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The Scariest 50 Hours
There was a four year stretch where I was responsible for big currency spec positions. I was regularly over a billion dollars long short in either USDJPY or USDDM (this was before the Euro). This happened many years ago. I don't things are any different today, there are plenty of folks making mega-billion dollar currency bets in April 2013.
The numbers back then were surreal. Daily P/L changes were regularly $5m. It was not unusual to make or lose $25 million in a week. There were a number of us involved in this effort - trading at this level requires a 24/7 effort. We all had a percentage due to us based on the annual results. Of course we tracked what our share of the daily gains and losses were. At one point someone started to measure the personal results in cars, not money. It was either dark comedy, or a way of obfuscating the big numbers we were confronted with on a daily basis. I can understand how some readers will find this repugnant, it's the way of fast money.
How'd I do today?.....You lost a 7 series BMW.
What was your weekly nut?.....Three Corvettes.
I did if for four years, it wore me down more than you can imagine. I had to give it up. The FX market doesn't owe me a thing, but I still have the tire tracks on my back. The money was one thing, the stress was a different story.
The markets were very liquid. To buy or sell $1b was a few phone calls; it took only a minute or two. From 6pm Sunday in NY, to around 4 on Friday there is an active FX market someplace on the globe. If you had to turn-and-run on a position, you could do it. But after 4 PM on Friday, you were dead in the water. For the next 50 hours you were stuck with what you had. And of course, these are the hours when big things happen.
To be "square" on Friday night meant you could sleep through the weekend. But you didn't make money that way. We were paid to take big risks. I sweated through dozens of those weekends.
I bring this up as I was reminded of those times with the 4:30 pm Friday release of information by Treasury Secretary Lew (Link):
There are two potentially market moving sections in the report. The Treasury Department planted a "dirty bomb" at the Bank of Japan, and tossed a grenade at the Swiss National Bank. I'm thinking of all the folks who are big long USDJPY. They are going to have to sweat the next 50 hours. They have to hold their cards and wait. I suspect that quite a few FX players will have their weekends ruined.
The key words on Japan:
We will continue to press Japan to adhere to the commitments agreed to in the G7 and G 20, to remain oriented towards meeting respective domestic objectives using domestic instruments and to refrain from competitive devaluation and targeting its exchange rate for competitive purposes.
A more subtle approach was taken by Treasury with regard to Switzerland and its currency peg. In prior reports, the Treasury has said that Switzerland should return to a true floating rate, but only when "Conditions in Europe have been stabilized". The latest report omits this language. The clear suggestion is that Switzerland should normalize its exchange controls sooner versus later.
The 4:30 PM timing of the Treasury announcement was done to minimize the market consequences in the US. It does set up for an interesting opening in Asia Sunday night. Having been in this situation a few times, I'll hazard a guess on how this turns out. In the early hours Sunday night, when it's just Australia that's awake, the USDJPN will set a low of about 98.00. By the time the Tokyo, Hong Kong and Singapore markets are up and running, USDJPN, will be closer to 99.
I think the "lasting" market effect of Mr. Lew's statements will be measured in hours. I don't think the Bank Of Japan will stop printing money, in fact I think they will make an affirmative statement that will weaken the Yen. Nor do I think that the Swiss National Bank will pay any attention to what Lew has said.Some headlines will come that will read something like:
BOJ not targeting any level for USDJPY.
BOJ not attempting devaluation of YEN in FX markets
BOJ committed to QE policy set forth on 3/14/13.
BOJ to maintain target of 2% inflation.
BOJ policy is not inconsistent with G20 or G7.
SNB says 1.20 peg will be maintained.
SNB reaffirms it will intervene in unlimited quantities to maintain Peg.
SNB says USA is manipulating global markets more than Switzerland.
SNB say US Treasury Secretary does not understand FX markets.
We have an interesting setup developing. Japan has gotten a warning from its biggest trading partner (and military ally). And Japan is going to completely ignore it. When the rebuke to Jack Lew comes (it will) it will be the clearest sign you could get that the door is open for another big up move in USDJPY. Japan Inc. is going to thumb its nose at Jack Lew. And there is not a damn thing that Jack Lew can do about it.
In my forecasts for 2013 (December 2012, well before Lew was nominated) I said:
- Jack Lew will replace Geithner as Treasury Secretary. This choice will be driven by Lew’s knowledge and experience with budget matters. But Lew knows nothing of the capital markets and this will be a problem when a non-budget crisis emerges. Lew will say something about the currency markets that causes a big flap. There will be calls for his resignation as a result.
