By Martin Tillier
Talk of the 25 year anniversary of Black Monday has me reminiscing. On that day, Oct. 19, 1987, I was working on the Dollar/Mark desk at Tokyo Forex in Tokyo, Japan. (Younger readers may be unaware, but back then the Deutschmark was Germany’s currency). Because of the time difference, the melt down had happened overnight for us. In some ways, anticipating the next day’s opening was more stressful than trading through the chaos would have been. Even on a crazy day, people still found time to gossip, and rumors were rife; ‘they couldn’t repair the computers and there would be no market on Tuesday’, ‘After the systems crashed all trade records were lost’, and ‘Global Central Banks were planning concerted intervention to support US equities’ were some of the more common ones.
I had only been in Japan for around a month at that time and spoke hardly any Japanese, so I have no doubt that some of the baseless rumors passed me by. Whatever was translated for me, however, I dutifully passed on to my native English speaking clients, and my colleagues in Hong Kong, Singapore, Sydney and Bahrain via the dedicated satellite link. We were the opposite of spies. Not passing on a rumor, no matter how far-fetched, was the unforgivable sin.
Ostensibly, foreign exchange brokers were paid for facilitating trades and matching buyers and sellers. We did this, but even in 1987 there were cheaper, automated ways of trading, such as Reuters direct dealer and Bloomberg terminals. The reason traders at banks were prepared to pay us commission was because they couldn’t live without the flow of information. Information was power. Information was money. The veracity of a rumor was much less important than its popularity. If you acted on it first and enough people followed there was big money to be made. By the time the accuracy was established spot traders had long cut their positions and moved on.
At the risk of sounding even older than I am, that was then and this is now. Information is now freely available and cheap. The whole world now seemingly operates like the 80’s FX markets, driven by rumor. Information flow is common, so no longer prized, but accuracy is.
When Google’s (GOOG) results were leaked early yesterday, it had a delicious irony to it. The company that is seemingly responsible for today’s information overload couldn’t stop the free flow of their own secrets. There were traces of the old days, though. The numbers were bad, but not that much worse than expected. What really drove the exaggerated move was that traders felt they were acting on confidential information that they had exclusive access to. This is why ‘sell the rumor, buy the fact’ is so often true. Nobody with a trader’s mentality can resist the chance to act on a leak. Traders are professional over-reactors. Given that, I look at GOOG’s drop yesterday as a buying opportunity more than anything else.
It is hard to convey the excitement I felt going to work that day 25 years ago, knowing that we, the rumor spreaders, would be the focus of the day. It is somehow comforting to know that information and rumors still drive markets, even in the days of high frequency trading and algorithms. It somehow validates what we did. It also means that those of us who have been there and understand that find it easier to ignore the noise and see the opportunities. Maybe people do still have a chance against computers.
Martin Tillier has been dragged, kicking and screaming into the 21st century, and can now be followed on Twitter @MartinTillier.