Speaker 1: Hello, and welcome to another edition of the Odd Lots Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe Wisnal So, Joe, I
Speaker 1: have a little bit of a confession to make. Okay,
Speaker 1: I'm listening. Okay, I'm glad you're taking it seriously. That
Speaker 1: makes me feel that wasn't facetious. I'm listening. I want
Speaker 1: to know what it is. Yeah, Okay. So I know
Speaker 1: I'm supposed to be covering and writing about markets, but
Speaker 1: there is one market that I actually really dislike covering
Speaker 1: and writing about. That's interesting. I actually don't Sometimes I
Speaker 1: can guess where you're going with things, but in this case,
Speaker 1: I actually didn't know there was an area of the
Speaker 1: market you didn't like. Good, Okay, me feigning enthusiasm has
Speaker 1: been working. The market is the currency market, the FX market. Yeah.
Speaker 1: And the reason I find it so frustrating, I guess
Speaker 1: from an analytical or a news writing perspective is whenever
Speaker 1: anything is happening, like the dollar is gaining or sterling
Speaker 1: is falling, everyone starts to point out that it's relative, like, oh,
Speaker 1: the dollar is only up against the euro and sterling
Speaker 1: is only down against the Japanese yen, and It just
Speaker 1: drives me crazy because I find it so difficult to
Speaker 1: pinpoint individual trends that might be affecting currencies when everyone
Speaker 1: views it through this prism of relativity. That's so funny
Speaker 1: because I really like currencies and I really like covering it,
Speaker 1: and I like it for the exact same reason, because
Speaker 1: I see it as like this puzzle of trying to
Speaker 1: isolate out what's really going on. So you can say, Okay,
Speaker 1: the Euro is rallying, but it's not rallying against the dollar,
Speaker 1: and it is railing against the pound, but it's sort
Speaker 1: of rout flat against the end. And so what I
Speaker 1: like about is precisely this reason that it leads to
Speaker 1: the sort of like sort of like impure deductive reasoning
Speaker 1: where you look at all the different relationships and then
Speaker 1: you can sort of isolate, Okay, what is the variable
Speaker 1: the Troy moving? And I sort of see it like
Speaker 1: a puzzle. But you know, I say, I never knew
Speaker 1: this about you before, that one man's trash is another
Speaker 1: man's treasure. I guess, um, Well, look, I think I
Speaker 1: have a way to make us both happy on this episode.
Speaker 1: Then we're going to talk about the currency market, and
Speaker 1: I'm personally going to try to get a better handle
Speaker 1: on it, and I guess you are going to revel
Speaker 1: in the intellectual puzzle nous of it all, So it'll
Speaker 1: be fun for both of us. And to be fair,
Speaker 1: there's a lot I want to know too, because I
Speaker 1: think I have some idea and I like this sort
Speaker 1: of all the relativity and the zero sumness of it all.
Speaker 1: But I have to admit that, like, I don't really
Speaker 1: know how someone a currency trader just sort of looks
Speaker 1: at the world and starts to figure out what to
Speaker 1: buy and what to sell. So even though I'm into it,
Speaker 1: I kind of feel like I'm starting from scratch in
Speaker 1: terms of really understanding it. Well, you're in luck because
Speaker 1: we have a currency trader. Without further ado, then let's
Speaker 1: bring on our guest for this episode. It is Ken Vexler,
Speaker 1: the c i O of Acumen Management. Ken, thanks for
Speaker 1: coming on, Thank you guys, good to be here. Did
Speaker 1: I upset you with my intro or no? No, it
Speaker 1: was Actually it was quite interesting listening to the two
Speaker 1: back and forth on that because it's exactly that I mean,
Speaker 1: it's it's a double edged sword, so in very rare instances,
Speaker 1: is the currency market about absolutes, and in those instances
Speaker 1: you're either along for the ride or you're chasing the
Speaker 1: train that's already left. Um so. And on the other hand,
Speaker 1: it's it's, as Joe pointed out, it is a puzzle,
Speaker 1: and frankly, sometimes it's a puzzle where you just want
Speaker 1: to pick it up and throw it off the table
Speaker 1: and start all over again. But yeah, I mean, no,
Speaker 1: you haven't upset me. So Ken, what is it? You know?
