Speaker 1: Hello, and welcome to another edition of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe Wisenthal. So, Joe, we
Speaker 1: had a pretty big development happened in the world of
Speaker 1: finance and markets earlier this month. Yes, we did. Arguably,
Speaker 1: I mean arguably the biggest job in finance. There is
Speaker 1: a right when you say that, yeah, concerned the probably
Speaker 1: the premier job in all of banking and finance, I
Speaker 1: absolutely would. So what we're talking about, of course, is
Speaker 1: Goldman Sachs apparently putting David Solomon in line to become
Speaker 1: the CEO once Lloyd blank Find finally, finally resigns. This
Speaker 1: is something that people have been talking about for a
Speaker 1: while now, but now they're talking about it in the
Speaker 1: context of what it means for Goldman and what it
Speaker 1: says about the changing nature of the bank before we
Speaker 1: go out. I guess you could also say that the
Speaker 1: succession I shouldn't for Berkshire Hathaway is right up there
Speaker 1: in terms of huge finance jobs. But there's something, as
Speaker 1: you say, very special and relevant about Goldman because a
Speaker 1: it is uh, you know, it's right here on Wall Street.
Speaker 1: And also because as you as you put it, it
Speaker 1: does have these sort of multiple business lines that seemed
Speaker 1: to rise and fall over time, causing the fortunes of
Speaker 1: the people who are involved with them to sort of
Speaker 1: rise and fall in sympathy exactly. So the trope is
Speaker 1: basically that Lloyd blank find came from this trading background, uh,
Speaker 1: and the new guy that's coming in, David Solomon, he
Speaker 1: comes from more of an investment banking background, and that
Speaker 1: signals where Goldman kind of wants to go. The thinking
Speaker 1: is that trading, at least in the old style is
Speaker 1: dead and it's time for the new Goldman sax. So,
Speaker 1: you know, as a former banking reporter, all of this
Speaker 1: news this transition made me a little bit nostalgic, Joe,
Speaker 1: So I thought for this episode, we could talk about
Speaker 1: some old tiny trading. We could talk about, you know,
Speaker 1: when men were men and traders were traders and most
Speaker 1: traders were men, uh, and and really dig into some
Speaker 1: of the trading world as it used to be. Yeah.
Speaker 1: I mean, it's always fun to talk about trading, and
Speaker 1: I think people have some image in their mind of
Speaker 1: what traders do and maybe yell on the phone and
Speaker 1: yell in an open pit and take huge risks and
Speaker 1: stuff like that probably looks pretty different today if you're
Speaker 1: on a trading floor, but people always love those old
Speaker 1: timey stories. So we have the perfect person to discuss this.
Speaker 1: It's Cameron christ He's a macro strategist at Bloomberg now,
Speaker 1: but he was a longtime options trader and he's going
Speaker 1: to tell us some of his war stories from trading.
Speaker 1: How's it going, camera, Yeah, very well. It's snowing outside.
Speaker 1: I'm not ready for the warm weather, but other than that,
Speaker 1: everything's going fantastic. So Cameron, I gotta say. This whole
Speaker 1: discussion and was partly kicked off by a tweet that
Speaker 1: you put out about a particular character who was trading.
Speaker 1: But before we get to him, can you sort of
Speaker 1: set the scene for us? What exactly were you doing
Speaker 1: when it comes to trading? What was your role exactly?
Speaker 1: So I'm kind of one of the last of a
Speaker 1: generation of foreign exchange option traders that essentially served an
Speaker 1: apprenticeship on a physical exchange. Nowadays, nine point nine of
Speaker 1: all effect spot and option traders are done over the counter.
Speaker 1: But back in the early nineties, which is the period
Speaker 1: we're talking about here, uh, I worked for Swiss Bank Corporation,
Speaker 1: which had just purchased O'Connor and Associates, which was one
Speaker 1: of the biggest and most respected option market making houses
Speaker 1: in Chicago, and our modus operandi was essentially to have
Speaker 1: the new crop of future traders of an apprenticeship on
Speaker 1: the exchange, on the Chicago Mercantile Exchange. Now there was
Speaker 1: still quite a bit of activity here, both in Chicago
Speaker 1: and on the Philadelphia Stock Exchange, which also listed currency
Speaker 1: options contracts. A lot of the flow, I think came
Speaker 1: from European corporations who were looking to hedge some exposure
Speaker 1: and say dollar mark or dollar Swiss or dollar Yen
Speaker 1: or whatever. So we were hired essentially by this firm
Speaker 1: stuffed full of M. I. T. Engineers and sort of
Speaker 1: pen Wharton finance wuiz kids, and then thrown on to
Speaker 1: the floor of the Chicago Mercantile Exchange, which shall we
Speaker 1: say it was not full of these sorts of people.
