A market long in the tooth and a trader who’s seen brighter days

Having warmed my frozen feet by the fire and tempered my soul with countless “festive” vodkas (remember I don’t do eggnog) I have had ample opportunity to reflect on not only what this year has meant to me, but equally so what the last 20 have been about too. It’s that time of year really though isn’t it. And why 20 years specifically, well simply put, because that’s as long as I’ve been at this game of FX. In fact, I’m just a week or so shy of my 20th anniversary in the market.

It all began many many moons ago, when I rather unwittingly stumbled into a role as a trainee dealer sitting on the interbank desk of a corporate treasury. Back in the day roles like that were known by those that held them as “strappers”. Not unlike the young stable hands getting their start in the racing game, be they aspiring jockeys or trainers, they all started in the same spot, the bottom. And this folks, for yours truly was no different. I was expected to know everything on day two and know it inside out. As you can imagine no one gets it all that quickly, and thus the learning curve was rather steep, but no matter the hours and the punishment endured (and there was plenty of both) I fell in love with the market and specifically FX. It’s dynamism, its nerve racking tumultuousness, it’s ability to immediately gratify and just as quickly disappoint and destroy ego, all of it and more grabbed my attention and held it unreservedly. Every day was different from the one previous and the chance to excel based on accumulated knowledge and experience was just too fascinating for me to ever consider doing anything else professionally.

Now, I realise that all of the above sounds like the blurb you see on the back of university career day pamphlets inviting you to sell your soul and surrender your youth in pursuit of financial gain and fame, but honestly, that’s what it was really like. Having said that though it wasn’t always as glorious as sounds. Things changed and so did the market. It was very soon after getting my full “stripes” and becoming a fully fledged trader (about 9 months after the gig started) when I was given my first taste of what it was like to run a book singlehandedly. Frightening and fascinating all at once, all of a sudden I was RESPONSIBLE! I had risk to manage, p/l to generate and justify why they should let me keep doing what I was doing (daily). Water off a ducks back! Well, sans the bravado it was actually a little terrifying to start with, but I soon settled into the groove.

What perhaps was most interesting is the fact that coinciding with being given the reigns to manage this book, the trader that was responsible for my mentoring started getting very negative about the market. In short, all I started to hear on an almost daily basis from him, is that this market was dead. Done and dusted, no longer the same game it was when he was coming up and certainly not what it was like in his heyday. The guy was 31 years old for f***s sake! But, he was adamant, the flows weren’t there, liquidity was horrible, the market irrational etc. I chose to ignore the vast bulk of these moans, simply thinking he was just full of himself and perhaps needed to consider a career change. After all the market had been there for years and years before and was certainly not going anywhere in a hurry. Not least of which, I was just starting! His lone sentiment I thought was just the reserve of someone that should be doing something else. But that too soon changed as many of the sales guys we spoke to on the other side of the ledger (admittedly after a few adult beverages) would happily confess the same as my mentor. The game was changing, getting harder and quite frankly as an asset class, was basically on its last legs. Encouraging to hear when you’re just starting out in what you think is your dream career.

Soon after, crisis after financial crisis hit the market, be it the Asian crisis of ’97, the Russian/Argentinean default of ’98 and/or a plethora of other mini cyclones hitting traders and their books. Seemingly however, markets seemed broadly resilient and while taking slightly depressive dips on the outbreak of said crises, were quick to bounce back. I, for one, wasn’t quite seeing the imminent death of FX that everyone was so busy pontificating about. I had moved on by that stage and was no longer sat in a corporate treasury, but had found my way to play with the big boys, yes the very much coveted land of tier one banks. Sitting on that side of the fence, sure things looked different, numbers were bigger, as were ego’s and temper tantrums. But while there were more and more “quiet” days, things seemed to bubble along anyway and I for one wasn’t seeing the end approaching any time soon. Banks were busy moving their centres of operation from Sydney to Singapore, to then as quickly move them back again. Nothing more than a game of musical chairs for real estate agents, but certainly nothing to do with the broader market.

Why the history lesson and (for some) the rather unnecessary details of my early career? Well, it’s Christmas, the fire is roaring and vodka has been imbibed. A lot of vodka. More to the point however, because, it’s now, finally after 20 years doing this professionally that I personally might be succumbing to the idea that FX as an asset class is seeing its very own twilight years rolling in on the horizon. Yep… Don’t get me wrong, it’s not that I think we should all hang up the boots as of right now, it’s just that the writing in far too many ways is on the wall. In bright flashing neon lights in fact. Up until now FX as always found a way of bouncing back, sooner or later it always found favour, no greater example of the very fact on the back of the 2008 debacle. When all others were far too timid to get involved in any asset class, FX was the gleaming beacon of hope that was the first phoenix resurrected from the ashes. Understandable naturally, you want to engage in international trade, you’re going to have to use different currencies to do it. Simple.

Now though, it seems an entirely different story. This year has shown how quickly investor interest in currencies can turn. Equities have been the shining light this year and even the recent taper (not that it should’ve of) was able to take the shine off the stellar performance they’ve enjoyed. Returning somewhere in the vicinity of 25%+ this year is a tough gig to beat and for the most part it’s been straight line performance. News of the likes of FX Concepts shutting its doors after 34 years in the game being perhaps the best known of FX centred funds isn’t good, but nor is it surprising. Recent BIS reports showing how significant the fall in AuM amongst FX funds this year has been, shouldn’t surprise either. General trading volumes in FX, amongst the lowest they’ve been in years. Scandalous inquiries into perceived corruption and price fixing. And the list simply goes on and on. All reasons for why things are just slowing down.

Yes, not the first time this has all happened, so why is it different now? Simply because I, for one, don’t see anything imminent on the horizon that will likely change all of this or at the very least something that may prove to be the catalyst for change. This isn’t an attempt at fear mongering or a cunning plan to bring down anyone’s festive spirits, simply an observation from someone that’s been doing this for a very very long time.
The solution? Not sure there is one outside of patience and perseverance. Capital preservation and proper risk management are certainly healthy starting points.

The beauty however of Christmas and the New Year is the ability to step back, rest, rejuvenate and come back strong and full of vigour in 2014.
It’s been a tough year, but by no stretch anything that should or could kill you, so with that, onwards and upwards into 2014.

Now, where did I set down my vodka….