From the Trader’s Desk: 2 for 1 Special – Your Questions & Wendy’s Personal Kobayashi Maru

After a brief hiatus, Lady Trader is back to answer some questions about “A Flaw in the Death Star” and my take on “The Third Ortolan”.

I received some questions regarding “A Flaw in the Death Star”: Dollar Bill’s trade, why Axe Capital would hire someone like Ari Spyros, Taylor’s meaning of “ETFs have sucked all the dumb money out of the market that hedgies used to prey on”, and last but not least, the biggest question of the season so far: Why did Axe Capital move to NY?

In “A Flaw in the Death Star” we see Dollar Bill plan to short a pharmaceutical company, Mendham. He has paid off one of the employees to blow the whistle on the animal cruelty that is going on there. A simple short for Dollar Bill and a crap load of money for Axe Capital. But, Dollar Bill has come up against something he can’t throw a duffel bag of cash at – Head of Compliance, Porsche driving, cappuccino making (and I’m guessing its cappuccino since I don’t drink coffee), and all around boorish , Ari Spyros.

Bill has gotten the go ahead for the short from Taylor and Wags, but he must get the OK from Compliance.

Ari flags the short and it’s a no go. Bill goes on a tirade, calls Ari a few choice names, and turns to the only person he knows will understand  him,  fellow outlaw, Axe.  Axe has bigger fish to fry, so he tells Bill “Help Yourself!”

Bill does just that. He longs the stock, but tries to buy Credit Default Swaps to hedge his bet. Answer to Question 1: Since Bill cannot short the stock, he longs it and uses CDS as insurance. He will still benefit from the decline in the stock price. As a buyer of the CDS, Bill receives credit protection and will be entitled to the face value of the contract, should the company default on its debt. An animal cruelty case against Mendham would certainly put the company in that situation.

Ari’s experience from his SEC days alerts him to the imaginative way Bill is still trying to get the trade through, and blocks it. Answer to Question 2: Ari may be a preening asshole, but he is an experienced one! He knows the type of things to look for that would cause red flags at the SEC, and he certainly knows Dollar Bill’s rep. Axe Capital needs that kind of expertise in-house, now more than ever. With the boss indicted, the regulators are going to be all over everything the firm does. Hiring Ari gives Axe Cap someone who will play the role of keeping (for the most part) the traders on the straight and narrow. Many hedge funds hire people from the SEC and other Wall Street regulators  for this reason. People coming from the public sector also have contacts at their old jobs, and who you know is just as valuable as what you know. Also, as the Porsche will attest to, it’s much more lucrative to work in the private sector. So, yes, Ari is a jerk, but he’s a well paid, member or the Axe Capital “family” jerk!

Taylor is still working on their quant algorithm. They have hired 2 programmers (yo! Quants!) to back-test their strategy. The results are not up to Taylor’s standards; Taylor has hired programmers, but not finance people, so they don’t know how to make adjustments when the strategy under-performs the market. Taylor knows they need to program the algo themselves, as they are the best of both worlds: programmer and finance. Answer to Question 3: Recently, there has been a move by pension funds and institutional money out of traditional hedge funds and into quant shops or passive investments (ETFs). These types of investments are less risky and are generally cheaper to invest in. They don’t have the expense of analysts, and don’t charge the usual 2 & 20. This has caused the  money pie for hedge funds to shrink. A hedge fund needs to be at the top of its game, with the best performance in order to keep getting a nice slice of the pie. This is why Taylor needs the best algo they can come up with.

And to answer  the $99,000 Question: I really don’t know why Axe Capital moved from CT to NY. My best guess is that if Axe is living in Manhattan, and the place is called Axe Capital, he’s not going to commute, so they will move the mountain to Muhammad! Also, there have been state governments that have been targeting hedge funds to pay more taxes. This has caused funds to move their headquarters to lower tax states. However, a move from CT to NY wouldn’t help much; both states have disgracefully high tax rates.

I hope that answered your questions. As always, if you have any fin-speak questions, please fire away!