Speaker 1: So you know, when I started work, I didn't have
Speaker 1: a sort of a finance the background. I studied public
Speaker 1: policy in college, had actually been studying abroad when Sterling
Speaker 1: was ejected from the European change rank mechanism, which sort
Speaker 1: of fostered my interest in foreign exchange. So when I
Speaker 1: was hired six months later, I said, yeah, I want
Speaker 1: to go into ffacts and had his interviews with these
Speaker 1: really smart guys and they were all guys UH, And
Speaker 1: then started on the floor of the mark, not really
Speaker 1: knowing what to expect, but sort of thinking that it
Speaker 1: would be just full of people similar to the ones
Speaker 1: with whom I'd interviewed. You hear stories about this, about
Speaker 1: people who don't have a traditional finance background just sort
Speaker 1: of willing their self into the space. What made you
Speaker 1: think you could do it? And what do you think
Speaker 1: your interviewers saw in you that you know, this opportunity
Speaker 1: to learn and to be an apprentice and to sort
Speaker 1: of get involved in this very exciting area. What do
Speaker 1: you think they saw on you that you had made
Speaker 1: them willing to take a chance. Well, there were a
Speaker 1: couple of things. One was a sort of familiar familiarity
Speaker 1: or an intuition for probability theory understanding essentially expected value
Speaker 1: expected value type payouts UH. And a second was mental
Speaker 1: math because when you're on UH, certainly when you're on
Speaker 1: an exchange floor trading options, you have to be very,
Speaker 1: very sharp and very very quick at mental math, being
Speaker 1: able to add and subtract relatively quick. And I'll explain
Speaker 1: sort of the mechanism in a second. And while I
Speaker 1: I'm no sort of quant or higher mathematics genius, my
Speaker 1: mental math was very good. So they asked me a few,
Speaker 1: you know, a few questions, what's eight fifty four or
Speaker 1: something like that, and I could figure it out back then,
Speaker 1: very very quickly. Uh. And so that was sort of
Speaker 1: a prerequisite that they were looking for to be able
Speaker 1: to trade options on an exchange floor. And so the
Speaker 1: mechanism for trading options is you would have a sort
Speaker 1: of a set of of sheets we call them paper sheets,
Speaker 1: that were filled with theoretical values, where they would sort
Speaker 1: of be the price of the underlying, a range of
Speaker 1: prices the underlying on the sort of the top on
Speaker 1: the x axis, and then a list of strike prices
Speaker 1: on the access and a list of theoretical values. So
Speaker 1: it's essentially a grid. So as spot moved, as the
Speaker 1: strike price moved, you'd have a theoretical value for a
Speaker 1: given level of implied volatility for for an option. Um Now,
Speaker 1: this was based on a flat volatility curve. Obviously in reality,
Speaker 1: market option values are cartotic, i e. How the moneys
Speaker 1: are different from the at the money and their skew
Speaker 1: sometimes puts our different value from calls. And so you
Speaker 1: had to be cognizant of these dynamics. And you know,
Speaker 1: we were all we were always very dismissive of people
Speaker 1: and a firms. Some firms actually built this in to
Speaker 1: their theoretical value sheets and we just called them sheet
Speaker 1: monkeys because all they could do was pair it off
Speaker 1: what was on the sheets and if and as volatilities
Speaker 1: moved and as markets moved, you had to be able
Speaker 1: to essentially adjust on the fly. Now, if you were
Speaker 1: used to doing that for everything, it became much easier
Speaker 1: than it was if you were just used to saying,
Speaker 1: all right, it's worth forty on the sheets. So one
Speaker 1: for us, maybe it was worth thirty seven on the
Speaker 1: sheets and you were forty two or something like that.
Speaker 1: So Cameron, armed with your mathematical abilities, what were your
Speaker 1: first days or weeks actually like? Because I imagine, no
Speaker 1: matter how well adapted you were to this work, it
Speaker 1: must have been something of a culture shock. It was
Speaker 1: a total culture shock because based on the interview process
Speaker 1: I assumed that sort of mental acuity was the primary
Speaker 1: distinguishing feature of all the participants in the market, and
Speaker 1: I quickly realized that the primary asset that most people
Speaker 1: on the exchange floor had was size and volume. If
Speaker 1: you essentially it was full of x big ten football players,
Speaker 1: um seriously in the in in in the pit, and
Speaker 1: I mean it was really it was an amazing site
Speaker 1: because you have the pit which was full of market makers,
Speaker 1: and that would be ringed with brokers, and then the
Speaker 1: brokers each would have somebody a clerk standing next to them,
Speaker 1: so there was it was a very complex chain of communications.
Speaker 1: There would be say um, say e D and f Man,
Speaker 1: which was a big broker. They would have an office
Speaker 1: somewhere and in there there would be a broker talking
Speaker 1: to a customer. So the customer wants to do a trade.
Speaker 1: The broker would then ring the exchange and there would
Speaker 1: be a box, you know, sort of like and it
Speaker 1: was almost like an amphitheater, so there'd be rose and rose,
Speaker 1: and there'd be boxes with phone clerks who would be
Speaker 1: then on the phone with the guy in the office
Speaker 1: or the person in the office. They would then get
Speaker 1: the order. They would signal down to the pit where
Speaker 1: the clerk whose job was just a hand signal. Yeah,
Speaker 1: just hand signals, and I'll talk about those in a second.