I think we just had the Jack Lew moment that I was anticipating. I believe that Jackie Boy has made a mistake. He picked a public fight with Japan that he can't win. Having picked the fight, he can't back off. When the BOJ and the markets make him look silly (USDJPY = 110+) there is going to be pressure on him. Jackie has set himself up for a fall.
In all my years of watching (and participating) in the FX markets I have never once seen a situation where "talk" accomplished a damn thing. In fact, idle talk often creates the opposite reaction to what was intended. So for those who are having sphincter problems this weekend over a long USDJPY book, and the 50 hours you have to wait to find out what happens, I say relax. By the opening in NY on Monday, you will be okay again. In a few weeks you'll be buying hot cars and houses.
Jack Lew, on the other hand, is in for a jolt. He probably thought he could talk, and markets would obey him. Some egg is going to hit Jack in the face. The "rule" in these matters is that you don't pick a public fight that you can't win, and that is exactly what Lew has done.
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I'd say JL, along with Timmy are out of their league when it comes to a lemonade stand.
Thanks for the insight BK. I did commodities in the late 90's. The ultimate poker game, the ultimate high when you got it right, the worse king of nightmare when.. {sigh}.
Ah, good times, good times.
its one big tullip market the FX, till its not. i agree the bond market will be least of worries. At every point in the past couple hundred years there was always some alternate fiat currency some country could use. now there isn't. the western world currencies are all basically from the same bunch of bankers. so when one goes they all go.
Do you think any of the Treaury's buddies received advance notice? Maybe JPM or Citi - they could use the juice.
ben not jack or barry is in charge his mandate is to devalue the dollar & when he or fatso fail & 1 day one of them will fail then as soros has warned you've got a problem
It has never been humans directing the game. It has always been evil directing and showing the way.
bruce do you look back and consider yourself just the waterboy in those big currency transactions? i mean now they have algorithms (probably) to adjust the market. you may have thought your were playing for profit on spec but you were really doing the economies dirty work. and you're not too much different than any working class guy who does a tough (stressful) job to make the markets work, and has now been automated out of the loop? i don't mean to take anything away from what you did, but rather to put some back. you might not get a lot of sympathy now that HFTs have replaced traders. so what is the game like now? are there still humans doing it?
This was 1991-95. I had the best technology that was available. We used beepers. If I called Japan on a cell phone it cost $100. We had top of the line computers - IBM 386s that had 2% of the capacity of a cell phone today.
There were two types of FX traders. "Flow Traders" that are in and out of markets in a minute. This is similar (sort of) to Algo trading today. What took 60 seconds in 1994 takes a 10th of a second today.I was not involved with flow trading.
The other is position taking. Buy something, sit on it, realize a gain or loss over the course of a few days or a week. Opportunistic position taking. This is the same today. I was long $2b of USDJPY - win lose or draw. Nothing has changed with this - guts poker - big stakes.
I traded against (and with) the likes of George Soros, Nick Roditi and Stan Druckenmiller. These guys were much bigger than I was, but a water boy? No, that's not the right description.
bk
They cheaped out on you.
Did you have access to a development team to write software for you?
Wrong decade. We used Lotus......
Wow, they seriously cheaped out on you.
For the kinds of money you're dealing with they could have easily justified some real horsepower. Brands like DEC Alpha, SGI Indigo, IBM RS6000, Sun Sparc and a dedicated development team writing custom software to bring you your heart's desire with respect to the data you need, and present it in an easy to visualise and intuitive manner.
386? Maybe in 1991... maybe. But the 486 machines were on sale then.
By 1992 you would have been using a 486 DX 33Mhz at the very least. Certainly something with the floating point accellerator on die if you were using Lotus.
By 1995 Excel was becoming dominant (and Visual Basic macros weren't so bad to deal with) and you certainly would have been running a Pentium (likely some P54C/P55C variant).
And if not they were giving you junk.
Oh god.... lotus... you are bring back memories... like cobal and FORTRAN..... lol Kids just don't know how much easier they have it these days. Enjoyed the read as usual.
cobal has more balls than cobol; that is the only thing going for it.
But then programming was a sexy game. Hard wired was so stultifyingly binary whereas software was just metaphysical in comparison and of course as its all in the mind; very ballsy!
