Am I the Dr Who of the markets ?

By Richard Matthews November 18th 2018

You’re gonna be sad, you’re gonna be weepin
You’re gonna be blue and all alone
You’ll regret the day you seen me weepin
‘Cause when I leave, I’ll be a long time gone 

Songwriters: Frank Harford / Tex Ritter 


As we rapidly approach the end of the beginning of Britain’s exit from the European it occurred that we have been in a similar situation many times before be it war, economics or football. We as a country have a notoriously ambivalent attitude towards Europe almost as if we enjoy flirting with la Marianne in France but when it comes to the consummation we suddenlybecome British and shy. There was a farce many years ago called No Sex Please We‘re British and perhaps that title reflects our National attitudes. In my lifetime in the city and trading I have witnessed the last vote on Europe in 1973 when Harold Wilson, the Prime Minister at the time, was too canny a politician to lose, as well as our joining of the ERM (Exchange Rate Mechanism) in 1979 and our more familiar, if  you are a football fan you were used to this action, forced and unseemly exit from the ERM in 1992.

When Sir Geoffrey Howe, whilst Chancellor of The Exchequer, refused to take Britain into the ERM in 1979 it was considered to be somewhat of a risk but the real damage to the country was caused by Nigel Lawson’s (Chancellor of The Exchequer 1983-1989) shadowing of the Deutsche Mark in a futile attempt to replicate in the UK Germany’s low inflation and employment. Eventually Lawson was replaced by John Major (later to be Prime Minister) who took Britain into the ERM on 8th October 1990. Membership of the ERM guaranteed that the Pound would not deviate more than 6% from its entry level of DM 2.95. By doing this the country and currency were set on course for the perfect currency market storm.

By the early 1990’s the ERM was already under significant stresses due to the cost of German reunification whilst Britain, and at the time the other normal suspects of Italy and France, brought their own particular problems to the party. Great Britain’s economy was being savaged by a weak Dollar and as normal our feelings of national prestige and fear of Europe started to rise over the summer months. Indeed I clearly remember the feeling of fear that pervaded the country as house prices tumbled and people were forced into negative equity. When Denmark voted against the Maastricht treaty, aimed at further European Integration, the winds of storm and change were really blowing hard.

It is widely claimed that George Soros was the man that broke the Bank of England but unless my memory has completely gone large short positions of Sterling, as well as Francs and Lira, were being built as well as significant shorts of the Interest rate contracts throughout the summer. Personally I think a lot of traders were happy for George Soros to take the publicity, as well as Soros himself but we will never really know. In the afternoon of Tuesday 15th September enormous sell orders were being seen across the futures market the sizes of which were previously unheard of. When the market opened on the Wednesday 16th it became obvious that there was only one buyer and that they didn’t have the resources to take the heat out of the market and so the markets in Sterling, including interest rates, were sold and sold again until the government started to panic and raise interest rated first from 10% to 12% and then at the close of the day to 15% in a last ditch effort to save the pound. Neither the Bank of England nor the Government realised that buy orders of £300m were literally a drop in the ocean in the brave new world of derivatives. By the close of business, having had the most thrilling day of our lives my partner and I decided that interest rates of 15% were unsustainable and put on the largest trade we ever did and bought short sterling. By 7.00 that evening the Bank announced that Britain would leave the ERM and cut interest rates to 12% to be followed the next day to 10%.

I thought it was unlikely that we would see another day when the currency remains trapped going down a one way street the wrong way in our protracted exit from Europe. However I’m not so sure as I was. With the government in total disarray and unlikely to be able to unify Parliament, let alone the country, we look like we are headed for a double whammy of a general election and a no deal Brexit. When these risks are combined with a strong dollar it feels to me that we could be heading for parity …and that’s parity against the dollar so maybe a value of 90 euro cents? When you look at the movement of sterling against the Dollar between 1981 and 1985 when its value effectively halved it is interesting to note that although we blamed all our ills on the ERM in reality it was as much US interest rates increasing that did the damage. Guess what? they are on their way up now. Boy this takes me back …sell sterling and sell short sterling futures. I seem to remember that trade. Is there a buy in sterling? Yes, the back month short sterling spreads.