Speaker 1: What is it that you do? I mean, I wanna
Speaker 1: in a little bit, I want to talk about the
Speaker 1: state of the currency markets over are currently and what
Speaker 1: how different currencies are doing. But in terms of what
Speaker 1: you do on a day to day basis, how do
Speaker 1: you begin the process of identifying potential trades? Look, I
Speaker 1: suppose in based terms, it's an ongoing process and one
Speaker 1: that has been ongoing for well as long as I've
Speaker 1: been in the market, which is near on twenty two ideas,
Speaker 1: And it's a function of I mean, look, obviously different
Speaker 1: people approach it in different ways. But for me, for
Speaker 1: me personally, it's it's all about price section. It's all
Speaker 1: about understanding fundamental macroeconomic drivers and movers and as as
Speaker 1: Nathin as cliche as that sounds on the price side
Speaker 1: of things, it literally means being set in front of
Speaker 1: a machine, in this instance to Bloomberg and just watching
Speaker 1: things tick for tick, keeping an understanding or an eye
Speaker 1: on data that's coming out, headlines and the reaction function
Speaker 1: of the prices of various crosses to that very news. Now,
Speaker 1: does something react positively, negatively? Does it react at all?
Speaker 1: How does it react? What does it do? What are
Speaker 1: the points or the price points that it then travels
Speaker 1: to on the back of the news, How long if
Speaker 1: it all, does it revert once that news flash supposedly
Speaker 1: or data point has passed. So that and that's something
Speaker 1: that you know. That's that's memory training. That's a case
Speaker 1: of understanding or remembering that certain levels makes sense at
Speaker 1: certain times, and invariably the market will revert to those levels.
Speaker 1: And it's then a case of what does it do
Speaker 1: once it gets there and why did it get there
Speaker 1: in the first place. Was it a piece of news,
Speaker 1: a data point, better, worse, etcetera. So my day revolves
Speaker 1: around understanding what if anything is out on the data
Speaker 1: slate on any given day, what the previous data points
Speaker 1: and the sid that particular data series look like what's
Speaker 1: expected by the market. And also and this, and this
Speaker 1: is a bit that you never really get a firm
Speaker 1: grasp of because there's no real metric by which to
Speaker 1: gauge it. It's a case of understanding how the market
Speaker 1: is positioned, understanding what the what the predominant narrative is,
Speaker 1: how the market has potential positioned itself around that narrative
Speaker 1: as a brought in to that narrative as it is
Speaker 1: it excessively long, excessively short? Is there a squeeze it's
Speaker 1: likely to come when things reverse? And what could cause
Speaker 1: that squeeze and the like. So it's it's all encompassing
Speaker 1: um and there's no you know, there's no set template
Speaker 1: to say, okay, well you do a B and C
Speaker 1: and therefore x, y and z will come to fruition.
Speaker 1: There's a lot going on, a lot of moving parts.
Speaker 1: So how do you actually keep track of those moving
Speaker 1: parts and form your thesis once you catch on to
Speaker 1: a sort of fundamental macro trend, like, can you give
Speaker 1: us an example using a real world event? Sure, I
Speaker 1: suppose the best example would be in its It's fairly
Speaker 1: prominent obviously based on what certainly this country is going
Speaker 1: through in the last eight and odd months would be Brexit.
Speaker 1: So at the very beginning, if not actually the tail
Speaker 1: end of twenty fifteen and suddenly beginning of um, obviously
Speaker 1: we knew that there was there was a hint that
Speaker 1: there would be a referendum announced and and all the
Speaker 1: implications thereof, but it was only sort of in the
Speaker 1: early parts of December where for one of one reason
Speaker 1: or another, the market started picking up and there were
Speaker 1: headlines coming out of a specific date for the referendum,
Speaker 1: not just the fact that conceptually there would be one,
Speaker 1: but there was a date outlined and you know, any
Speaker 1: minute now would be announced as a consequence UM. And
Speaker 1: at that point it sort of dawned upon me that
Speaker 1: while in the back of people's minds there might be
Speaker 1: the idea that a referendum might be held and and
Speaker 1: you know, whatever ensues on the back of that, no
Speaker 1: one had actually started thinking about it. And for me,
Speaker 1: the trigger point was that all of a sudden, out
Speaker 1: of literally out of left field, there was now a
Speaker 1: firm date as to when that, for random was held.