I'll drink to co-balls !
Anybody for lotus leaves?
I loved COBOL, until I discovered SAS. Never wrote another line of COBOL after that.
Lotus 1-2-3. Along with Ashton-Tate's DBase.
COBOL, not Cobal (!), and Fortran IV to start with (I still have the Programmer Manual at home somewhere). Fortran 77 was a real improvement but still needed time and real effort to really learn how to use. Far more extensive and "almost user-friendly" library routines though.
Dartmouth BASIC was perfectly good for many quite heavy-duty equipment control purposes (PEEK and POKE being easy to use / understand, and easy to interface with external logic / analogue control). ALGOL / PASCAL were very useful too, especially for teaching good programming methodology.
Anybody remember VisiCalc?
An era where we thought 32Mb was gigantic, and you ALWAYS backed up data, 'cause the HD reliability wasn't quite so great in those dasy, was it!
Which evolved into SuperCalc. Same era as Houghton-Mifflin's WordStar.
Remember the fore-runners to Office, suites such as SmartWare? WP, Database, Spreadsheet all in the one Command Line Interface package.
Came on 5 1/4" floppies too.
I preferred WordStar 6 to Excel and was writing Z80 assembly.
Had dual floppies (double formatted, of course) -- I miss the B drive.
Guess the A is a relic now, too!
Those days I went into a weekend with 35 contracts short the yen and the last minute, because I was flying out of Narita, I made the mistake to place a limit to a stop loss. The stop was way down since I was already way ahead with 200k profits. When I got to the US, someone had been buying yen in the quiet hours althe way down to my stops and after buiyng all 35 of mine, the yen plunged again. I guess these stops are visible to some players, correct?
Yes. The stops are visible. I got burned exactly the same way on rising yen. I put in a stop $5k below the current price, and I'll be damned if it didn't tick down just far enough to take out my stops a few minutes later, then subsequently resume on it's way to closing at a level where my position would have been +$200K for the day.
All the equity HFTs run stops the same way. They can bid a $100 stock down to $.01 and back up in under a second, and buy everything that gets stopped out, then sell it all after running the bid back up to the ask. The stock never needs to trade at where your stop is set, all that has to happen to stop you out is for the fucking bid to drop down to your stop.
If you are serious...Trade without stops. It's a given that they hunt stops..So don't provide the target.
> The stock never needs to trade at where your stop is set
This changed in the past few months. New SEC rules require an actual trade, not just a bid.
So at least the SEC will close barn doors a few decades after the horses are gone. (I know, history shows that the SEC was originally designed to just placate the public. A farce of a charade of a con.)
Does the rule change mean stops are okay now? Probably not.
BOJ LAUGHS OUT LOUD AT IRONIC JACK LEW STATEMENT
BOJ SAYS "HEY WHAT ABOUT YOUR 85 BIL/MONTH DIPSHIT"
LOL posts like yours is why I love zerohedge.
Ben's reply: I am not monetizing debt.
The NK drama is very likely a consequence of this current death spasm of deceit. The question is though...Who tells NK when to dance?
Dennis Rodman?
so ben shalom is allowed to print but kuroda is not?
Bruce, do you support Kyle Bass's theory that the bond market in Japan will collapse soon? Their new QE makes even Bernanke blush!
How can something collapse when the BOJ is willing to buy every single bond for sale?
Something will explode sooner or later. I think the currency has to go before the bond market.
If this gets out of control - and we see a fast move to USDJPY120, then much more than the Japanese bond market will explode.
so what DID you do with that fleet of cars ?
Those were Clinton years - I paid 50% tax. A decade later I got clipped for another 50% in a divorce.
So now I drive a Bronco - but I sleep well.......
White Broncos are popular! Talk to me after two divorces...heh!
Finally some sane comment about JGBs. Yes the currency first, the bond market will come later.
German economy will implode if the EURJPY strengthen while USDJPY gets to 120.
We might have U-turn at the ECB at the request of Germany itself.
I am long some nice Italian exporters (one of them exposed to mass transit and high speed trains only 6 companies doing that in the world) with strong world competititive position which are trashed with the rest of Italian equities, with a bias to increase if they implode lower in relation to USDJPY going to 120.
If the weakness of the Yen forces the vote thing that Dalio and Soros are talking about, those guys would have a nice ramp, while even if nothing happens, the source of revenues from emerging market and valuation is constructive.
What do you think?