To me the market looks  almost too obvious and perhaps as always when markets are driven by politics not economics we should remember Mark Twain’s great observation that “Politicians are like diapers: they should be changed often, and for the same reason.”

At the end of that momentous day in 1992 I remember my first reaction was of relief and fear, oddly not fear that our trade would go wrong but fear that we had not matched all our trades correctly. With days of extreme market volatility working on a floor where you were literally screaming to be heard that was always the overriding emotion, fear.  My business partner and I travelled home together in silence, exhausted and as he got out the car we just looked at each other knowing that no one else would understand what we had gone through that day or worse what we may now be facing due to an error. 

So what did happen after? Britain prospered and Europe lurched towards the Euro. Maybe that was the day that Britain really started its exit from Europe without an Article 50. My partner and I survived and the trade came good. There is an old maxim “Don’t bet the farm  well we did and I can’t speak for my partner but that day certainly gave us option money. What was my first option trade, I can hear you ask? I took the option to write to Norman Lamont , Chancellor of The Exchequer , to thank him for giving me the finances through his stupidity to buy the beautiful Red Ferrari 246 that was about to appear in my drive. Vintage Ferrari? Naturally, there had to be some compensation for being constantly moody, tired, hoarse and single!

Richard Matthews, who began in career in 1973, is a former trader-broker in the London money, futures and foreign exchange markets. Twitter @dickiematthews5

Postscript: Now I know some of you will want to know if I still have the car. Sadly no, and yes I sold it too early but as they say you never go bust taking your profit too soon.


There are old brokers and bold brokers but no old bold brokers – or are there?

By Richard Matthews 4th August 2018

Well it’s cold down here in the water

It’s cold down here in the sea

Who’d be a channel swimmer?

Only a fool like me

I’ve greased my body

And I’m heading over the ocean

These two arms are the only locomotion

I need

Kevin Godley / Graham Gouldman

I haven’t written for a while and I can assure you it’s not because I have nothing to say or my memory has gone. I still have plenty of stories and plenty of views on the market especially as project fear takes place regarding Brexit. I Haven’t written because I’ve been swimming. Yes swimming but not just any old swimming I’ve been in training for a charity swim and dipping my toes into the English Channel. Much as I would like to I’m not planning to swim the channel…yet.

Swimming is a great release from the day to day grind and gives your mind literally time to float away and forget the daily grind .Mostly I am paddling away counting lengths or strokes taken but occasionally my mind turns to more market orientated subjects. I think about Brexit, I think about days gone by but recently I’ve been thinking about what drives a broker and what makes a good broker. I suspect that my mind wanders to thoughts like this as I’m still as driven to compete as I was 45, yes 45, years ago when I came into the markets. Whether it is kicking a ball around in the garden with my grandsons, competing for a business or indeed taking part in a charity swim I want to be the best and win. But why?

I first heard the expression about old and bold in connection with riding a motorbike  at the same time as another expression which goes somewhere along the lines of “ there are two types of bike riders in London . Those that have had a crash and those that are about to”. Both expressions came from a great motor cycle fanatic, Rollo Feilding, who sadly passed away from Cancer some years back . Both of these expressions can and are used towards broking . The first as I have used it in the title and the second in numerous ways but I’ve always liked the thought that there are two types of brokers. Those that have misquoted a price and those that are about to.

In my mind though there are two different driving factors that make a broker succeed. Wealth and material effects come with success but the skills needed to obtain them come from deep seated childhood influences. I remember when I was running a big team and the top brokers in it were either yearning to please or convinced they were better than everyone else. Right from the very top down you could split the brokers into two camps. I used to listen to out trade tapes and wince when I heard the arrogance of some of my staff and yet when questioned them over their attitudes they would just look at me as if I was barmy. Myself? Well without giving too much away all my childhood I just wanted to please my Dad.

Either type though was, and are, driven. At times this drive, especially when you are floundering , is a real monkey on your back . I am pretty certain that my wife has her patience tested by my will to please when it appears as the will to win. I am sorry Debbie but that’s the way it is even counting daily steps I have to win. Away from the markets I am sure if you analysed success you will find similar stories of this inherent drive overcoming obstacles. One such man was Stephen Hawking who was a man so all consumed with his ambitions that he overcame his handicaps and by the end of his life was widely recognised as one of the great minds of all time.