Speaker 1: At that point there was no real bias in terms
Speaker 1: of positioning for the sterling bit net long or net short.
Speaker 1: The year was winding down, Um, the Scottish referendum was
Speaker 1: relatively fresh in people's minds still, and there was there
Speaker 1: was a fair bit of sort of complacency about it.
Speaker 1: But for me it was a case it will hang
Speaker 1: on all of a sudden. We're about two weeks Christmas
Speaker 1: and they're talking about a specific date. So that got
Speaker 1: me to start thinking about, you know what, what could
Speaker 1: this mean for Sterling? How is the market position, if
Speaker 1: at all, and more to the point, how would I
Speaker 1: like to best express that view in the in the
Speaker 1: coming what ended up being six months before the actual referendum,
Speaker 1: so to that end, and this is where sort of
Speaker 1: the relativism of f X trading comes to play. Um,
Speaker 1: I started looking around for Okay, well, my base case
Speaker 1: is that it will be a close run thing. When
Speaker 1: the referendum does come to play, people are or the
Speaker 1: market is probably not going to really be able to
Speaker 1: price it too accurately, as it were, and so there's
Speaker 1: going to be a fair bit of tail hedging both
Speaker 1: sides of the equation. But on net, just the sheer
Speaker 1: nature of political uncertainty, and as the rhetoric and as
Speaker 1: the noise and whatever else got louder as we got
Speaker 1: ever closer to the actual referendum. All of that would
Speaker 1: just by definition be sterling negative, no matter what the
Speaker 1: outcome of the referendum was going to be. So with
Speaker 1: that as my base case, that there would be some
Speaker 1: sterling negativity creeping into the market as we got closer,
Speaker 1: it was then a case of finding what to best
Speaker 1: express that negativity against. For me personally, unless I've got
Speaker 1: an outright view on the US dollar, I don't like
Speaker 1: to trade a leg against it. I always look for
Speaker 1: something else because the dollar, by nature, there's a lot
Speaker 1: of noises. It's got its own stories. It's the global
Speaker 1: reserve currency, and there's a lot that goes into place.
Speaker 1: So you might be right on the first leg, but
Speaker 1: you might not get a chance to express it particularly
Speaker 1: well because of all the associated noise. So I was
Speaker 1: looking at other stuff and I came across the Aussie.
Speaker 1: So for me, the trade became selling Sterling and buying AUSSI. Now,
Speaker 1: the reason the Aussie was of interest to me was
Speaker 1: because it was pretty much in a sweet spot. It
Speaker 1: was trading around sort of the I think seventy three
Speaker 1: seventy four mark against the greenback, and for me, fair
Speaker 1: value if such a concept even exists anymore. INFX for
Speaker 1: the Aussie was around the seventy five marks, So for me,
Speaker 1: the Aussie still had a bit of room to strengthen
Speaker 1: and at the very least had no real cause to weaken,
Speaker 1: you know, much beyond where it was, so it would
Speaker 1: be my rock, as it were, versus a currency, the Sterling,
Speaker 1: which I saw had a lot of room to depreciate
Speaker 1: in the coming months. So as a consequence, I looked
Speaker 1: to sell the Sterling against the Aussie and a trade
Speaker 1: or a position that I thought it would take honestly
Speaker 1: north of about two months to materialize. The vast majority
Speaker 1: of what I had initially projected as a potential move
Speaker 1: for it had pretty much come to fruition by either
Speaker 1: the first of the second week of February, because the
Speaker 1: initial flashpoints of the thesis that no one had really
Speaker 1: been talking about Brexit or whatever the implications or the referendum,
Speaker 1: All of a sudden in the tail end of January
Speaker 1: the date was firmly announced, and everything that sort of
Speaker 1: kicked off from there started to really weigh down on
Speaker 1: the on the Sterling. The odds you appreciated a little bit,
Speaker 1: which obviously gave the whole thing a bit of a kick.
Speaker 1: And then from there it was just one way traffic.