Speaker 1: So the clerk, the pit clerk, whose only job was
Speaker 1: essentially to watch the guy on the phone, would then
Speaker 1: see what the order was whisper to his broker, his
Speaker 1: pit broker. Then the broker would start screaming, you know,
Speaker 1: I need a price in in mark two thousand U,
Speaker 1: which would mean you know, this mark would be obviously
Speaker 1: the contract. The deutsch Mark uh six would be the
Speaker 1: strike price, and two thousand would be two thousand, two
Speaker 1: thousand contracts, and then it would be a scramble. Everyone
Speaker 1: would look at their sheets, figure out what the theoretical
Speaker 1: value was, then figure out what their price was, you
Speaker 1: know two four. So what was your role in this ecosystem?
Speaker 1: So I was a trading assistant. We all started as
Speaker 1: as trading a well, the theoretical name was trading assistant,
Speaker 1: the reality was clerk uh and it was basically dog's
Speaker 1: body do all the grunt work for the trader in
Speaker 1: the pit. So the relationship between our pit trader and
Speaker 1: the overall bank was that they would be an over
Speaker 1: the counter trader who would run the over the counter
Speaker 1: book in an office at the Chicago Board of Trade
Speaker 1: in Chicago, and we would be a liaison between that
Speaker 1: overall book trader UH and portfolio manager, if you will,
Speaker 1: and our guy in the pit. And so we would
Speaker 1: be a channel of communication both upwards and downwards. So
Speaker 1: something happens over the counter market, we would then have
Speaker 1: to tell our guy in the pit, A vauls are
Speaker 1: getting paid up, valls are getting getting given and and
Speaker 1: the other way we do a big trade, we tell
Speaker 1: the guy upstairs what we've done. Now. The the the
Speaker 1: unfortunate aspect of this is whenever there was a miscommunication
Speaker 1: UH and the trader did something the guy upstairs didn't like,
Speaker 1: we would essentially bear the brunt of the of the anger.
Speaker 1: So I was told at different times the world thinks
Speaker 1: we're stupid and it's your fault. And between you three guys,
Speaker 1: I e. Me a junior trader and the senior trader,
Speaker 1: you know you don't have a brain, which you know
Speaker 1: when you're three months into your job, is pretty uh,
Speaker 1: pretty sobering show. We I'm not sure if you can
Speaker 1: get away with that these days with all the sensitivity
Speaker 1: sensitivity trade depends. Yeah, so you know, it basically, you know,
Speaker 1: working at a pit is very unusual because these days
Speaker 1: in financial markets, you're you're you're essentially you spend your
Speaker 1: time working with people who were on your side, i e.
Speaker 1: Working for the same company. When you're on an exchange,
Speaker 1: you're spending most of your time working with people for
Speaker 1: other companies who in many ways are your adversaries. Uh.
Speaker 1: And that, you know, that requires a bit of a
Speaker 1: different mentality. And I mean, I've been working there a
Speaker 1: month and our guy in the deutsch market pit was
Speaker 1: like the biggest guy. He was the hammer. He was
Speaker 1: the most important, biggest market maker there. And I remember
Speaker 1: I'm going to give him some cards or picking up
Speaker 1: you know, you literally they do a trade, they would
Speaker 1: scribble it on a card and we'd have to pick
Speaker 1: it up and then enter it. There was a guy
Speaker 1: we hired that you know that it just entered. His
Speaker 1: job it was to enter it, enter the trades into
Speaker 1: the system. So every every so often we have to
Speaker 1: go and pick up his cards. So they would go
Speaker 1: into the system. Because there was a cut off point,
Speaker 1: you know, something like half an hour after a trade
Speaker 1: was done, it had to be entered into the into
Speaker 1: the Marke system. So I'm standing at the edge of
Speaker 1: the pit trying to pick up cards from my guy,
Speaker 1: and next thing I know, we're strolling a punch at
Speaker 1: another trader. So so, you know, I'm fresh out of college.
Speaker 1: What's the first thing you do when you see one
Speaker 1: of your buddies, you know, getting to a scrap. Well,
Speaker 1: you grabbed the other guy from behind, and I'm the guy.
Speaker 1: The guy looks at me, He's like, let him go,
Speaker 1: get out of here, and then throws another punch. So, uh,
Speaker 1: he ended up getting essentially banned from from trading on
Speaker 1: on the merk for sort of violent conduct or whatever,
Speaker 1: or fortune or unfortunately, depending on your perspective. I was
Speaker 1: not banned, so it's stuck around. But it was sort
Speaker 1: of a you know, it was sort of a real
Speaker 1: um introduction, uh, sort of cold water ice bucket challenge,
Speaker 1: if you will, to the combative nature of of the business.
