Authors: Tom Connolly
He had sold at the peak one million shares of the original 1.2 million purchase, keeping two hundred thousand as “cover” shares. Over the coming weeks, he would slowly dispose of the other one hundred thousand “cover,” which were purchased to deflect attention from SEC computers looking for patterns of trades like his—very large buys before earnings and total sellouts on earnings day. He knew from his friend at the SEC that their computers had a programming flaw that exempted attention for swing trades where there was still a position a week after a sell.
In the two weeks leading up to earnings announcement for Thompson Computers, Kish had bought the shares in trades of ten thousand at a time or less, to stay below the radar. He knew what earnings would be; he knew tech stocks were hot right now and that when announced the earnings would cause a brief sensation. But as happened more and more lately, tech stocks were on a roller coaster, up and down, sometimes 25 percent in either direction, occasionally on the same day.
Once he received news through multiple one-off-from-the-source “sharers” that earnings would beat the street estimates by ten cents and revenues would soar by 50 percent from the prior year and 25 percent from the prior quarter, he put his plan in place. He posted misinformation on as many professional stock blogs as possible, the message: there is real potential for Thompson to miss its numbers. He called the computer to his left, “Lefty;” he would tell his close friends it was like a democrat, always spreading rumors. The computer to his right was his trading machine, and once the misinformation that he spread started to have an effect, he began buying.
In the end, once he had disposed of the remaining two hundred thousand shares for a profit of one dollar apiece, he did the math; 2.7 million dollars, in less than one month. It fit the pattern of profit that was building in the Brunswick Fund.
The fund economics exercise that began with the seven friends from Brunswick School in their junior year of Mr. Conetta’s Great Questions class had become a registered hedge fund. While it was generally known only to the seven partners, their banker, the SEC and the IRS until a year ago, it had now started taking on clients with the ability to invest at least five hundred thousand dollars for a three-year lock-up period. And what began as a fifty thousand dollar investment supported by the boys’ wealthy parents and supplemented with a second equal investment was now worth 28 million dollars. The total funds under the management of BF would soon grow to ten times that amount.
Kishenlal Moira was the managing director responsible for the trading operations and research. Edward March Wheelwright was the managing partner responsible for everything else, which mainly focused on oversight, administration and marketing.
As two of the original seven Brunswick boys in Brunswick Fund, they had left similar positions; Kish as a director at one of Bear, Stearns hedge funds before it went belly up in the mortgage backed securities crash that brought down the whole market and Edward at JP Morgan where he was a managing director in equity trading. Brunswick Fund would continue growing exponentially for the seven partners.
Chapter 24
The two Sebastian Balls took a trip to visit Ball-owned companies in Binghamton and Newburgh, New York, and two other non-owned companies with three plants near Pittsburgh. In Pittsburg, one company had two plants along the Monongahela River to the south and the other company had a plant along the Ohio River to the west and north. The younger Sebastian saw a world adrift. An old order had crumbled, the remnants of the industrial age strewn about, rusted hulks in idle by the rivers and streams that spawned an age. The new state had not yet emerged.
In Beaver Falls, Pennsylvania, on the Beaver River before it flows into the Ohio, on first entering the town he saw a home totally burned to the ground, just lying there. The fire was not recent. The house next door had lost its roof and part of its siding in the fire, but repairs were nearly complete. No repairs, no reconstruction was planned for the burned down house. After driving down the main street, a beautiful broad street, but with empty stores, for blocks and blocks, he thought of the old western movies and their false facades. Beaver Falls was now like that—a façade. No, that wasn’t it. A façade was false. This was not false. Once this was a thriving, important small town, like hundreds all across the Northeast and Mid-Atlantic. In this area all along the Ohio River sat the remnants of the steel, coke and coal industries. Giant shrouds cover the former plants—these roofs cover the emptiness of the industrial revolution. As America built up and out, the excess was no longer necessary. When the Japanese flooded the world with cheap steel, this area could not compete.
Carnegie and Frick were gone now, no titans were left. The steel beast lay dying; America had built one new plant in the last fifty years. As the Japanese built twelve new steel plants in that same time, the obituary was being written for a whole way of life—not just businesses, but towns where people made lives and friends, raised children, served their country and died. The grave yards of eastern Ohio and western Pennsylvania are well kept: rows and rows dedicated to servicemen, fresh flowers are still being brought to graves with American flags beside many of the graves. There are no ghosts there. The ghosts are in the towns among the living.
And when those plants closed their doors for good, when the last employees got their buyouts, separation pay, unemployment benefits, and what pensions remained, it was not that generation that was affected. They saw it coming, they heard it daily in work, at union halls—the end was near. For so long they heard it, when the end came it was a relief.
It was their children and their grand-children who wondered what happened. Where would they work, where were their friends moving to, why were the churches nearly empty or worse, closing. How do you close a church? How do you tell children God doesn’t live there anymore?
These giant dislocations had been happening for two generations. In the seventies they called the north the rust belt as plants began shutting and snow birds who only flew south in the winter were now migrating to lower cost of living areas in the south and west permanently. Here was an America that helped the world build itself out, and now, with city after city, town after town, was struggling to remain viable or teetering toward forfeiture.
Sebastian had seen these affects before when doing field work for his MBA when he visited shoe factories in Lynn and Brockton, Massachusetts. He saw it in the former All American City of Newburgh, New York, on this trip with his father. Newburg, a cold pitiless place that most Americans would be ashamed of if they saw it. Dickensian in the despair on the faces of the mixed races living there; children, street after street of children, in rags huddling in doorways, their only solace in this life: each other. When the shoe factories emptied out and the work moved to countries south of the equator, it was as if a neutron bomb had gone off in Lynn and Brockton: the structures remained, the people were gone.