Speaker 1: But then as we got closer to the referendum, and
Speaker 1: suddenly post fact, Tracy, your your notion of relative versus
Speaker 1: absolute came there because I mean, the Sterling just got
Speaker 1: hammered against literally everything on the planet. So that was,
Speaker 1: you know, in absolute terms. But as far as a
Speaker 1: real world example of you know, how my sort of
Speaker 1: mind works, as far as looking for stuff, that's probably
Speaker 1: you know, the best example I can come to at
Speaker 1: the moment. I love that example. You know, it's sort
Speaker 1: of speaking to this question of isolating the trade you
Speaker 1: want to make, and I thought that was a very
Speaker 1: important idea, that sort of choosing getting both legs of
Speaker 1: the trade right. And so you know, you could get
Speaker 1: it right again on the sterling side. But if something,
Speaker 1: you know, if the dollar had strengthened. Of course, we
Speaker 1: had our own election in twenty sixteen, so you don't
Speaker 1: really know what's going to happen there. I think that's
Speaker 1: a crucial thing that really differentiates effects trading from anything else. Now,
Speaker 1: something else you said in the intro was really interesting
Speaker 1: to me, where you sort of like talk about the
Speaker 1: market's memory of how a specific currency tends to react
Speaker 1: to different headlines or data points in which when it reverses.
Speaker 1: And one thing that we've really seen a lot. I mean,
Speaker 1: there's just been tons of sterling headlines for the last
Speaker 1: year and a half or I guess, you know, since
Speaker 1: since late Sometimes it's an economic data point. Sometimes it's
Speaker 1: a headline with something going on in Theresa May's government something,
Speaker 1: sometimes you know something. Sometimes it's something specific about the negotiations.
Speaker 1: Are there are things that you've seen in since, you know,
Speaker 1: in this whole Sterling saga that you've like internalized and
Speaker 1: really gotten to have a good understanding of. Okay, it's
Speaker 1: this type of headline, it's this type of news. This
Speaker 1: is how the market has historically reacted to this type
Speaker 1: of thing. Yeah, I suppose from a from a market
Speaker 1: reaction standpoint, the my my take on it was first
Speaker 1: and foremost against price levels. And that comes down to
Speaker 1: for many, you know, technical analysis. Suppose for me, I
Speaker 1: don't derive technical analysis as so many do. For me,
Speaker 1: looking at a chart, taking all the indicators out, it's
Speaker 1: it's just the way my brain works, it's a nice,
Speaker 1: lovely graphical representation of what price has done. If I
Speaker 1: want to drill down and think about why it's done that,
Speaker 1: that's a different story. But for me, it just paints
Speaker 1: a neat picture that I can sort of refer back to.
Speaker 1: The market tends to remember, and it's it's sort of
Speaker 1: behavioral psychology. Market and its participants have anchor points. The
Speaker 1: charts for any given currency or currency pair will give
Speaker 1: you those anchor points beautifully because you look at it
Speaker 1: and go, okay, well, I can see that the market's
Speaker 1: gone there there there, there's an increased likelihood that will
Speaker 1: revert at some point to those levels. To your question
Speaker 1: with regard how the markets reacted to various headlines and
Speaker 1: data points or whatever else what we've seen post I
Speaker 1: suppose after after the initial dusted settled and post referendum,
Speaker 1: and we sort of market came to terms with the
Speaker 1: fact that okay, this is now the new reality. All
Speaker 1: the political stuff it's been our go and al go warfare.
Speaker 1: I think human human traders haven't really and because frankly,
Speaker 1: it's not their fault, it's not our fault. There's not
Speaker 1: enough you know, substance in any of these headlines or
Speaker 1: any progress in any of these negotiations that we've seen
Speaker 1: so far to disseminate any real value and form a
Speaker 1: firm view that it's going to be a soft Brexit,
Speaker 1: heart Brexit, it's going to be a transition period of
Speaker 1: two years, one year, what does it mean post fact, etcetera.
Speaker 1: What's the bill going to be? So the headlines ironically
Speaker 1: have have only sought to confuse rather than give clarity.