When the titles for the episodes are announced, everyone here at FanFun tries to figure out what they could all mean. (We are usually wrong!)  “The Third Ortolan” was researched, but I still couldn’t figure it out, until I watched the opening sequence. I knew of this “ritual” from watching ITV’s Victoria” and watching this same creepy dinner take place in Victorian France. I guess I blocked it from my memory! It may be a delicacy, but I’ll pass. If I was ever going to have a “last supper” I’d go with my Grandmother’s homemade lasagna; but what else would you expect from an Italian from Brooklyn?

“I feel bad about a lot if things I do. Doesn’t stop me.”

In one quote, we have the perfect description of Chuck Rhoades!

Taylor receives a beautiful delivery of delphiniums from Oscar. They are the perfect geek gift for their relationship:  the leaves are clustered according to the Fibonacci sequence! The boys ($Bill, Mafee & Ben) are asking Taylor how this long-distance relationship works. Taylor lays out the logical explanation: they are both such workaholics, if they were in the same city they would never see each other, and that would be awkward. I’m not convinced Taylor really believes that – it’s just something they are telling themselves so they don’t feel the loneliness and distance.

Wendy checks in with Taylor to see how they are handling the possibility of Axe Cap without Axe. Taylor knows they need to be ready if that scenario arises, but are they? And what is Axe Capital without Axe? Yes, Wendy says, the firm can still manage money, and has a capable staff to do so, but can it grow and thrive? It will all come down to Taylor. They want the challenge, and have even imagined Axe out of the picture just to be given the opportunity to lead the firm on their own terms. Taylor measures themselves against Axe and feels they’ll come up short. Wendy gives Taylor the best advice you can give: don’t measure yourself against anyone and trust your gut – that is what Axe does at his best. I have mentioned several times how instinct is a big part of how I trade. Sometimes it is hard to trust your instinct. You have that voice in your head that tells you the opposite. Anytime I’ve ever gone against my instinct on a trade, I’ve regretted it, even if the trade was wrong. If I make a bad trade, but I went with my gut, it’s a lot easier to move on from than from one that I made against what I knew I should have done. I can’t believe I’m saying this, but I agree with Wendy’s advice to Taylor: don’t listen to the other (in Taylor’s case Spock) voice in your head, go with your gut!

Taylor is Skyping with Oscar, discussing their issue with the algo. The voice in Taylor’s head is telling them to just keep tweaking it. Oscar says what needs to be said: maybe it needs to be scrapped and gutted. Taylor knew that in their gut. Perhaps they are starting to take Wendy’s advice!

By that afternoon, Oscar has flown to New York to keep Taylor company while they program. Oscar knows Taylor can do it, but also knows what it is like to work long hours of lonely coding. A gift of “standard coding provisions” (candy!) seals the deal. Taylor’s inner voice wonders if this is the best use of Oscar’s time, but their gut says go for it! At home, Taylor and Oscar sit side by side, eating candy, coding, and just being together. It’s a look of satisfaction and happiness we haven’t seen a lot from Taylor lately. They are the Sheldon and Amy of “Billions”!

The second floor of Axe Cap is in lock down mode, as Axe, Bach and the two Halls are strategizing for a court appearance. Axe needs to find that slide and make sure it is one less piece of evidence that can be used against him. Bach suggests calling for a motion to dismiss; this will force Bryan to produce any evidence and show his hand.

As Axe and company head off to court, Ari offers his “expertise” on Bryan, but there are no takers. Ari is part of the “family” and he wants to help his Don and show his loyalty – and because this is Ari we’re talking about, it’s not going to go well.

In court, Judge DeGiulio won’t dismiss the case, even though Bryan doesn’t have any evidence – yet. So, he’ll split the baby – Bryan must produce his evidence in 1 week or the case will be dismissed. It’s a small win for Axe (who doesn’t like small wins) but he’ll take it.