These dislocations had always occurred since man first started paying for labor. When a cheaper labor source was found, the work moved there or the people moved to the work accepting the circumstances—Egypt, Greece, Rome, all the same.
England. When the states could produce textiles more cheaply, the manufacturing and design for the equipment moved to the states, bringing vast new wealth to the colonies, just as the world’s manufacturing center became China and was now bringing great wealth to that nation.
And these cycles Ball was thinking of no longer took centuries to play out. Now decades would see a nation win an industry and before a generation passed, that same nation would lose out the same way it was won—to a lower cost of labor. Sebastian knew work always moves to the lowest common denominator—the cost of labor. It is how we reward management—hold costs down; it is why we have unions—hold the cost of labor down; it is the way our stockholders decide to invest or not invest in our stock—the cost of revenue—how much did it cost to make, what are the margins for gross profit, operating profit and net profit. It is why our accounting systems would not work properly if we couldn’t bean count every hour of labor. Thousands of consultants would be unemployed, for who is it that identifies for management where labor must be cut, where work needs to move off shore.
Ball started to have a vision. He would examine labor intensive industries and their locations. Was it possible to build a virtual environment to continue after the neutron bomb of labor cost took the industry and the work but left the infrastructure. If technology could intervene along with cooperative government, then the cost of labor could be mitigated.
Inside he felt pressed, he needed to do something. If the people with the means who saw these ruins would not act, who would, he asked himself. Something never done before needed doing. Was it possible to establish endowments for towns like Homestead, Pennsylvania, and Steubenville, Ohio, so that when the effects of business downturns and business relocation destabilize a town there would be a permanent backstop that could incent new business and protect citizens from the loss of earning power? He needed to think this out—yes it sounded new and undoable, but colleges and universities sometimes seem to outlive their usefulness in one generation only to bounce back in the next more vital than ever; these institutions were able to survive for hundreds of years because of their endowments; fortunes given by benefactors interested in seeing the school persevere.
In the months following their return from this trip, Sebastian discussed these ideas with his father and, getting quite a bit of encouragement, went to work. He made several additional trips to Ohio and Pennsylvania. When the time was right, he decided he would need to start talking with Winston Trout. He believed Trout was the smartest person on the face of the earth. If Trout Solar were going to build solar panels, they needed to be built here in the states. If the separate elements that went into making a solar panel could all be harnessed in one place, in an entity, in a company, cost could be ameliorated. Scale would matter more than a shrinking labor cost. If power companies would embrace utility scale solar to meet their states laws for upwards of 20 percent of energy generated from clean energy, say within ten years, then a new industry could flourish in America.
Chapter 25
Some men have a time in the limelight that lasts far beyond them. They don’t come often and we remember their names; Einstein, Caesar, Hugo, Gandhi, and Tchaikovsky. But they are rare. Of the billions of people who have inhabited this planet, not many are remembered beyond their own generation. Fame
is
fleeting. Most men shine for no longer than that brief burst of enthusiasm they put behind their great ideas. Human nature conspires against them: the inability of the creators to present their enlightenments, an attention deficit by those who would be their audience, or an inability to persevere and see their ideas to fulfillment.
But the names we remember, the Churchills, Hemingways, Curies, Mandellas, and M.L. Kings, they were more persistent. Their ideas were them, their lives; the ideas burned in them.
Sebastian Ball Jr.’s passion to renew capitalism was the type of vision that could have his name on the minds and lips of future generations. But like all great visions there was possibly remembrance of folly. All together his concepts were utopian; looked at in segments, folly.
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Sebastian Ball was able to arrange for the monthly Brunswick Fund meeting to take place at Trout Solar’s headquarters at 425 Park Ave. This would give him time to meet with Winston Trout to discuss what he felt could be his purpose on the planet. The Fund meeting would take place at 6 p.m. Ball set his meeting with Winston for 4 p.m.
When the secretary showed Sebastian into Winston’s office, they hugged as brothers hugged. It was one of the endearing measures of friendship that went to their brotherhood. It was born of seven boys in preschool; seven only-children in a school teeming with the offspring from large rich families. The only child of a rich person is a lonely child; surrounded by maids, nannies, chauffeurs, butlers and gardeners, their parents are engaged in lives of business, social and sporting activities that relegate the life of the child to being reared by others. Out of that loneliness, the seven boys found themselves at four years old the only children in the Brunswick School’s preschool program. But then they were not “only,” they were seven. As they moved through the Brunswick School, while in different classes or in different sports, they tried as much as possible to arrange togetherness, by requesting specific teachers, specific sports or adding an elective that would guarantee them being in the same class. Other schools may have shied away from allowing this clinging; Brunswick allowed and encouraged the boys to do what they wanted. And when Greenwich Magazine’s section on weddings would announce the Winston Trout and Emily Albright marriage, there would be the seven boys, only-children who were never lonely, happily in the wedding party as best men for their lifelong friend.
“Let’s sit over here,” Winston gestured, and they moved to two chairs by the large picture window that overlooked Park Ave below with its center strip a garden of grass and flowers.
“And what’s so urgent?” Winston asked Sebastian.
For twenty minutes Ball went on, non-stop describing the trip he and his father had returned from. He described his horror at the wake of the industrial age. He talked about the cities and the people he saw. The wounds the people had, not the physical, but the emotional: the psychological strain he saw in the eyes of women in Homestead, PA, and “the pitiful condition of the children in the streets of Newburgh, NY.” He described the missing people in places like Steubenville, Ohio, and Beaver Falls, PA.