Speaker 1: And like I said, it was full of really loud,
Speaker 1: really big guys and physical size was a real asset
Speaker 1: because in a crowded pit, if there's a broker across
Speaker 1: the pit that has a big order that you want
Speaker 1: to trade on, listen, the broker's gonna allocate the trades
Speaker 1: based on who's right in front of his face. So
Speaker 1: obviously the bigger you are, the more bodies you can
Speaker 1: sort of shove out of the way to get into
Speaker 1: the broker's face and make sure you get your your
Speaker 1: share of the order. Uh. Now, I'm not sure if
Speaker 1: I can say this on a Bloomberg podcast. And so
Speaker 1: the guy that replaced are are sort of would be
Speaker 1: Mike Tyson was like an umpa loompa. He was about
Speaker 1: five ft nothing. It's sort of a skinny guy and
Speaker 1: he he managed to carve out his space not through
Speaker 1: physical prominence but through flatulence. So I wish I were
Speaker 1: a kidding but I'm not. So. It just took so
Speaker 1: many different Each descripted here was like another twist that
Speaker 1: I didn't see. So I think you know you can
Speaker 1: delete this better, you need to, But it's you know
Speaker 1: it was it was you know, that was what it
Speaker 1: was like. You had you used every edge you can,
Speaker 1: even if it was last night's dinner. Um, so I
Speaker 1: get I get the Okay, So Cameron, can I ask
Speaker 1: you know, more broadly, what rituals did you observe on
Speaker 1: the trading for while you were there? Well, rituals I
Speaker 1: mean we we had to be in the office every
Speaker 1: day at five dury in the morning to sort of
Speaker 1: run the sheets and and do all the prep work.
Speaker 1: And then we had to walk from the board of
Speaker 1: Trade to the murk. And we we had these big
Speaker 1: brown sort of satchels that we called the football's because
Speaker 1: we had to com you carry him under the big
Speaker 1: as brown you carried underr arms football, you know, get there,
Speaker 1: do the preparatory work. There was always one of us
Speaker 1: that had to go over even earlier to deal with
Speaker 1: the previous day's out trades. Um, so any mistakes between
Speaker 1: what you put in the system and what the murk
Speaker 1: had in the system had to be resolved before the
Speaker 1: next day's trading. And so you'd show up it's sort
Speaker 1: of sixth or in the morning and the guy you
Speaker 1: were dealing with inevitably smelled of last night's rum and coke.
Speaker 1: I mean, I mean it was this was real Chicago
Speaker 1: through a South side Chicago working class guys you were
Speaker 1: dealing with. Other than that, really the primary thing was
Speaker 1: you would you learn to bet and make prices on anything?
Speaker 1: You know, how high is the ceiling? Oh um, I've
Speaker 1: fet for you, you know, And then you'd someone would
Speaker 1: deal on, deal on your price and you you look
Speaker 1: it up. So that's something that just became part of
Speaker 1: the culture. Yeah, it's outside of the actual exchange of options.
Speaker 1: People just got that inclination. Yeah, you would bet on anything.
Speaker 1: So obviously this is quite timely. March Madness was a
Speaker 1: big thing, so there would be all over the floor
Speaker 1: that was this essentially floor wide betting system where the
Speaker 1: team that would win the tournament would go out with
Speaker 1: a hundred bucks and everyone else is worth zero. So
Speaker 1: you would make prices and deal on and run a
Speaker 1: book of n C double a team. So this year, um,
Speaker 1: you know, maybe Virginia be I know, eighteen twenty would
Speaker 1: be the price, so you need to pay twenty bucks
Speaker 1: to buy Virginia and if they want, they would go
Speaker 1: out with a hundred and if they didn't win, they
Speaker 1: would go over zero. Is this I'm actually very curious
Speaker 1: about this because I've heard there are people out there
Speaker 1: who just have this inclination to bet on everything. Like
Speaker 1: I've read a story once about some poker player who
Speaker 1: saw a fly on a window and he's like, I'll
Speaker 1: bet that fly takes off. For the next thirty seconds,
Speaker 1: he made a price. Do you think that is the
Speaker 1: type of thing and that people hone over time, or
Speaker 1: they're simply people who just see the world with sort
Speaker 1: of numbers and odds floating over everything they look at.
Speaker 1: I think it's a combination of nature and nurture. To
Speaker 1: be honest with you, The sort of person that's interested
Speaker 1: in financial markets will naturally tend, I think, to view
Speaker 1: the world through that prism. So in that sense, as
Speaker 1: a there's a natural affinity between wanting to work in
Speaker 1: financial markets and wanting to sort of assess the probability
Speaker 1: of various things, whether it's the stop market going up
Speaker 1: or a fly flying off the wall. But certainly the
Speaker 1: pattern of behavior of making a price on anything sort
Speaker 1: of aggressively. It was was, at least from my perspective, learned. Um.
