Halfway up the hill, I paused for breath. It would be foolish to push myself too hard in this heat. I turned to look at the city sprawling below me. European cities evolve over the centuries out of their natural setting, nestling in a valley or at the confluence of two rivers. Phoenix looked as though a giant hand had drawn a square grid over the desert and dropped neat blocks of buildings on to it, one by one. Which wasn't too far from what had actually happened. It was a tribute to the inventiveness and prosperity of Americans that such a city could exist in such an inhospitable climate. Of course with air-conditioning, a vast water-distribution network and swimming-pools, this unfriendly environment could be transformed into the ideal setting for the modern American dream. That was why Phoenix was one of the fastest growing cities in the country.
I decided running in this temperature was a bad idea and spent a pleasant hour or so lying on a rock alone on the hillside, letting the sun beat down on my face and remove some of the tension of the last few days.
Every investment bank with any pretensions to deal in the junk bond market hosts a high yield conference. They are schizophrenic occasions. The organisers, following the lead given by Drexel Burnham Lambert's notorious 'Predators' Ball', feel the need to create an extravaganza in exotic locations, where powerful controllers of billions of dollars can do deals and have fun. There is a bit of the showman in every high yield salesman, and this appeals to their ideal of what the whole thing should be about. Unfortunately for them, most of their customers are earnest young men and women whose overriding concerns are such questions as 'Will Safeway's new inventory control systems really increase margins by half a per cent?'. These people demand a gruelling schedule of presentations that start at eight o'clock in the morning and often don't finish till seven at night. This was the first such conference I had been to, and whilst I was looking forward to seeing some of the presentations by companies issuing high yield bonds, I also wanted to meet some other investors, and perhaps catch an hour or two by the pool. It might help me unwind.
I showered and just made it to lunch. I munched my way through an exotic Mexican salad, half listening to a Bloomfield Weiss economist drone on about the importance of recent non-farm payroll figures in the deliberations of the Federal Open Market Committee.
The first presentation after lunch was by Hank Duralek of Beart, Duralek and Reynolds, the kings of leveraged buyouts. Their firm had just bought the biggest biscuit manufacturer in the world, for a breathtaking $27 billion, easily the largest deal in history. Duralek was convincing, arguing that it would be easy to make enough cost savings to finance the mountain of debt which the company had taken on. I was intrigued, but I thought I would wait to see what happened to the company over the next year. It was just a little too risky for De Jong's first investment in junk bonds.
Then came an extraordinary presentation from the notorious Marshall Mills. As he himself said, his greatest achievement was to marry an actress a third of his age. He was a short stocky man in his sixties, who breathed heavily as he talked. A handkerchief was never far from his balding brow. But his eyes were tough and beady, full of energy as they darted about his audience. As he began to speak, the atmosphere in the room became electric. The earnest young men polished their glasses, stuck out their jaws and glowered. Mills's audience didn't like him. But he didn't care.
He told us the story of his success. Thirty years ago he had inherited his father's small oil company based in Tulsa, Oklahoma. Over the next couple of decades he had grown the company from a little cluster of nodding donkeys to one of the largest private oil and gas concerns in the state. He had used innovative financing techniques to achieve this growth. 'Innovative financing techniques' was a phrase which reappeared regularly in Mills's talk. I soon realised it meant finding a sucker, and borrowing as much as you could from him, in the hope that whatever you had bought with the money he had given you, went up in price. If it did, you made millions, if it didn't, then the sucker lost. It was a strategy followed successfully by a number of America's great entrepreneurs.
In 1982, after the second oil-price hike, Mills had made his boldest move. He had borrowed several hundred million dollars to finance the development of oil finds in Utah and Colorado. Mills portrayed the episode as a dramatic success. My recollection of events was that the drilling had been left unfinished as oil prices dived below $15, instead of rising above $50 as had been predicted. Somehow Mills's original businesses had ended up with all the cash, whilst the non-recourse subsidiaries held all the debt and a few half-drilled holes in the Rocky Mountains.
He had pulled the same stunt five years later in an attempt to use 'innovative financing techniques' to build a network of gasfields across the south-west of the United States. Once again, it had all ended in tears for Mills's hapless bondholders. The way Mills told it, though, they had been honoured witnesses to one of America's great entrepreneurial successes.
The audience was restless during this self-eulogising. When his speech was over and he asked for questions, a dozen people leapt to their feet. It was clear that a number of them had participated in some of these 'innovative financings'. After the fifth hostile question, Mills's patience wore thin. He interrupted an enquiry about why his refining company had failed to make an interest payment when it had $50 million of cash on its balance sheet, by saying, 'Look, you guys are lucky. You buy my bonds, and you have Marshall Mills working his guts out for you night and day. There are many people who would give their right arms to have Marshall Mills working for them. Now I have something to tell you, which really will give you something to worry about.' Suddenly there was silence in the hall. It gets worse? 'You may not have Marshall Mills working for you much longer.' The wheezing became more pronounced. 'My doctors have diagnosed a heart condition. I could live ten more months or ten more years. But I think it will be prudent for me to retire soon and spend more time with my darling wife.'
The audience cheered up at this. No doubt many of them hoped that the actress would be more comfortable with the notion of repaying debt than Mills was. Two or three people quietly sneaked out of the conference hall. Later, on the way to dinner, I was not in the least surprised to hear that most of Mills's companies' bond issues were up five points.
I joined the two hundred other participants in a huge ballroom dotted with tables laid for dinner. I walked over to my table. Cash was there with Cathy and Waigel, from Bloomfield Weiss. Apart from myself, there were two other clients there.
'Hey, Paul, how're you doing?' Cash yelled across the table. 'Glad you could make it all this way. Let me introduce you. This is Madeleine Jansen from Amalgamated Veterans Life, and this is Jack Salmon from Phoenix Prosperity Savings and Loan. Madeleine, Jack, this is Paul Murray, my best client in London.'
We exchanged smiles and nods. Madeleine Jansen was a small quiet-looking woman. However, as she smiled and said hallo, her eyes displayed a striking intelligence. Jack Salmon was a tall thin man a few years older than myself. He had slightly buck-teeth and fidgeted nervously with his left hand as he shook mine with his right. I found I was seated next to him, with Cathy on my other side.
'I have heard a lot about your institution,' I said to Jack.
'Oh yeah?' he said, clearly pleased. 'I didn't know anyone had heard about us outside Arizona, let alone in London.'