This puts a big crimp in Chuck’s plans to plant the slide in Axe’s apartment. For all the illegal maneuvers Axe makes (and this season it’s a boat load) when Chuck does the same things (paying people off, using immigration status as a weapon) it just seems so much more sinister. He’ll have to find another way to get the goods planted on Axe. Perhaps an employee at Axe Capital would comply?

Axe is in full paranoid mode, and is not convinced he can run out the clock and wait the week the court has given Bryan. He needs to find that slide. It’s haunting him. Bach tells Axe something someone should have told him last season:

Don’t let your paranoia make you take unnecessary risks!

I think the Kinks said it best: paranoia, they destroy ya!

A desperate Chuck (I mean you’d have to be desperate to turn to Ari!) just happens to bump into Ari during Ari’s morning run. Chuck treated Ari like shit, but now he needs his help, and is making an offer he thinks Ari can’t refuse – help Chuck nail Axe, and Chuck will make sure Ari is protected. Ari is not the cuckoo bird Chuck thinks he is; he’s a Golden Eagle and will not be bullied by Chuck and his empty threats! Oh Chuck, what goes around, comes around.

Ari is so desperate to be part of the “family” he wants to give a game changer to Axe for his case. With a look like the cat that swallowed the canary, Ari goes through his findings: He looked into the ICEJ IPO and noticed a big short trade in the wrong account. With a bit of digging he learns this should have been in Wendy’s account. She has never made a trade in all her years at Axe Cap, so to Ari, the super sleuth, its fugazi. Reaching out to a friend at the NSA shows Wendy was at Chuck’s office when the call to make the trade came in. Boom! Chaos Grenade!

This is a grenade that totally backfires! Axe is not interested in this info, but it’s too late. Ari gave all this intel to Bryan. Oh Shit! Bach thinks this is a good play, but he’s the only one. Ari tried to do the right thing, but he’s such a schmuck, even this goes wrong.

Axe has to go tell Wendy. His walk to her office is like walking the Green Mile. This is the first time I recall Axe not knowing what to say! He just spits it out: the Feds have Wendy’s ICEJ short. Axe must have tried to cover it up by putting it in a different account, but now it’s out there.

Wendy asks if it was Axe who threw her under the bus. (I was surprised she asked that. I thought she trusted Axe completely.) Axe swears it was not him. Wendy knows she’s possibly looking at jail time with the perception she was in on the conspiracy. The ironic part is that her trade was not illegal! She actually didn’t have a clue what was going on! Axe will not let her take the fall. He’ll man-up and do what must be done.

Wendy meets Chuck at the brownstone and tells him everything. And makes sure to tell Chuck it was not Axe that spilled the beans, since she knows he would assume it was. Chuck has another “brilliant” plan – make Bryan want to nail Axe more than he wants to nail Chuck. At this point, I think Bryan hates them both equally.

Axe’s plan to save Wendy is very different: he will sacrifice himself and take a plea. He’ll have to let Chuck get away with everything, and possibly spend 7 years in Club Fed, but if thats what it takes, he’ll do it. Now he needs to speak to Lara.

Lara is shopping in NYC, so what better place to discuss the future of their family than on a street corner! Axe breaks it to Lara – he might take a plea. He conveniently leaves out why (and for good reason). Is this the Bobby Axelrod Lara married? The one she fell in love with would never give in, because she knows Axe would find a way to make the jury see things his way, and would fight for his freedom and his family. With the threat of having his sons taken to California to protect them, Axe has a lot to think about. Wendy is important to him, but more so than his family? He knows what it’s like to grow up without a Dad, would he do that to his boys for Wendy?

Bryan confronts the Rhoades’ with what he knows and makes an offer: they can both take pleas, testify against Axe, and Wendy stays out of jail. When Bryan leaves, Chuck tells Wendy they will need separate lawyers to “keep one of us out of prison”. Her husband didn’t immediately fall on his sword for her? Axe is willing to! Chuck loves Wendy, but he loves himself so much more!

While Axe and Wags say their goodbyes over a very bizarre dinner (I can’t believe Axe is going to take the plea and lose his family!!!), Chuck and Wendy are sharing a deli sandwich at 2:30 AM. In a move I didn’t see coming, Chuck will make the sacrifice – turn himself in and spare his family. Wendy won’t hear of it. She is scared, but will find an answer.