Speaker 1: You know, I didn't walk around in college saying well, um, uh,
Speaker 1: you know might six eighty eight on how I did
Speaker 1: on that test, right, whereas you know, maybe when I
Speaker 1: was taking an exam six months into my professional career,
Speaker 1: that's the sort of thing I would have said. So
Speaker 1: there were a few things that sort of outrageous things
Speaker 1: that happened in terms of in terms of bets, so
Speaker 1: referencing the n C double a sort of the the
Speaker 1: the year before I started, apparently a clerk for one
Speaker 1: of the big banks had run this enormous book having
Speaker 1: um sort of liabilities with all sorts of people all
Speaker 1: over the floor, and basically he lost a lot of money,
Speaker 1: couldn't make good, and so essentially the bank that he
Speaker 1: was working for had to make good to maintain a
Speaker 1: sort of professional you know, a professional standing with this
Speaker 1: was an n double a pool. Yeah, yeah, the bank
Speaker 1: he wasn't he wasn't running you know, he was part yeah, yeah,
Speaker 1: but he like got into a bet there just yeah,
Speaker 1: basically basically yeah, basically they were the they were the
Speaker 1: New York fed to this guy's leman. Right. There was
Speaker 1: there was a broker that ate a foot of cockroaches.
Speaker 1: So cockroaches lined up lined up in the foot, people
Speaker 1: that will he do it? Will he not do it?
Speaker 1: He did it? There was a guy where did he
Speaker 1: get the cockroaches from? Yeah? That I wasn't privy to.
Speaker 1: The Chicago is it? That's like the Chicago The Chicago
Speaker 1: unofficial national anthem is like called like cockroaches on the
Speaker 1: March or something. So I don't think. Yeah, they rarely
Speaker 1: are right. So there was a particularly memorable one, that is,
Speaker 1: there was a rather portly clerk training, not even a training,
Speaker 1: he was a broker's clerk, and the somehow it got
Speaker 1: the the instance came up, you know, how many Reese's
Speaker 1: Cups could this guy eat? And so somehow fifty fifty
Speaker 1: packs of Reese's Cups, you know, at one sitting. So
Speaker 1: it's sort of like the Chicago version of Paul Newman
Speaker 1: in Cool Hand, Luke, how many resist cups can this
Speaker 1: guy eat? And there must have been you know, can
Speaker 1: and then it just evolved you can he or can
Speaker 1: he not? Eat fifty packs of Resa's cups in one sitting?
Speaker 1: And there must have been thirty or forty grand amongst
Speaker 1: all the brokers on this, and like, you know, the
Speaker 1: day before the big day, it was gonna happen, after
Speaker 1: the close, everyone was gonna go. The guy comes up
Speaker 1: sort of looking bashful, and I was like, well, I
Speaker 1: went to the doctor and he said I could go
Speaker 1: into sort of glycemics. He didn't, he said sugar shock.
Speaker 1: But I'm assuming some sort of glycemic shock if I
Speaker 1: eat fifty Reese's cups and you know, everyone was really
Speaker 1: just I was long. I was really disappointed because someone
Speaker 1: had asked him like the day before, well how much
Speaker 1: do you actually like Reese's cups? And the guy like
Speaker 1: looks at us and says, oh, they're my favorite, right,
Speaker 1: So that's what I've tilts the odds in your favor.
Speaker 1: I remember once I had to ring the Ship Cargo
Speaker 1: Aquarium because there was a big debate on who would win,
Speaker 1: great white shark or a killer whale. I think the
Speaker 1: Discovery Channel made a documentary about this about ten years ago.
Speaker 1: But we knew well in advance because I had to
Speaker 1: ring some marine biologists the Chicago aquariums are all yes,
Speaker 1: this is Cameron christ from Swiss Bank Corporation, you know
Speaker 1: who would win? And he's like, well, I think the
Speaker 1: killer whales smarter, So I think the killer whale would win.
Speaker 1: Which was the deduction of the National Geograph or Discovery
Speaker 1: Channel whatever it was, docum documentary, so we knew, we
Speaker 1: knew well in advance. So so yes, so they're all
Speaker 1: sorts of little high jinks that that that went on
Speaker 1: for sure. So Cameron, you have um some characters, to
Speaker 1: say the least on the training floor, but you also
Speaker 1: have some characters in terms of your clients, right like
Speaker 1: who stands out to you now well as a market
Speaker 1: maker on the floor, certainly all all your really your
Speaker 1: only point of reference is the is the brokers, and
Speaker 1: that those were just personalities. You didn't know the end
Speaker 1: client behind that, you won't. You only sort of learned
Speaker 1: that once you sort of moved, if you will, upstairs.
Speaker 1: But even there there, I mean sort of they say
Speaker 1: they passed his prologue, right there was there was one
Speaker 1: broker in particular in the deutsch Mark pit now I
Speaker 1: won't name, but had the sort of orange fake tan
Speaker 1: was sort of loud and obnoxious. It's sort of, uh,
Speaker 1: I'll just leave I'll leave it there. But it was
Speaker 1: funny the sort of them. The hand signals that that
Speaker 1: the that people would use to indicate, say, which broker
Speaker 1: was doing which trade. We're you know, we're kind of funny.