Stephen Hawking and the wholesale financial markets. Hmm I never thought that I would connect the great man with guys who made a living by mainly shouting loudly. However I have done so and there is also greater reason to do so which actually the major reason for this article as on 21st September I am taking part in a charity swim to raise funds for The Motor Neurone Disease association. Ah I hear you say a couple of lengths in some elegant swimming pool to raise a few quid? Well actually it’s a little more than a couple of lengths and I must be honest at time I wished that’s all that it was. It’s actually 500m in the Victoria Docks …not quite the Thames but near enough.

Five Hundred Metres. I’m not sure whether it sounds more or less when it is spelt out that but it is either 20 or 25 lengths of a decent pool. Again doesn’t sound much but in open cold water and with a recommendation to be able to swim 700 m, to err on the safe side, it starts to be a little more of a challenge and that’s before battling through the paparazzi trying to get a snap of me in a wetsuit! To be honest I didn’t think it was very tough till I went for my first swim in years and struggled to complete two lengths. Now anybody who has known me for any length of time will know I have always loved swimming but I guess the occasional operation on my neck had taken its toll.

The good news is that I am now swimming two or three times a week and loving it and most Saturday or Sunday’s I am down at Pett Level swimming in the sea and subsequently being warmed up by Andy Forbes-Gower at the The Red Pig. And do you know what? I actually love it. Is it the sense of freedom or a sense of achievement that’s driving me? I am not sure but open water swimming is without doubt great fun but there, as always, is a rub.

The rub this week though is purely financial. I really hope that all of you enjoy reading my occasional columns and I set out to write them for fun and not monetary gain…but here it comes. Can you dig into your pockets a little and make a small sponsorship pledge? How does 10 pence a meter sound? £50 to help raise funds for MNDA and to encourage this old broker to be bold one last time?

Over the next few weeks, till the swim, I am going to be giving the occasional update but I can assure you that that every bit of sponsorship, however small, encourages me to plod up and down a few more lengths.

This is the link you will need to make the pledge

and if you wish to either take part or just to learn more about the event please click on this link

Just too neatly round up this column, as I was studiously taught to do at school, two last points. The photo for this column has little relevance to the writing apart from the fact it features a bunch of sharks but photos of the market always get the best readership! Secondly my late Dad learnt to swim in Millwall, in about 1915, where he grew up in the which is within spitting distance of The Victoria Docks and one of the greatest senses of achievement I’ve felt was seeing my mother (who taught me to swim) at 85 swimming in a pool that I had had built when I lived in Spain. Not that I worry about still pleasing my parents even now they’ve gone.

Richard Matthews, who began his career in 1973, is a former trader-broker in the London money, futures and foreign exchange markets. Twitter @dickiematthews5

the drunken sailor has taken the helm


By Richard Matthews February 11th

Sailing was one of my great passions when I was younger and indeed I sailed the Atlantic with a bunch of friends a few years back which was one of the experiences in my life and taught me not only a great deal about myself and the natural world but also about awareness. When it’s literally a matter of life and death you tend to concentrate hard on what is happening around you and watch carefully for any changes occurring. For instance if you are thinking of diving of a boat for a dip don’t do so when Flying fish are jumping as it means that there may be a big fish , a Shark perhaps, chasing them . Watch the sky for signs of mackeral clouds Cirrocumulus as they may well be the sign that Cumulonimbus and a storm are on their way. As an old proverb says “Mackeral sky and mares’ tails, make tall ships carry low sails”. Last weekend I wrote about the markets and watching for hidden signs at the time I had been keeping a weather eye on the Vix index.

The Vix had been edging up for some time and to return to my analogy the sight of that was like seeing the first whitecaps appear on a previously calm sea during a pleasant Mediterranean afternoon cruise. Whitecaps, for the non -sailing readers are the little plumes that form on the swell of a sea which point to the wind increasing. What was, and possibly still is, hard to predict is whether the market action last week were the whitecaps forming and then followed by the squall or indeed are they are the forerunner of a full blooded Mistral. Time, as always, will tell but there were some worrying signs that this was more than a little squall and that we may be in for a full blooded storm and it appears that sadly the crew has enjoyed an overlong lunch and imbibed too heartily of Provencal Rosé.