Wendy is experiencing her own personal Kobayashi Maru, an unwinnable situation. In that situation, you need to “break the stick” as Jack Foley puts it, and do the unexpected (as James T. Kirk did). Wendy breaks the stick in three, and the Holy Trinity will meet!

The Rhoades’ meet Axe at his apartment, and not 5 seconds in these “boys” are at it like 5 year olds, jabbing at each other! Dominatrix Wendy steps up and orders them both to sit down and shut up. Their need to take each other out is what caused this mess; why one of the most important people in both their lives is in jeopardy. Wendy needs them to focus! Stop with the petty bullshit, and talk until they have a solution. But first, weapons on the table. These two men do not trust each other, but they trust in Wendy, so they’ll work together; but not before Chuck needs a bathroom break. He’s not going to powder his nose – he’s going to plant the slide in Axe’s bathroom!

Chuck is back at the table and in the biggest shocker since “Golden Frog Time”, Chuck puts his biggest weapon on the table, and gives the slide to Axe!

One can only imagine how the Third Triumvirate will prevail. Let’s hope it turns out better than the first two.

Author: Lady Trader

"Lady Trader" is a Brooklyn girl, and a Wall Street lifer! Recently fought cancer, and won! I love heavy metal, history, sci-fi, oh, and blogging about Billions and it's great lead actor, Damian Lewis!

5 thoughts on “From the Trader’s Desk: 2 for 1 Special – Your Questions & Wendy’s Personal Kobayashi Maru”

  1. Fantastic post!

    Thanks for answering the questions! I had researched about credit default swaps when they talked about it in the episode and realized they would use it as some sort of insurance but your explanation makes it very clear.

    Hiring Ari was very obvious to me from the get-go because he has long-time experience at SEC and relationships with people at SEC and SDNY?EDNY which would come handy! And that is what they need at Axe Capital especially now that Axe is indicted. I think the point many viewers have missed here is that we, the audience, have known Ari much better than Axe Capital guys before they hired him! I am pretty sure he has a stellar resume, and, hey, hiring Ari added wonderful drama and comedy to the show. Stephen Kunken is storming it this season. That said, after his unilateral action, I expect Ari to get kicked out of Axe Capital as soon as Axe clears his name. I don’t think Axe would want a loose cannon as the Head of Compliance. What do you think? Or maybe he will think of him as a loyal player and keep him? I am thinking of the latter as a possibility right now only because Spyros at Axe Capital works for the show!

    I know a lot of people ask about the move to New York. And I think we sometimes think about the show too much to ignore convenience 😀 I also wondered about this when the first trailer came out and researched it. It turns out people that are indicted need to have permission from the courts to travel and thought Axe Capital moves to NY because Axe cannot go to Connecticut. That said, i don’t know what the jurisdiction of the Eastern District extends to. But then after the season started, we heard Axe telling Wendy about his penthouse that he would not stay back in CT. So, as you suggest it should be about convenience. The boss moves to NY so does the company. And I would say it should also be convenient for filming 😀 I don’t know if Axe gets back with Lara, they will move the company back to its original HQ.

    Walking the green mile? YES! I was genuinely worried Axe would pass out or have a heart attack on the way to Wendy’s office. But I was not surprised when Wendy asked him if he was the rat. Because even though Wendy did not sell him out, Axe sold him out two times. Wendy knows one, and probably knows the other one, too: First, Axe threatened her with the pictures from the spa when he thought she sold him out on Danzig without even listening to her first. Second, Axe tried to get out of the arrest last minute by trying to bring back to the table Wendy’s $5M “bribe.” Wendy knows the first one and Dake probably shared the second one with Chuck who was happy to share it with Wendy. So, I cannot blame Wendy for the question 🙂