Speaker 1: So if it were Goldman, the pit broke would point
Speaker 1: to their hand like a gold ring. If it was
Speaker 1: pain Weber, they'd point to the neck, so pain in
Speaker 1: the neck, Shearson scissors share. And if it were Deutsche
Speaker 1: Bank they would point yeah, yeah, they would point to
Speaker 1: the spot. You know, basically point to the septum. Yeah,
Speaker 1: the Hitler mustache. You know, again perhaps not politically correct,
Speaker 1: but you know, you have to communication, yeah exactly. You know,
Speaker 1: you knew what they meant um. So once I eventually
Speaker 1: moved upstairs and in fairness away from trading more towards
Speaker 1: I spent some time in sort of sales and sometimes
Speaker 1: in strategy. You know, you got to see the big
Speaker 1: ticket clients over the counter, both in terms of spot
Speaker 1: and in terms of in terms of options, and that
Speaker 1: was you know, that was interesting because for example, during
Speaker 1: the Asian crisis, I was actually working in Singapore, so
Speaker 1: that was incredibly useful to see how various hedge funds
Speaker 1: were behaving. You know, around that time, people who were
Speaker 1: long dollar tie bought, seeing it explode higher but then
Speaker 1: having to pay sort of on an overnight basis to
Speaker 1: fund the position. You know, just interesting to see how
Speaker 1: how you know, how they reacted. And you I mean,
Speaker 1: you could certainly see that some clients, some hedge funds
Speaker 1: in particular, would take advantage of illiquidity, which I guess
Speaker 1: isn't you know that's not a great surpris eyes to
Speaker 1: anybody unless you're naive. But they would trade to not
Speaker 1: to get best execution in the sense to get worst
Speaker 1: execution to push the price, which I'm curious. So you
Speaker 1: mentioned interesting personal days like the days the day the
Speaker 1: trader got into the fist fight, but you sort of
Speaker 1: anticipated where I was gonna go when you mentioned the
Speaker 1: Asian crisis. Are there any specific days in market history
Speaker 1: that people would remember that strike you as having been
Speaker 1: particularly interesting or intense from the floor perspective. From the
Speaker 1: floor perspective, I mean a few that come to mind,
Speaker 1: Uh was I mean? And this is nothing special in
Speaker 1: the annuals of history. I remember on Valentine's Day, which
Speaker 1: was like a week or two after the FED first
Speaker 1: put rates up in that tightening cycle, Dolly Yen fell
Speaker 1: like six or seven percent in a day, which was
Speaker 1: sort of mayhem. A year later, I was actually working
Speaker 1: in Paris at this time because the motif, which was
Speaker 1: the futures exchange in Paris, saw that all these French
Speaker 1: corporates were trading on the floor in Chicago and in
Speaker 1: Philadelphia and decided, well, we want, you know, we want
Speaker 1: some of that action. So I spoke a bit of French,
Speaker 1: so I got sent out there sort of the senior clerk,
Speaker 1: junior trader type guy. So when the dollar collapsed in
Speaker 1: sort of early spring of nineteen, I mean we rarely
Speaker 1: saw volume on that on that floor, but even us,
Speaker 1: we were super super busy because there was all sorts
Speaker 1: of demand to sort of take advantage of or hedge
Speaker 1: of following dollar. And this was right after the Kobe
Speaker 1: earthquake in Japan that also saw Nick Leason blow up,
Speaker 1: So that just injected general level of volatility across all
Speaker 1: fidancial markets. But you know, going back to clients or
Speaker 1: individual trading, I mean one and sort of if you will,
Speaker 1: taking advantage of market discrepancies. I was working in Philadelphia
Speaker 1: for a summer have D I left. After I left
Speaker 1: Paris again, trading FX opened on the exchange of Philadelphia
Speaker 1: and there was a big client there who it was
Speaker 1: some sort of French corporate and lord knows what they
Speaker 1: were doing, but they used to do these really complicated
Speaker 1: spreads in dollar mark and dollar Paris Don't, which was
Speaker 1: dollar French franc where they would do these option butterflies
Speaker 1: and they would swap one for the other, and they
Speaker 1: really had no economic value. So I think the guy
Speaker 1: was just trying to pay his broker for some some
Speaker 1: other service or something, um. But you always knew which
Speaker 1: way he was going to go, so it might be
Speaker 1: worth say theoretical value of zero, but you know he's
Speaker 1: buying it, so you would make it, say ten basis
Speaker 1: points at twenty basis points um. And then it just
Speaker 1: became a game of not even canton mouse. It was
Speaker 1: just hit and hope kind of because you knew this again,
Speaker 1: this thing is worth zero with theoretical value zero, market
Speaker 1: value zero. You're ten bid because you know the guy's
Speaker 1: gonna pay twenty for it, or at least pay sort
Speaker 1: of sixteen or eighteen for it, so you're giving him
Speaker 1: the massive read. But you're you're out there. Your price
Speaker 1: is out there, and if someone wants to sell it
Speaker 1: to you, you've got to essentially you've got to honor
Speaker 1: the price. And if you get hit, if your big
Speaker 1: gets hit, then the guy in Chicago who's running the
Speaker 1: overall book says, what kind of morn are you to
Speaker 1: pay this much over the theoretical value price. If you
Speaker 1: sell it, then you're you know, then you're a genius.
