History, macro ideas and global markets
Quantitative easing by the Fed, the Old Lady, the ECB and the Bank of Japan have given the world's stock market traders the gift of a lifetime.
"Bright lights, big city". This was the great New York novel de jour when I left the Chicago futures pits for banking Mount Olympus on 1 Chase Manhattan Plaza. I was a young, hip, interest rate, currency, equity and crude oil derivatives specialist doing business with mega banks, sovereign wealth funds and the ultra-rich from Athens to Amsterdam, Geneva to Abu Dhabi, Jeddah to Buenos Aires. I remember I never spent more than three weekends in a row in my lovely East Village apartment. Yet I loved it all - a ringside seat in the financial history of the world in real-time.
So I traded sterling on Black Wednesday, September 15, 1992, the day George Soros broke the Bank of England and did more damage to the sceptered isle than the Luftwaffe or the NHS. I watched the world and my Kuwaiti clients bleed when Saddam Hussein invaded the country on August 2, 1990 and changed the course of Arab history.
I watched Drexel Burnham die and the junk bond market freeze after Michael Milken went to Club Fed for insider trading. I made a nice spec profit for myself shorting the Italian lira against the Deutschemark, the Mamma Mia-Achtung arbitrage of history. I heard Citicorp's death rattle due to Latin American sovereign loans, New York commercial real estate and busted leveraged buyouts - and saw the interbank market freeze and the Greenspan Fed slash rates to act as Mommy (OK, lender of the last resort) to Wall Street. I learnt painful lessons about risk, credit cycles, margin debt, contagion, leverage that have seeped in to my soul. History hurts.
Fast-forward to 2015, Year Seven AL (After Lehman). Quantitative easing by the Fed, the Old Lady, the ECB and the Bank of Japan have given the world's stock market traders the gift of a lifetime as the captains and kings of central banking were desperate to avoid a second Great Depression. Jolly good, chaps, prats and duckies! But all good things must come to an end and so will the Fed easy money wave of 2008-15. There is a time to dial up risk and there is a time to tremble with fear. This is a time to tremble with fear.
The ghosts of the 1991 credit crunch, when Citicorp was rescued from Chapter 11 by a Saudi prince and global equities dropped 40 per cent, have traumatised me for life. I am just a student of credit cycles, global and local. My love for history animates all my macro ideas in banking and finance. Marcus Tullius Cicero said it best in Rome 2000 years ago. "Not to know history is to forever remain a child".
I have an Irish (Dublinwali) sister and naturally I inflict on her James Joyce, another literary obsession. So Leonard Bloom told me "history is a nightmare from which I struggle to awake". History does not repeat but rhymes to Mark Twain. Yo Sandy! I saw Citi die and rise from the dead in 1991 - and again in 2008, thanks to Uncle Ben! I survived the debt shock of 1991 that was a requiem for Drexel, Kidder, Manny Hanny and BCCI and those of 2008 that killed Mama Merrill, the Bear, the old Morgan Stanley and the House of Lehman. Santayana was so right. Regulators and investors who ignore the lessons of history are doomed to repeat them in real time, as we saw in 2008.
I am fascinated by medieval, pre-modern finance. Marwari money changers in Fathepur Sikri, Mughal Emperor Akbar's capital in the 1560s, offered no money down, esoteric mortgages to Afghan warlords given imperial land gifts in Punjab/Bengal. Commodity swaps? Common in Lombardia banks in 1560s to finance Mexican conquistadores so the Spanish king in the Escorial could crush the rebels in Holland. A few decades later, Amsterdam was the hub of global finance until Rembrandt's tulipmania and the East India Company in London relegated the Herrengracht to the minor leagues. There was even a shameful but liquid cotton/African slave asset backed loan market in New Orleans, Charleston and London in the 1820s.
Lenin fast-forwarded history. Marx searched for its hidden secret laws. Kant tried to fathom its dialectic. George Soros interpreted history with the prism of reflexivity, Mao and Stalin via their ghastly ideologies of hate. I just try to use history to make money in the market. Nietzsche said it best for me. Gaze not into the abyss, lest the abyss gaze back, as Max Heisenberg and Lord Keynes proved it does. Thank you, Cicero. You made my career possible. Not to know history is to remain forever a child.
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