    I personally don’t think Axe is willing to go to prison for Wendy per se. I think he believes what the company needs more than anything is Wendy. I know you do not believe Wendy could add anything to what they do, but Axe believes in that and tells Bach that his people come unglued, and she puts them together, and they are better than they ever were. And he saw how the company went off the rails during the short period she way away, besides he knows how he went off the rails when she was not working with him (read “Ice Juice”). So I think Axe’s sacrifice is not for Wendy per se, but for the company, for his life’s work. And it seems the company will be there even if the boss is in jail so I think Wendy is kind of his insurance for the protection of his family. But, having said all this, I think it is better for Lara not to know why he was willing to go to jail, because I think she would be so much hurt thinking he was going to prison for Wendy. I don’t think Lara believes in Wendy’s powers as much as Axe or I do 😀 Besides, I have to say, as a wife, I would never want my husband to have such a special relationship with any other woman. So I understand Lara in that regard.

    1. Thank you D! I tried to put a little of everything in it this week!

      I could totally understand why I got the Qs on the CDS. Billions like to use terms that make sense in fin-speak, but as we know, not everyone gets it. I’m glad my explanation was clear. That Bill! He’ll try to get his way no matter what!

      I think some people were asking about Ari because we didn’t actually see him get hired. It’ just like OK, now he’s Head of Compliance. And, he was not a main character the last two seasons, so he was a bit unfamiliar to some. I do love the comedy that he brings to his scenes. Stephen Kunken is knocking it out of the park! I just fear for poor Ari after last week!!
      The move is again, something we didn’t see, so it’s just logical speculation. To advance the story, we had a time jump to start this season, and I think there were situations (moving, Ari) where it just was, and was not explained in detail.

      I don’t know if I agree with Axe taking the plea for the firm. Without him, the firm is going to suffer. We still don’t know if Taylor is up to the job (I think they are, but all their calls have been Axe guided so far). Didn’t Axe decided to take the plea after he found out Wendy would be implicated? That info is what changed his mind to even consider the plea. And, even if you believe Wendy is important to the firm (you do, will never), Axe Capital won’t be the same without its founder and leader. If there is no money to manage, there are no analysts and PM to “put back together”, so there would be no need for Wendy.

      I think all of this is not going to matter now that the Triumvirate are working together. Nobody is going to jail, but I think there is still going to be hell to pay!

      1. I don’t know if I have put my argument in the right words but I agree Axe has been making a sacrifice for Wendy but I just think he has been doing it not because of his love for her but because of how good she is for the firm. That said, I don’t know if I agree with myself, either! 😀 😀 😀 I think I am just thinking loudly. And what I am trying to do is to make sense of the situation. This show has never done anything inconsistent so far and we have seen Axe threatening Wendy with spa pictures in S1 finale, then calling Lara when she left him with the kids to say he is ready to erase Wendy Rhoades from their lives if that was what she wanted in S2 E10, and then bringing $5M “bribe” to the negotiation table when he knew he would be arrested in S2 finale. So it is not just that he is choosing to go to jail for Wendy even when he knows he could lose his family but also about why do it NOW given that he betrayed Wendy several times earlier? What happened in the meantime that has made Axe extra-protective of Wendy? Thus, the only explanation I could come up with – yes, I have been obsessively thinking about this – is that knowing Chuck will find out about his potential sacrifice for Wendy, Axe may be trying to force Chuck to do something similar. In a way, he may be trying to make him come and cooperate with him at some point. I would have loved to see a bit more clarification on that from the show, and moreover I am still dying to know what Wendy whispered into Axe’s ear at the 9/11 memorial and if the show will go back there and let us know at all…

  2. Great post LT!

    Glad you cleared up Dollar Bill’s short long and long short. 🙂 I found Spyros’ super app interesting in its ability to flag such things. Does such software actually exist? We know from S1 that it was Spyros who brought some irregularities from Axe Cap to Chuck in, I believe, the pilot of the series. Or was that Brian? I’ll have to watch back and see. If it was Spyros, we now have a pattern of him being sensitive to patterns. Have a feeling this will come up later too.