Speaker 1: But if you get given, you know, you're a moron.
Speaker 1: So just that waiting game of who you know, who's
Speaker 1: going to respond to the phone first, the client or
Speaker 1: someone else, you know, Goldman Sacks or JP Morgan or
Speaker 1: someone else who's not on the exchange floor. I did.
Speaker 1: I personally didn't enjoy that because you know, it's sort
Speaker 1: of a coin flip after whether you're a genius or
Speaker 1: an idiot, and you know, I'd like to have a
Speaker 1: little control, more control over my destiny than you know
Speaker 1: who answers the phone first. Okay, so speaking of destiny,
Speaker 1: we alluded to this a little bit at the beginning
Speaker 1: of our conversation, but there's been this ongoing discussion of
Speaker 1: whether the decline of trading is a cyclical or a
Speaker 1: secular phenomenon, i e. Whether it's temporary or something that's
Speaker 1: going to be around for a very very long time.
Speaker 1: I mean, listening to some of your stories from the nineties,
Speaker 1: I cannot imagine that that kind of trading ecosystem is
Speaker 1: ever ever going to come back. How do you view
Speaker 1: that debate and how do you think the markets are
Speaker 1: going to proceed going forward in terms of trading? Yeah,
Speaker 1: I mean I couldn't agree more. I mean, even going
Speaker 1: back to where we were in sort of two thousand nine.
Speaker 1: And I remember even like five or six years ago,
Speaker 1: when I was macro hedge fund portfolio manager, we would
Speaker 1: sort of sit there and look at each other as
Speaker 1: volatility declined to something close to zero and many of
Speaker 1: the stuff, many of the assets we were trading and
Speaker 1: sort of saying, hey, the game is over. Everyone held
Speaker 1: the pool. And you've sort of seen that to a
Speaker 1: degree in terms of the return stream over the last
Speaker 1: five or six years, not only of sort of macro
Speaker 1: hedge funds, but active management across other asset classes. There's
Speaker 1: certainly equities generally, and I there's a few things here
Speaker 1: that are driving, if you will, a permanent change in
Speaker 1: market conditions. Obviously the regulatory environment being number one, both
Speaker 1: in terms of market abuse, although I think that was
Speaker 1: generally speaking overstated in macro products. But number two, it
Speaker 1: just in terms of the amount of risk you can
Speaker 1: take the fact that banks can't prop trade in most assets.
Speaker 1: That's a change. The fact that the edge that many
Speaker 1: hedge funds may have had in the past in terms
Speaker 1: of information uh being seeing that regulators can now expost
Speaker 1: say well, you shouldn't have done that, and you know
Speaker 1: we're gonna find you or close you or in very
Speaker 1: rare occasions, send you to jail. That also changes um,
Speaker 1: changes the you know, the calculus. And and let's face it,
Speaker 1: the advent of more quantitative trading, arbitrage, trading, uh, the
Speaker 1: al goes, whatever you want to call it, as well
Speaker 1: as sort of the more passive strategies have taken a
Speaker 1: lot of the edge out of the market. And that's
Speaker 1: when the reasons are think all this whole crypto thing
Speaker 1: is has received so much attention is that this is
Speaker 1: that is clearly an inefficient market, and less efficient the market,
Speaker 1: the more the risk premium there is to be harvested. Well,
Speaker 1: I have to imagine that any trading environment which was
Speaker 1: characterized by someone up in a booth sending hands signals
Speaker 1: to a guy whose main advantage in life is that
Speaker 1: he's you know, over six ft tall, must be riven
Speaker 1: with inefficiencies that a computer very quickly can ring out. Yeah,
Speaker 1: I mean, yeah, I think that's fair. I mean, let's
Speaker 1: let's put this in in crazy perspective. I mean, I
Speaker 1: started my career a year after worldwide Web was invented. Alright,
Speaker 1: so the whole internet thing was basically a nonstarter in
Speaker 1: terms of financial markets and the speed with which information
Speaker 1: could flow. In terms of that floor culture that you described,
Speaker 1: was there like a moment that you felt like, Okay,
Speaker 1: this has come to an end, like where you saw
Speaker 1: that it was still active and there was money to
Speaker 1: be made, but that it felt like the writing was
Speaker 1: on the wall. Well, I think when I when I
Speaker 1: went to Paris, which was literally only nine months into
Speaker 1: my career, the fact that the French corporations wouldn't trade
Speaker 1: on the French exchange, that kind of didn't smell right,
Speaker 1: And so, you know, for better or for worse, I
Speaker 1: spent a little over a year kind of just cooling
Speaker 1: my heels, which stunted my professional development almost certainly. But
Speaker 1: by the same token, I was sort of twenty three
Speaker 1: and getting paid to live in Paris, so you know,
Speaker 1: the complaints were weren't two to vociferous, but yeah, I
Speaker 1: mean then when I went to Philly, and there was
Speaker 1: the occasional big ticket trade that I described earlier, but
Speaker 1: other than that, again, we spent a lot of our
Speaker 1: time kicking our heels. Versus even two years previously, when
Speaker 1: I was in Chicago, it was generally a steady flow
Speaker 1: of of activity. You could see even then even over
Speaker 1: that two years, the business is migrating away from that
Speaker 1: exchange environment much more towards towards and over the counter. Yeah,
Speaker 1: so you know, I wouldn't describe it as unlucky. It's
Speaker 1: just you know, a circumstance of circumstance of history really
Speaker 1: and Mark. You know, as we've seen markets evolve, and
Speaker 1: that was a classic evolution from a less efficient you know,
Speaker 1: in a sense there's a financial market, uh law of thermodynamics,
Speaker 1: you know, and the thermodynamics entropy always increases. And generally
Speaker 1: speaking in markets, efficiency doesn't always increase, but it generally increases.