Speaker 1: And as far as the economic data points, it's been
Speaker 1: a mixed bag because the prevailing narratives straight after the
Speaker 1: referendument and the decision was well, it's all going to
Speaker 1: hell in a hand but handbasket, and the data is
Speaker 1: going to turn incredibly negative and increasingly so as time
Speaker 1: wears on. The caveat to that, of course, is we
Speaker 1: haven't left. Brexit hasn't actually technically happened, so as Marcus
Speaker 1: generally tend to do there, they're perpetually optimistic. So spending
Speaker 1: has carried on as per Admittedly that's been at the
Speaker 1: cost of higher credit um and and so credit lines
Speaker 1: have been overdrawn largely. There's been some decrease in business
Speaker 1: done because of the uncertainty of what it means once
Speaker 1: once we're out. So the market as a whole, with
Speaker 1: regardless sterling, has been more about positioning than reacting to
Speaker 1: headlines or even data point for that part. And so
Speaker 1: I mean case in point was just the most recent
Speaker 1: Bank of England meeting where we heard well in advance
Speaker 1: the fact that the Bank of England was just hell
Speaker 1: bent on raising rates. Now, within three or four days
Speaker 1: of that retric coming out of the Bank of England,
Speaker 1: the market went from around one nine in cable through
Speaker 1: to about one thirty six. So the market had priced
Speaker 1: it immediately, went long and was sitting well and truly long.
Speaker 1: So by the time the decision came around and the
Speaker 1: actual rates were hiked, the market sold off because there
Speaker 1: was there was nothing more that they could buy, you know,
Speaker 1: buy on nothing remotely interesting came out of the Bank
Speaker 1: of England to suggest that there were more hikes to come,
Speaker 1: that they were positive on the outlook for the economy
Speaker 1: and the like. So there's a lot to be said
Speaker 1: for positioning going into and in and around the data
Speaker 1: points or even headlines, and a lot of that is
Speaker 1: narrative focused, and whether the markets buying into a narrative
Speaker 1: or not. Ken, I want to ask you about the
Speaker 1: the altgo point that you just brought up, but before
Speaker 1: I do, one more question related to the Bank of
Speaker 1: England stuff and more broadly brexit. Um. You know, obviously,
Speaker 1: the FX market is where we see a lot of
Speaker 1: politics playing out. A lot of people have been pointing
Speaker 1: out that in certain developed markets now in terms of politics,
Speaker 1: they're looking a lot more like some of the developing markets.
Speaker 1: So I'm just wondering from an FX perspective, does it
Speaker 1: look like that when you look at d M currencies.
Speaker 1: Are developed market currencies acting more like e M now?
Speaker 1: And you know, I'm thinking about that BOE example for instance,
Speaker 1: it's very emerging market when you raise rates and see
Speaker 1: your currency actually fall right, Yeah, exactly, And I mean
Speaker 1: look to your point, I think if if we are
Speaker 1: seeing it anywhere, I'd argue that it's predominantly here in
Speaker 1: the UK. Other other currencies and other sort of G
Speaker 1: seven G ten currencies probably aren't experiencing the same level
Speaker 1: of Yeah, e mffication if you want to call it that.
Speaker 1: And here, yeah, I mean, you've got an overriding an
Speaker 1: ongoing political uncertainty that's driving all manner of economic facets
Speaker 1: and and therefore also the Bank of England and their
Speaker 1: decision process. So the consequence, if anywhere, it's predominantly probably
Speaker 1: in the UK more than most other nations. I mean,
Speaker 1: you know, you can argue about what's going on in
Speaker 1: the US and the like, but you'd be hard pressed
Speaker 1: to sort of draw a parallel to that to to
Speaker 1: any sort of e m at the moment. But let's
Speaker 1: talk about the US for a second. So you know,
Speaker 1: when people talk about fair values for currencies, there are
Speaker 1: various approaches that people take, and purchasing power parity across countries,
Speaker 1: interest rates spread, so in theory, a country with higher
Speaker 1: interest rates should encourage currency appreciation. You can look at
Speaker 1: the relationship of the rates between two countries and the
Speaker 1: historical currency pair and so forth. But there is just
Speaker 1: a ton of politics news and one of the recurring
Speaker 1: themes in every market we cover is this sort of
Speaker 1: discussion about when politics matters and when it doesn't. And