    And super glad you cleared up just why Axe would hire him and why he would go there. It makes sense! The naive idealist in me says that once a public servant always a public servant, from an ethical viewpoint. There are people who have given their lives to public service, and that’s a noble cause. But it’s not realistic at all to expect public servants to not cross over to private practices, if for nothing else, than to get those Porsches. And, I’m thinking the challenge of it is attractive too. Things outside government operate at light speed and that can be a rush, I imagine.

    The Triumvirate as Roman Generals, OMG, never considered it, but, of course, it makes sense! So, I’m guessing if Axe is Caesar, then, to you, Wendy must be Brutus. Hehe. OR, if Axe is Antony, then maybe Wendy is Cleopatra. Double hehe. Begs more consideration, for sure!

    Just a bit on something you said on my post that I didn’t get to respond to: Bobby leaving his kids for Wendy. Hm. Lara left Bobby, he didn’t leave her. Of course, she had plenty good reason. Why she chose to leave now and not before is, I think, a plot point, not integral to who she is, or who he is. Bobby’s always been honest about who he is to Lara and his boys. So her leaving and taking the boys have nothing really to do with Wendy. Agree with Lara’s point that the Bobby she knew would fight. And we saw him not fighting b/c of the need to protect Wendy. So, yes, he told Lara he would take a plea, but, I don’t know, I never really expected him to do that, Wendy or no Wendy, Lara or no Lara. Lara is absolutely right that Bobby would never just give in. He was momentarily thinking he might, but, I don’t think he would’ve gone thru with it. And now, apparently, he won’t have to! 🙂 Still, whether he loses his family is really on him, and on Lara for not sticking it out. Wendy plays about as much a role in their marriage as Bobby plays in hers.

    1. Thank you Jania!

      Yes, regulators (and internal compliance) do have that kind of software to alert them to trades being done. When I worked at the American Stock Exchange, we had a whole department called Stock Watch (it was featured in the movie Wall Street).

      Ari was the one who brought the info to Chuck in S1. That was the whole thing where the SEC wanted the Chuck and his office to do all the work, then even if they didn’t get a conviction, the SEC could swoop in, level fines again Axe Cap, and still look like it won.

      Working in the public sector is noble, but the money you can make in the private sector is almost double, so you can see why it would be attractive. There are plenty of “lifers” at the SEC and other regulators, but for the most part, it is like the minor leagues baseball – a place to get some experience before you head off to the big leagues.
      I’m probably the only person who has read Suetonius for fun, so the idea of a third Triumvirate made sense to me! Axe is either Caesar or Octavian (later to be Augustus), Chuck would be Pompey or Anthony, and Wendy would be Crassus or Lepidus, as the first two (in both Triumvirates) were friends before they became enemies, and the last two (Crassus and Lepidus) were the go betweens. Wendy is trying to be the peacemaker. Let’s see how that works out!

      Yes, Lara has always known who Axe was. I think she never cared who he lied to until it was her. That was a turning point. I think she always saw them as a team, and she’s not thinking that anymore. Her leaving and taking the kids doesn’t have anything to do with Wendy – that is true. But, Axe thinking of taking a plea does. It’s not until he finds out Wendy might be implicated that he even considers the plea. It might not be the only reason, but it is a reason. Just as Chuck gives the slide to Axe for Wendy’s sake. These men do what you don’t expect them to in order to protect her.

      And, again you are right – it doesn’t really matter now, since they are trying to work together.

      Wendy plays a big role in the Axelrod marriage – at least in Lara’s eyes. It was the lie about Axe being the one who didn’t want sessions with Wendy that caused the whole “With or Without You” episode. Lara couldn’t deal with that lie. And then not coming to see her and the boys before he got arrested, but chose to see Wendy? We don’t know if Lara know about that or not, but I’m going to guess she does. She’d would have asked where Axe was when he got arrested, no?

      Lara wants to be the person Axe turns to when he becomes “unglued” and she knows she’s not, but that Wendy is. Just as Chuck knows that Wendy will drop everything when Axe needs her. Wendy and Axe play big parts in the other relationships with their spouses.

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