Jan 1, 2017. Reminiscences

I was in the CME member breakroom at around 9:30.  The breakroom was in the southeast corner of the building, with large windows looking out onto the corner of Wacker and Monroe, a small retreat from the cavernous, windowless trading room.  There were a few CQG and newsfeed computers tucked just to the north, on the perimeter of the actual trading floor.  That’s where the disheveled, elfin Indian clerk with long wavy black hair would run his charts and mutteringly dispense ideas to anyone that would listen.  For some reason there was a Quotron in the actual lounge and I was in line to get a couple of stock quotes, with other people sitting around having a coffee or watching Sports Center.   Behind me was MA, a filling pit broker in eurodollars, also waiting to get quotes on stocks…because this was the year 2000, at the height of Nasdaq mania, (but you still couldn’t just punch up an instant quote on your phone).


At this time of year a lot of analysts go through the exercise of reviewing last year’s trends and making predictions for the coming year — trying to identify the next cliché, I mean, black swan.  I’ve already read a few of those missives.  Some are thought provoking, but on the whole a bit B-O-R-I-N-G.

It sort of reminds me of Wayne’s World At The Movies review segment on SNL, with a synopsis of films including ‘Remains of the Day’.  Wayne: “I thought it was a tour de force portrayal of the repressed emotions of the English psyche, set against the backdrop of Fascistic pre-war Britain. …I thought it was breathtaking!  Garth?”  “Sucked”.  Most of the prediction lists can be tossed into Garth’s bucket.  However, a concise, informative review of the past year by Doug Noland can be found here:  http://www.safehaven.com/article/43360/2016-year-in-review

Back to my reminiscing.  Does it have anything to do with today’s markets?  Maybe not…but maybe so. Note: names and acronyms are changed below.


I had started at Refco just before the turn of the century, in late 1999.  The Refco Eurodollar desk was on the east side of the floor, all the way at the top level of the tiered desks that surrounded the pit.  Lehman was next to us, Chicago Capital was immediately below.  There were about eight of us at the desk occupying three booths, probably 30 sq ft of floor space.  Front month Eurodollars were directly in front, back months stretching to our left (south) and the ED option pit to our right.  The shape of the connected pits was roughly a rectangle that spanned nearly a full city block, with back month dollars at the south end, then the 3rd and 4th contracts, then the second and then the front month, with the back months at a higher elevation to provide straight sightlines, down to ground level in the front months, and again slightly elevated at the north end, the option pit.  On either side of this rectangle were desks, tiered up like a stadium.

Although the turn of the century was punctuated by concerns about Y2K computer problems and banks had curtailed trading activity because of possible computer system issues, the Nasdaq boom was in full force.  In the year from March 1999 to March of 2000, Nasdaq went from just below 2000 to just above 4800.   In the meantime, rates were increasing fairly aggressively.  It was way back in 1996 when Greenspan had opined “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”  Though that line got widespread notice, it was a bull market that shrugged off warnings from Central Bankers and everything else.

From mid 1999 until May of 2000, the FF rate went from 4.75% to 6.5%.  I know there’s a lot of talk of the ‘Greenspan put’ but compared to current CB policies designed to instantly countervail any ill winds that buffet the market, Greenspan used his power sparingly.  I would simply note that the Fed kept the FF target at 6.5% from May 2000 to December 2000 when a LOT of air was rapidly coming out of the Nasdaq bubble.  I recall one of my old clients from Bankers Trust (then at DB) telling me, “It doesn’t matter what rates do, these Nasdaq companies have no debt.  It’s all equity.  Higher rates don’t affect them.  And I would say “I don’t think that’s quite right.”  But he was long a ton of stock and was riding the Nasdaq bull.  Hard.  Just to think of it makes me smile, because I have a few stories about this individual, who embodied everything right and funny about this particular business.  Those stories are for later, in a more extensive format.