Speaker 1: it does seem like there's you know, everyone's lives are
Speaker 1: just consumed by the politics headlines. You obviously experience it
Speaker 1: in the UK, but I would say it might even
Speaker 1: be more so in the US, where you know, our
Speaker 1: president makes major headlines daily. Has this changed the game
Speaker 1: or is it the kind of thing where the trick
Speaker 1: is to just focus on the stuff that works and
Speaker 1: to tune politics out. It's not that it's changed the game,
Speaker 1: because I mean, ultimately, politics have been around for well
Speaker 1: as long as markets and curetcies have been around. It's
Speaker 1: just that in racent times we've seen the noise that
Speaker 1: emanates from the political sphere become I allowed. Now, that
Speaker 1: doesn't mean that there's any more substance. It's just means
Speaker 1: that there's that signal is a lot louder as a consequence,
Speaker 1: it just means, at least for me, drowning a lot
Speaker 1: of that out, not not disregarding it entirely, obviously keeping
Speaker 1: abreast of the developments and the implications of those developments,
Speaker 1: but also not necessarily buying wholeheartedly into into those headlines,
Speaker 1: because I mean, you know, we saw during the euro
Speaker 1: crisis way back when that you know, you would have
Speaker 1: a headline come out and then literally thirty minutes later
Speaker 1: a headline coming out refuting that from the same source,
Speaker 1: and and so on and so forth, and that for
Speaker 1: me personally still burns fairly bryant in the memory. And
Speaker 1: also it lends itself to to me believing that, Yeah,
Speaker 1: there's just a lot of noise. So if you start
Speaker 1: buying into all of that, you're only going to end
Speaker 1: up running around in circles and not really get to
Speaker 1: the bottom of forming a view, a thesis or you know,
Speaker 1: or anything tangible on the back of it. Okay, so
Speaker 1: there's a lot more noise than there used to be
Speaker 1: in terms of actual news flow. What about the market
Speaker 1: structure itself? How has the world of effects trading actually
Speaker 1: changed during your career. You mentioned, of course algorithms UM
Speaker 1: lots of handwringing over high frequency trading in equities, but
Speaker 1: of course there have been some noises about h FT
Speaker 1: and machines in effects as well. Yeah, I mean, look
Speaker 1: how it's changed over my career. I mean where it's
Speaker 1: changed massively obviously, so we won't go back into ancient history.
Speaker 1: But look, I suppose in recent years what I've personally
Speaker 1: noticed is a real death of liquidity UM, and a
Speaker 1: lot of that stems around bank prop desks and money
Speaker 1: made market makers rather being shut down or limits significantly decreased.
Speaker 1: A lot of a lot of the banks that were
Speaker 1: large providers of liquidity, as well as some of the
Speaker 1: larger hedge funds because ultimately they also were a source
Speaker 1: of liquidity, have either turned into family offices or perhaps
Speaker 1: shut down reverted clients funds. The banks have internalized a
Speaker 1: lot of their flows, so there are no more prompt desks,
Speaker 1: so there are no more real market makers as it were,
Speaker 1: as I was back in the day, and a lot
Speaker 1: of it is just driven by quoting a price, getting
Speaker 1: the deal, and then backing it out immediately. So if
Speaker 1: you're not as a bank or even say a hedge
Speaker 1: fund or whoever it may be prepared to actively go
Speaker 1: into the market and hang out a price, get hit
Speaker 1: on that price, and then deal with the consequences, then
Speaker 1: you're you're decreasing the liquidity pool and you are really
Speaker 1: taking something away from the market. As a consequence, vol
Speaker 1: is incredibly depressed. Um. It was interesting actually the beginning
Speaker 1: of this year, probably the first certainly the first few weeks,
Speaker 1: but actually maybe even the first couple of months, I
Speaker 1: had stumbled across something that was quite interesting that intra
Speaker 1: day realized voal on say the G seven G Tenpez
Speaker 1: was trading with probably anything north of about a fourteen handle.
Speaker 1: Real eised or rather implied weekly vol was south of
Speaker 1: about an eight handle. So basically you'd have these intra
Speaker 1: day spikes and god knows what else, probably a lot
Speaker 1: a lot of it caused by like a liquidity. But
Speaker 1: then if you look at it at the end of
Speaker 1: the week, you pretty much started where or rather you
Speaker 1: finished where you started. So that makes things very messy.