Speaker 1: But certainly when you talk about a chain of a
Speaker 1: chain of communication that's maybe five lengths long versus a
Speaker 1: click of a mouse button, I mean that's only going
Speaker 1: one way, isn't it? All right? Joe? Are you okay
Speaker 1: leaving it there? I mean I could actually listen to
Speaker 1: Trader floral hydrinks for like five hours, but I think
Speaker 1: maybe it's time to leave it there alright. Cameron Christ
Speaker 1: that was an amazing conversation. Thank you for bringing um
Speaker 1: the nineties world of trading to life with the flatulent
Speaker 1: Umpa Loompa's and various other things. Thank you my pleasure.
Speaker 1: So cho, I don't know where to begin. Um. I
Speaker 1: really enjoyed that conversation, but it is basically talking about
Speaker 1: a lost world, isn't it. I wasn't big facetious when
Speaker 1: I said we could do that for five hours. Now
Speaker 1: I'm wondering whether we should do like a little spinoff
Speaker 1: odd Lots where we do like a ten part series
Speaker 1: really recounting the glory days, because I have definitely not
Speaker 1: laughed that hard on any of our previous episode. I
Speaker 1: did not see the flash ONMPA is coming up. I
Speaker 1: know that was a curveball. I did not. I hope
Speaker 1: you're glaring at our producer right now and making sure
Speaker 1: that he's going to keep that into the podcast. But
Speaker 1: I would definitely be on board um for more on
Speaker 1: this discussion. But there is there's a serious theme underlying
Speaker 1: all of these funny stories, which is the degree to
Speaker 1: which markets really have changed. And a lot of people
Speaker 1: would say they become more efficient, they've become safer in
Speaker 1: various ways, but there are some criticisms around the edges
Speaker 1: of what markets have turned into. So, for instance, there's
Speaker 1: this pervasive argument about lower liquidity because banks aren't doing
Speaker 1: proprietary training anymore. So there is a serious discussion here.
Speaker 1: I doubt anyone has realistically lost out from the fact
Speaker 1: that we don't do hand signals on an actual floor anymore,
Speaker 1: but you know what I mean. But yeah, and there
Speaker 1: are certainly people who I probably wouldn't make that argument
Speaker 1: that although volatility has been incredibly low for a while now,
Speaker 1: that if we did have more sort of natural handbrakes
Speaker 1: and more people involved in the process, that we wouldn't
Speaker 1: have these extraordinary volatility spikes that come out of nowhere
Speaker 1: that are supposed to only happen one out of every
Speaker 1: five thousand years, but it seemed to happen one every
Speaker 1: two years. So you do lose something. I mean on net,
Speaker 1: I do think it's probably good for markets overall that
Speaker 1: being a big ten football player is not uh an advantage,
Speaker 1: although I'm biased because I'm you know, five ft nine
Speaker 1: and basically so I'm I'm pro this change. So I'm
Speaker 1: biased as well because I think, as Cameron mentioned, there
Speaker 1: were virtually no women on the floor at that period
Speaker 1: of time. Um, but anyway, shall we call it a day.
Speaker 1: Let's call it a day, all right? This has been
Speaker 1: another episode of the odd Thoughts Podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway. And
Speaker 1: I'm Joe Wisenthal. You can follow me on Twitter at
Speaker 1: the Stalwarts. And you should follow Cameron christ or Bloomberg
Speaker 1: macro strategist on Twitter. He's great at Fifth Rule, and
Speaker 1: you should follow our producer on Twitter to for four Heads.
Speaker 1: He's on Twitter at four head t, as well as
Speaker 1: our Bloomberg head of podcast, Francesco Levy at francesco It Today.
Speaker 1: Thanks for listening.