Never ever drink when you are sailing is a great maxim and in these days of tighter office procedure very little drinking takes place at lunchtime and yet the markets moved around with all the subtlety of a drunken sailor last week. New records were created for the biggest this and the largest that and people this weekend are arguing whether it was a flash crash , a correction or whether the bears are rubbing their paws together to feast on the honey of a full blooded bear market. To me records don’t matter. What we saw and possibly more importantly what we didn’t hear last week, are the lessons to be absorbed.

Never go short in a rising market

Now let’s be clear and straight about this we all love volatility it is just what we do with it. If we lose money it’s because we bought or sold at the wrong time. End of story. I’m not an economist but I do know one thing for certain anyone who loses money by shorting volatility is due a lifetime membership to the ITC ( the newly created idiot trader club) and deserves to be financially caned. Volatility will range trade reflecting the normal fluctuations of a market and being an old hand I would always be wary of the black Swan event that skews the price violently upwards and as I learnt, and hands up to my cost, don’t ever sell premium. And yet we hear the squealing as if we lived in a piggery of ignorant traders who having been in the market for ten years think they know all there is about trading and believe that equity markets can only ever continue to the sunny uplands and volatility will stay benign. Idiots. Volatility was always going to return that was clear, and by the way we should all welcome it, just what wasn’t clear was what would trigger the move.

I watch the Vix pretty closely and it had been range trading nicely over the last few months but it had been edging out of its trading range towards 12. What was this gentle spike up telling us? It wasn’t telling us to sell it (unless you were long) it was warning of a storm coming just like the first white caps and breath of wind when you are sailing warn you that the weather may be changing but unfortunately it appears that the crew had been on the lash and didn’t look around for other signs and as such failed to see the barometer dropping.

The move was started back in December as Bonds started to retreat and was encouraged by the US jobs data that came out on Friday 3rd February which prompted the Devil fall of 666 points. This move carried on and as I mentioned at the beginning the talking heads discussed records. Well records mean nothing and what was telling was the influence of those that said very little. There was no calming talk for the markets from Jerome Powell in his first days in the job and Carney , surprisingly ,instead of pouring oil on the water poured honey on the breakfast of the Bears by mentioning that rate rises were more imminent than had been first thought.

The Central Banks have been brewing up and administering the crack cocaine of QE for so long the markets thought it would never end and there is a generation of traders now sitting at the boards that have grown seeing this action and in their ignorance thought that the markets were always benign and sold volatility. Well it has ended and we are entering the choppy waters of normalisation and it feels like the central banks have decided that’s it regardless. Not one soothing word from the Central banks so batten down the hatches guys we are in for a rough time. The temperatures is rising and the fever is hitting but this time I think the signs are that market may not be catching a cold but about to experience full blooded cold turkey.

How rough a time will tell but we will continue to see sudden spikes in volatility and sell offs and all the old phrases such as dead cat bounce are being wheeled out. Personally an expression I loathe and being topical and sticking to the seasons I think a pancake bounce will be more appropriate and having practised tossing them this weekend in preparation for Shrove Tuesday I can tell you they don’t bounce that well.

Meanwhile Europe lurches along with the mainsteam press ignoring little Napoleons problems in Corsica, Frau Merkle’s growing problems both politically and with industrial scandals such as VW and Deutsche bank she looks increasingly vulnerable. And then there is Italy. Well Italy and its forthcoming elections are worthy of a whole book let alone a footnote to a column. I love a coincidence and how about the Italian Elections and the vote on Merkel’s coalition both being held on March 4th Be under no illusions we live in a period which is only going to see volatility increase, please don’t go short the Vix, and if you don’t have the inclination to play safe haven instruments such as gold could be for you. Be very wary of the damage that last week did and remember as the sage of Omaha; Warren Buffet said “when the tide goes out, you see who is not wearing swimming trunks.