Speaker 1: That messes with the minds of people like me in
Speaker 1: terms of how to position, how to deploy risk, where
Speaker 1: to put stops, and how to size in and out
Speaker 1: of trade. So that that really has made things, i
Speaker 1: suppose interesting, the polite way to put it, it's certainly
Speaker 1: a lot more difficult and has changed the playing field
Speaker 1: if if you will, does that speak to what you
Speaker 1: were saying earlier about the prevalence of noise? Yeah, very much, so,
Speaker 1: very much so, because if I'm set there as as
Speaker 1: we spoke about earlier earlier, rather short of sterling Ozzy,
Speaker 1: and all of a sudden headline comes out that will
Speaker 1: know the referendums off or things are going to be
Speaker 1: rosy or whatever, And yet inherently you know that that's
Speaker 1: just nonsense, and the market spikes, Well, you're either carry
Speaker 1: it out on that spike even though forty minutes later
Speaker 1: it's going to reverse, or you just, you know, have
Speaker 1: to hold your metal and think, Okay, well this this
Speaker 1: is just noise, and you know, so some truth will
Speaker 1: come out of it within the next X amount of
Speaker 1: time and things will revert. So yeah, I mean it
Speaker 1: really it makes things more interesting. Let's put it that way.
Speaker 1: Can I have I have a question. I feel kind
Speaker 1: of bad asking it, so forgive me in advance, but
Speaker 1: I have to bitcoin. I would like I would like
Speaker 1: a currency traders take on bitcoin. Yeah, let me I suppose.
Speaker 1: Let me preface my answer with telling you this, I'm old,
Speaker 1: and I've been at this for a very long time
Speaker 1: and answ you know your previous questions. How things change.
Speaker 1: There's now something called bitcoin and cryptocurrency and stuff like
Speaker 1: that and hashtags and I don't know. I I mean,
Speaker 1: that's the honest answer. I don't know. I don't have
Speaker 1: enough of a I suppose, just an inherent curiosity to
Speaker 1: find out more than I already know, which is nothing.
Speaker 1: And as a consequence, my interest levels in exploring this. Yeah,
Speaker 1: I mean, they're a virging on negative to be honest,
Speaker 1: I respect that answer because I feel like everyone these
Speaker 1: days has to have some really strongly held view. Um
Speaker 1: here's my question. So we know what a success in
Speaker 1: theory looks like for a stock manager, and most of
Speaker 1: them want to beat the S and P five hundred
Speaker 1: or some index or maybe a hedge fund. Their goal
Speaker 1: is to provide some you know, risk adjusted return that
Speaker 1: looks really good over a complete cycle or whatever. What
Speaker 1: defines success for a currency trader like yourself? Good question. Um, yeah, Look,
Speaker 1: ultimately we're all in a you know, irrespective of the
Speaker 1: underlying instrument, We're all in it to make money generates
Speaker 1: for clients and the like. So ultimately, the higher, the
Speaker 1: better the alpha, the better the result, and the more
Speaker 1: satisfied you become for me. And this sort of also
Speaker 1: goes back to what we initially started speaking about in
Speaker 1: terms of relative trades or the relativity of effex. I
Speaker 1: deliberately try and find legs to trade against it will
Speaker 1: allow me to sleep at night. Now I don't get
Speaker 1: much sleep at night as it is, and and it's
Speaker 1: a little bit more than it used to be. But
Speaker 1: what I mean by that is that I look for
Speaker 1: volatility adjusted returns. So I will look to pick what
Speaker 1: is conceivably, say a boring leg to express a view against,
Speaker 1: as opposed to something that within three hours might generate
Speaker 1: an outsized three four or five seven percent return, but
Speaker 1: over you know, instead, I'd look for something that over
Speaker 1: two months will give me the same. But it just
Speaker 1: means that I'm not exposing myself to just inane market
Speaker 1: movements because you know, the North Korea decides to launch
Speaker 1: a nuke or or whatever it may be. So yeah,
Speaker 1: I mean that's for me, that's how I'm as a
Speaker 1: first and foremost you know, alpha generation. Secondly, if I
Speaker 1: can generate volatility adjusted or just smoothed returns. The other
Speaker 1: side of it is, of course, if you look at
Speaker 1: which I do regularly, the Parker Global Index, that's just nonsense.
