In 2003, I had one of the worst trading years of my career. The Eurodollars ($GE_F) went electronic and I lost money. I was up a bunch by May 1. Was have a really really nice year. Then it all went to shit. I wound up losing $250k on the year.
I still had my skills. However, because I had been in trading pits since 1986, no one in the outside world could recognize them and I didn’t know how to describe them to those outside real-world people so they could understand. Getting a “normal corporate” job was out of the question.
I didn’t want to be a wealth manager, nor an insurance salesperson. I thought about moving to Florida and being a real estate person. That would have probably worked out okay but I wasn’t ready to quit trading yet.
Basically, what happened to me was I lost my edge.
Not my nerve. The artificial edge that I paid for. I bought a membership and stood in a pit. Order flow moved from desks to the pit. I was faster because I was in the pit. I took advantage before anyone else could.
Enter computers. Enter corporate profits.
The suits in CME sold out the top step to electronic traders and gave them co-location. Not only that, but because of an overseas electronic exchange threat, the management team mandated that the first two Eurodollar contracts go on the screen. That pulled all the most liquid contracts on the screen. The stuff that traded way in the back didn’t go because the speed traders couldn’t leech the liquidity from there. They weren’t “market makers” in the traditional sense of the word.
I was stuck. I didn’t know what to do. I had no outside prospects.
I walked into the Sheperd International office and started chatting with Bill Sheperd. If you are looking for a boutique clearing firm to clear your trades, I highly recommend them. The people that work there are incredible.
If you don’t know Bill, he was the largest British Pound futures trader in the world for a long time. He invented the e-mini contract. He led the charge that took the CME down the track to go public. By the way, no Ivy League degree or even a college degree. Attended the University of Oklahoma and was pursuing an engineering degree before he was drafted into the Army. He got a bit lucky in that he went to Europe and not Vietnam.
Here is something interesting about rethinking your skillset. Bill was his Army company’s clerk. He monitored the comings and goings and kept stuff organized for his COs. Current CME CEO Terry Duffy attended the University of Wisconsin at Whitewater. He was “discovered” by a tremendous and legendary CME trader Vince Schreiber while he was tending bar in Lake Geneva. Terry could do math really quickly, was personable, and could keep track of everyone’s tab and drinks at the bar. Sometimes, you have the actual skills to be successful but it is not in the “classic” way.
Anyway, Bill and I started chatting. I was thinking about heading over to the CBOT to find something to trade. My personality wasn’t an S+P trader and they were going electronic anyway. The only thing at CME was Hogs or Cattle. The CBOT had treasuries that weren’t electronic yet and grains.
No one at the CBOT loved CME, and no one at CME loved the CBOT. In fact, the only reason the CME had its own clearinghouse was that back in 1910, the Irish Catholic CBOT guys wouldn’t let the Jewish CME guys clear at the BOTCC. We competed. There were guys that went to each exchange and floated back and forth. The exchanges competed with each other but if we both came under attack by a force, we would work together to defeat that force. Truly, it was no different than the rivalry between Army and Navy.
When Bill heard me think out loud about going to the CBOT, something inside him recoiled. He looked directly at me and said, “There is a home for you here. I think you should go to the Hogs.”
If you read a prior blog, you know I dicked around in the Hogs in 1996. I had been elected to the CME Board and went off in 2001. We had a 50-person board in 1999 when I was elected and we had the good sense to cut it by more than half before we went public. I lost an election to Bill Salatich, who is a really great guy and friend. Imagine board members or politicians voting themselves out of existence voluntarily. Ever hear of that? That is exactly what we did.
So, that morning, instead of going to the Euros, I went to the Hogs. That meant giving up a spot that I had since the mid-80s in the Euros. It meant going into a pit where people knew me but now I wasn’t talking CME future or CME politics or laughing with them, I was competing with them. Big difference.
People are a lot nicer when you can speculate about a potential IPO than they are when you are competing for their lunch money.
I also had no idea what I was doing. So, I didn’t look at a chart. I just showed up at 8:45 AM for the market opening at 9 AM.
Once the market was open, I started chatting with people. One guy I started chatting with was Lonny Siegel. His badge was LSG. Lonny was and is a great guy. He had been in the Hogs since the beginning back in 1966. He was a spreader and he was at the point in his career where he was going in to “sport trade”. He wasn’t carrying giant positions. The pit was social, fun and got his competitive juices going. After he traded he usually went and played cards and simultaneously bet the horses after the close. He was really good at playing the ponies. If the market got wild occasionally I’d fill some orders for him so he wouldn’t have to get into the physical mix.
Lonny told me to start buying this one month and selling this other. He said, “Lots of guys have thousands of those spreads on.” I can still hear his voice today. Being a coachable kid, I started in. Hogs traded in small one-lot, two-lot, five lot increments. Eurodollars traded in the 1000s. It was easy to get a position in the Euros. You had to work at it in the Hogs.
But, after a little while, I had around 50 spreads on. Better, they were going my way! In the Eurodollars, we used to scalp in and out of spreads several times a day.
I had about 20-30 points in them so at $4 a tick, 200x20=$400.
I heard a voice bid on the spread and I decided to sell them. I sold all 50 to a guy. His badge was JOF. JOF had been in the Bellies and moved to the Hogs when the Bellies died.
I didn’t even know how to card ‘em up. I didn’t know which letter represented which month. I asked JOF, “Am I buying or selling the G’s and buying the J’s, or am I buying the G’s and selling the J’s?” JOF howled with laughter. Whenever we see each other in person these days, which isn’t enough, he always asks me if I am selling G’s or J’s.
It took me a bit but I figured out how to trade in the Hogs. I made lifelong friends there. I made a nice living there until they went to the screen.
The point of this post is not to tell you a funny story about trading. It’s about letting you know that if you feel like there is nowhere to turn in your life there always is a place to turn. You might have to think differently about it. You might have to think about your skillset and how it could be used in a different way to bring you happiness, or just a different job.
I think that 2023 is going to be a hard year. Inflation is going to be high, the Fed will make money more expensive and there will be a lot of extraneous noise that will be louder than ever. That sort of thing tends to sap hope from people and make them confused. Instead of being active, they sit and go into a shell.
I think that 2022 was pretty rough on a lot of people coming off of some rough uncertain years intentionally inflicted upon us by a misguided government, bureaucrats that weren’t interested in anything except being self-important and grabbing power, and a virus that was intentionally created in a lab and unintentionally released into the wild of the world.
Have a good 2023.
You’re onto something, Jeffrey. Save these posts. There’s a book in you.
You belong to a vanished world. Write everything down.