All bonds or only sovereign bonds? I was thinking about this came to a similar conclusion, the BOJ is not going to bankrupt the government... They'll buy every sovereign bond created to prevent that, crucifying the currency instead.
But they aren't going to save the corporate bond market. Japanese corporates with debt to roll are in for a rude awakening.
Bruce, Dr. Bernank and the Boj have said quite clearly that they possess the 'tools' to unwind their relentess and wholesale manipulaton of the bond, equity and fx markets.
Sarc off
That's a great article, Bruce, thank you. The chart looks really crashing, and we re in the mid of it. What will be the trigger to have a few large panic down days to reach 120, 140? Can it happen?
is there some point where volatility keeps the BIS from doing their job? is that a problem?
great article, Bruce; always fascinating to hear your insight!
WTF is up with all the up arrows? Several other people made comments at the same time, yet BEFORE your post and you get all up arrows (moreso than them). Hmmmmmmmmmmm. I am not saying ANYTHING about you or your credentials. All I am saying is this is really fucking odd. Let me repeat this for the Garrett Morris crowd, This is really odd
Oh wait. No, it is not.
You are seeing things Fish Gone Bad. There were >1600 comments posted before you posted below him and he posted only like 70 comments after Bruce. It looks OK to me.
Am I missing something? Does one get paid for Up arrows in bit coin?
All hail briiics 7!
+1
Who's working that big red button today?
Yes, Iran and Indonesia, you hear it here first!
Among what Bruce Krasting says above:
« ... The [US] Treasury Department ... tossed a grenade at the Swiss National Bank ... »
The US series of attacks on Switzerland and Swiss banking, are quite a significant set of events in global finance.
And now the latest shocker, is that the venerable centuries-old Swiss bank Wegelin of St Gallen, said to be the oldest private Swiss bank and dating to 1741, is now closing and shutting down after the recent US court extortion game, targeting them for helping US citizens with banking.
No doubt many others here also enjoy when Swiss citizen Bruce Krasting comments on Swiss-related issues. Tho BK buys too much into the 'tax evasion' meme, and insufficiently appreciates the simple need to keep savings safe from thieves backed by the US regime.
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For me, I am shocked that the Swiss let themselves get into the situation of still getting extorted for money by American courts and the American government ... It was clear some years ago that the US legal system was extortionate, unfair, and biased against foreign targets.
Switzerland cannot fully fight pressure by the EU, being surrounded by them ... but they should have insulated themselves from the USA.
After events like the US illegal 'contempt of court' jailing of economist Martin Armstrong by corrupt US federal judges a decade ago ...
And the US court extortion of Swiss banks for so-called 'holocaust reparations' for utterly corrupt Zionist groups who mostly enriched themselves, and criminally withheld the funds from actual Nazi-era Jewish holocaust survivors (!) - who continue to live in poverty in Israel (see Israeli journalist Barry Chamish on this) ...
Since then, every Swiss bank should have shut down any US domestic presence, and should have prepared to reject any further extortions by US courts.
Talk about the pot calling the kettle black, the bank guy from Brussels, who feeds off of the slop falling from the trough in the EU elite feeding frenzy in Brussels, says that Switzerland should stand up to the US Empire.
Aside from the fact that we Swiss constantly have to hear about how despicable we are because we didn't invade and conquer the 3rd Reich as soon as Hitler invaded (take your pick: Austria, Chechoslovakia, Norway, Poland, France, Russia...), the fact of the matter is that the EU empire is a far bigger threat to Swiss well being than the US empire.
the swiss always stay "neutral" by rolling over whenever a heavyweight wants a fight, they survive/thrive by it
There are like 1 million US citizens living in Canada. The US has still not gotten Canada to "share account" information. They have agreements with many other Countries, but not Canada. They are really trying hard right now to get Canadian Banks the Share US account holders with over 50k in an account. We will see how this shakes out. Harper might do it, but if the Liberals get in with Trudeau...NOT A CHANCE IN HELL!
Yeah Amerikkka blah blah blah... fine. You're right.
It's not like the "German regime" is paying bank employees to rat out German customers... oh wait.
But hey, let's throw around "Zionists" to spice up our little rant. Awesome! It's not like Europeans had anything to do with the Holocaust... certainly not their "regimes"...
But..but..but... Zerohedge said banks were better than bitcoin!
So even the oldest Swiss bank in the world can't keep your money safe from prying eyes? Shocker.