Speaker 1: I mean, FX dedicated funds, you know, all what seven
Speaker 1: of them that even exist anymore these days are returning
Speaker 1: maybe north on a good year, maybe north of about
Speaker 1: two and a half percent um, And that's that's that's
Speaker 1: not amazing really, especially when you look at obviously everything
Speaker 1: else that's going on, not not least to which the SNP.
Speaker 1: But again, it's all about choosing what your benchmark is
Speaker 1: and and how you deem success to look like. Alright,
Speaker 1: Ken vexlor Ce, io of Acumen Management, thanks so much
Speaker 1: for joining us. Bene pleasure. Thank you so Joe. Amazingly
Speaker 1: After that, I feel I feel a little bit better
Speaker 1: about currencies. So are you gonna Are you going to
Speaker 1: approach currency stories with enthusiasm now or do you still
Speaker 1: retain your skepticism? How about this? I'll give it a try.
Speaker 1: I will try. But the first person who tells me
Speaker 1: that my story about sterling is actually about um sterling
Speaker 1: against yen or something else is going to be in trouble.
Speaker 1: They're going to be on your wrong side. They're gonna
Speaker 1: get it. I thought that was incredibly useful, the whole
Speaker 1: currency frame or the sterling framework that he used, and
Speaker 1: you know, thinking about from event okay, we get this
Speaker 1: announcement of a referendum to then start okay, well we
Speaker 1: need to express a view, and then well what is
Speaker 1: the currency against which you have to express that view.
Speaker 1: I found that to be a very sort of refreshing
Speaker 1: explanation of how you go about, you know, just beginning
Speaker 1: to think about a trade. Yeah, and to your earlier point,
Speaker 1: it does sound like a really interesting intellectual exercise to
Speaker 1: try to identify that other currency to trade against. The
Speaker 1: other thing I liked was the idea of, you know,
Speaker 1: currencies eventually reverting to a sort of longer term trend,
Speaker 1: that there's some sort of anchor out there that can
Speaker 1: help you make sense of the world. I think that's
Speaker 1: useful for me, especially because when I think FX, I think,
Speaker 1: you know, even though volatility is quite low by historical standards,
Speaker 1: it's still a pretty volatile asset, and things tend to
Speaker 1: jump around, at least in the short term. Yeah, and
Speaker 1: that was particularly interesting, and I hadn't realized that until
Speaker 1: he said it, about the gap between intra day volatility
Speaker 1: and slightly longer term volatility. And so the idea that, yeah,
Speaker 1: if you look at a big picture chart, volatility looks dormant,
Speaker 1: but then you get these days where some headline causes
Speaker 1: the currency to whip saw and you might not be
Speaker 1: able to hold your trade even a few more days.
Speaker 1: You might just get totally taken out of it. And
Speaker 1: that's that that being an interesting expression of the times,
Speaker 1: which we certainly in all of the markets we cover
Speaker 1: on a day to day basis, were always marveling at
Speaker 1: the gap between the headlines that are out there which
Speaker 1: seemed quite provocative and the lack of volatility, and how
Speaker 1: at least in the currency market that sort of disparity
Speaker 1: really shows up in the data. Yeah, so at least
Speaker 1: the currency market is kind of behaving as one might
Speaker 1: expect it to for brief periods of time, and then
Speaker 1: it goes back to not mattering any Yeah, that's the
Speaker 1: caveat all. Right, Well, this has been another edition of
Speaker 1: the Odd Lots Podcast. I'm Tracy Alloway. You can follow
Speaker 1: me at Tracy Alloway and I'm Joe Why Isn't Thal?
Speaker 1: You could follow me on Twitter at the Stalwart and
Speaker 1: you can follow Ken on Twitter at Ken Vexler. But
Speaker 1: a we should warn you. He might use profanity, be
Speaker 1: he might use slang that you're gonna have to use
Speaker 1: a dictionary to look up and see. His Twitter account
Speaker 1: is locked, so if you try to follow him, it's
Speaker 1: just a roll of the dice weather he'll let you,
Speaker 1: but hopefully he does because he's great on Twitter. So
Speaker 1: check him out. It's worth it. It's worth it for
Speaker 1: the it's worth Ittorian insults alone. Give it a shot,
Speaker 1: and don't forget to follow our producer Sarah Patterson on
Speaker 1: Twitter at Sarah patt With two Teas, Thanks for listening,