the way it
works is go to the fire to do
interest-rate swap agreement other
interest rate swaps
and I put in my parameters chaise longue
position I set the starting order to be
two doors away so that we have time for
the interest rate to go down in the
final quarter can be up to five years
from this quarter so sir quarter of 2023
I make an offer will randomly pick
general banking insurance company or
securities company and you see here
they're offering me a counteroffer 49.4%
but if I select the bank and I do the
same thing interest rate swaps long
position first quarter of 2019 through
the third quarter of 2023
make an offer
the counter offers a lot higher 10.22
percent ok so that's why you want to
make her insurance company to do these
and already the interest-rate greatest
interest rate has dropped 11 percent but
that's ok we're gonna go ahead and do as
many of these we can until the interest
rate drops over the counter offer is
below 10% annually so as long as the
counteroffer stays of 10.9% gonna enter
into as many of these it'll let us know
I'm gonna fast forward and start
entering into these agreements one after
another and when i come back we'll put
together an analysis of what we should
look forward to
offers it started coming in at less than
10% per year so we're gonna take what we
have and one that stopped entering into
any more agreements to view a list of
your interest rate swap agreements
interest rate swaps and then view a list
of contract so here they all our first
one was at 10.22 percent in the interest
rate fluctuated up and down as we went
through here's a list of all the
agreements total of 368 it took me
roughly half an hour to put the cap that
the system can hold in that capital
thousand I generally strive for nine
hundred and fifty because that's usually
anywhere from 25 to 50 interest-rate
swaps already going on that the system
is tracking make the maximum amount that
I so let's look at the spreadsheet then
what that means in terms of the three
hundred and sixty-eight that we were
able to enter so here it is
change this number to 368 changed our
averaged 1022 the average interest rate
back percent
will be paid 22 2.22 billion dollars for
each agreement every year on average
take that 2.22 billion 368 after taxes
which is 26% probably be over the course
of four and a half years total would be
so you can see I just a few clicks of
the mouse two billion in turn it into
almost three trillion dollars this is
not guarantee this is based on the idea
that the interest rate averaged will be
8% could be higher
could be lower it stays above 11 percent
0.22% we're gonna go bankrupt us to do
but that's our maximum risk that's the
maximum amount we can lose by using the
bank to do it if we did this under our
name we would go bankrupt in this
scenario and the game would be oh so
that's why you want to use the bank to
compartmentalize you're right so that's
how they work and we've been going for
quite a while now so we're gonna end the
pepsi here but come back next time and
see just how much this profit we can
realize till then have a good one