OK, let’s get back to the Quotron line and MA.  I’m in my grey mesh trading jacket and he’s in green.  VO is snoring in the lounge chair next to us with vending machine wrappings in his lap, having filled a bazillion options in the last 2 hours.  I punched up a couple of quotes and Mike says, ‘hey Alex, do you own any of this?’  And I said, ‘what?’  ECNC.  Now this was in February of 2000.  I said I didn’t.  He replied, ‘Everyone on the floor owns this thing.’  So I wandered back to my trading desk, having jotted down my quotes on a trading card and having ECNC on my mind.  And when I got to the desk, it wasn’t busy at all, and I said, “Hey, you guys ever hear of ECNC?” And I think Scooter was first to say he owned some, and someone else said I have some, and Doyle, just a junior clerk at the time said “I own a couple thousand shares.”  I, of course, was incredulous.  How had I not heard of this?  So I turned around and logged into my account and bought a few thousand shares myself, but it had already been moving.  Just to give you a flavor of the time, I didn’t know what the company DID.  I don’t think anyone at the desk knew.  The name of the firm (I learned later) was actually E-connect.

I don’t recall the exact price, but I paid something like 1.60.  It was then that I realized that our pit clerk in the third and fourth option (3rd and 4th contract months) owned something like 50k shares (his relative in NY at Merrill had given him the tip while it was still under $1).  I learned that traders in the option pit were also loaded up.  Crazily, within a few days, my shares had doubled.  I think I sold out half at something like $4.  And then it just kept running.  In hindsight I thought this took a MUCH longer time, but literally within about another week the shares had doubled again.  I sold the rest of mine at a price just below 10.  And of course, I was happy… for about a day.  But this thing had taken on a life of its own.  Chuck, the futures clerk who worked for UGG, was riding the whole position as I recall.  Next thing I know the stock is around $14 and moving higher, ultimately shooting over 20.  And I am saying to myself, “I am a F*$%&G idiot!  Why didn’t I just hold out?”  But I also remember thinking, unless these guys have cured cancer there is no reason this stock should be flying like this.  In any case, my self-loathing was short lived, because the stock was halted in mid-March due to creative financials.  It turned into a total loss for the guys that held it. In April, Zack told me his story.  He was a jovial clerk on the other side of the pit.  He said he owned it while he had gone to Florida on a vacation with the family, and was checking the stock from there.  He was having a grand old time, saying “So THIS is how the big guys do it, printing money while sitting on the beach drinking cocktails.”  He of course, returned home to a halted stock, worthless, but was laughing about it and enjoyed telling the tale.

So, how does the ECNC story tie in to today?  Well, maybe it doesn’t…but it’s better than a few half-baked predictions right?  While ECNC was one of many flame-out dotcom companies, its demise came just a couple of weeks prior to the ultimate Nasdaq top.  People were just buying into the story of untapped potential, riding the wave without really thinking it through.  It’s a crude analogy, but that’s what we’ve done with Trump as well, bought into the sales pitch without having much in the way of details about WHAT THE COMPANY DOES.   And, yes, monetary policy still matters.


Oh, by the way.  When looking back and doing some ‘research’ for this piece, I found out what E-connect did.  From a blog: Econnect Holdings in the spring of 2000 at $0.96 had a quizmo to attach to your computer that you could swipe your credit card through and pay for purchases on line. Seemed to be a good idea to me….

As another addendum, this is from a Bloomberg article dated December 27, 2016. (Vince Golle): “The last time Americans’ optimism about the stock market registered such a dramatic one-month surge was during the dot-com boom. As stocks reached a record, the share of households anticipating higher equity prices a year from now surged to 44.7% in December from 30.9% a month earlier, the biggest monthly advance since November 1998…”


In terms of trade ideas, last week I pointed out that stocks had massively outperformed commodities, and as a prediction, I thought that trend would not continue.  An interesting side note comes from Doug Noland:  “Remember the fears for Glencore and other companies highly leveraged to commodities?  Well, Glencore’s stock ended 2016 up over 200%.”

Posted on January 1, 2017 at 4:04 pm by alexmanzara · Permalink
In: Eurodollar Options

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