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Over the course of a single week in 2010, I lost $8 million betting on Swiss interest rates. One of the only things I can recall about the next several months of my life is a brief conversation. Actually, it was more of a monologue. I remember it because it is probably the most important exchange I have ever had in my life.
I had become obsessed with understanding why I had lost that much money on a trade, and whether and how I would make it all back, and one part of that obsession involved going back to my textbooks from the London School of Economics. I stuffed them into my work bag and brought them to the 42nd floor of the Citigroup tower, and I read them in the afternoons when trading slowed down. I was looking for answers. Why was the Swiss franc appreciating? Was a negative 4.5 percent rate sustainable? Were the FX swaps prices really arbable?
I was deep into a chapter on the mathematical nuances of forward interest-rate parity when the book was slapped powerfully from between my hands, straight into the bin at my feet. In its place was thrust a perfectly round, frosty white-tipped, deep-red Liverpudlian face, and it was saying, “What the fuck are you fucking doing, you fucking cunt?”
Billy swore a lot, but he wasn’t usually so red when he did it. The two of us had a lot in common. British. Short. Not posh dickheads. But Billy was also a legend, the most profitable trader at the entire bank, and I was just 23.
“Why the fuck are you in here reading fucking books, mate?” he said. “Does this look like fucking Jackanory?” A BBC show for children. Billy was standing but bent 90 degrees at the waist like a maniac, and he gestured wildly toward the trading floor. I wasn’t sure if I was supposed to look round, but I decided that it was probably best not to.
Billy sighed and placed both of his hands deep into his white hair, then wiped them all the way down his red face. He looked tired. He sat down. “Listen, you’re not a fucking kid anymore,” he said. “I know you’ve lost a lot of fucking money. But you’re not gonna find a penny of it there in them books. You want to know what’s happening in the world, you go take a fucking look at the world. You want to know what’s happening in the economy? It’s fucked. And you can see it everywhere you fucking go, mate. Go take a walk down the high street. See all the fucking shops closed down. See the fucking homeless people under the fucking bridge. Go look at the ads on the tube. Debt relief, home-equity release, debt relief. People losing their fucking homes just to pay for the kids. Go home and ask your mum about her financial situation. Ask your friends. Ask your friends’ mums. The time for books is fucking over, mate.”
And that was it. The most important thing I ever heard.
I’m going to tell you a secret about trading. Making money trading is not about being right. It’s about being right when everyone’s wrong.
When people are wrong, their predictions are wrong. When people’s predictions are wrong, their prices are wrong. And when prices are wrong, you can make a fortune.
What that meant in practice is that when a summer intern showed up at Citigroup one day, having graduated from the best business school in Italy, wearing the world’s shiniest silver suit — a real Lake Como type — I knew I wanted him to sit next to me. Because he was wrong. He thought that the market was right. Always. Just like he always thought the textbooks were right. His name was Fabrizio. I called him Titzy because he hated it.
He was useful to me. At the time — this was early 2011 — people were not spending money. Titzy, when I asked him to explain why, saw it as a problem of confidence: The global financial crisis 18 months prior had been a big shock to the system, but now confidence was coming back and people were ready to spend again. Titzy wasn’t alone in thinking this. A wealthy, snakeskin-belted Oxford macroeconomics professor told me the same thing. People had gotten fucked, had lost their homes. But now those homes were owned by new people. Unemployment was coming down, inflation was going up, and it was only a matter of time before interest rates bounced back, too. That was the conventional wisdom on Wall Street and in Canary Wharf.
Why were people not spending money? I asked some kids from Ilford, in East London, where I grew up. Harry had holes in his shoes and was jumping over the barriers on the tube to save costs. That’s why he didn’t spend money. I asked Asad. Asad said his mum had sold the family home to support him and his sisters and now he was sleeping on the sofa to try to save up a deposit. That’s why they didn’t spend money. I asked Aidan. Aidan’s mum had lost her job and hadn’t been able to get a new rate on the mortgage. Now the monthly payments were sky high, and Aidan was having to pay them himself. That’s why they didn’t spend money.
I was sitting on the desk one afternoon in February and I tried it out on Titz. “Titzy. Do you think the reason no one is spending money is because no one’s got any money?”
“What the fuck are you talking about, geeza? How can no one have any money?” Geeza was a word he’d recently learned. He was trying it out in his deep Italian accent.
“Well, you know, I been asking people and that’s all they keep saying. ‘I don’t have no fucking money.’”
“I don ava no fuckina money.” Titzy tried to copy my accent and somehow came off sounding even more Italian. “Come on, geeza. It’s a monetary system. It’s not possible for no one to have any money. The whole thing has got to add up.” His feet were on a desk. He leaned over to pick up a newspaper off the floor and nearly fell out of his chair.
Citibank rented a huge estate in the countryside outside London and invited all the global traders for a conference and a piss-up. All the bosses were there. The big boss gave a speech where he told us to take much, much more risk. “If you are happy to risk it in $1 million, then why shouldn’t you risk it in 10!” They gave us all camo baseball caps with “Go Big or Go Home” printed on the front. Back on the desk, everyone put massive bets on recovery. I waited, though. I didn’t like the smell.
The next week I went to a meeting. One of the only economists in the whole bank that I actually respected gave a presentation. He had a bunch of charts, each showing the fiscal situation of a single country, and he went through them one at a time. Italy. Spain. Greece. Portugal. Ireland. The U.K. The U.S. Japan. They were all variations on the same story. All these governments were spending more than their income, year after year, and their debts were growing. If things kept going in the same direction, the interest rates on their debts would start rising. People would stop lending to them, and they’d have to sell their assets. That would be bad.
I packed all the leftover sandwiches into a brown paper bag and I carried them back to the desk. I couldn’t get it out of my head. Not the collapse of Western welfare states, no, I wasn’t too worried about that. What I couldn’t get out of my head was this sense of similarity. The government of Spain, the government of America, the government of Japan. The situation was just like Asad’s mum; it was just like Aidan’s mum. Outgoings more than their income. Losing the ability to borrow money. More and more income going into servicing debt. Losing their assets. It wasn’t just Harry with holes in his shoes, it was the world.
But it came up against the economics. Like Titzy and the textbooks said: We’re in a monetary system. The whole thing always has to be in balance. For everyone who’s in debt, there’s someone who’s in credit. For everybody losing money, there’s somebody who’s gaining. What about the houses? What about the stock market that was rising and rising? These assets weren’t disappearing. But if we didn’t own them, if the people didn’t own them, and the governments didn’t own them — then who did?
And that was it, I think. That was the moment that it hit me, surrounded by millionaires and sandwiches. I looked to my left. Pink shirt, pink shirt, white, sky blue. I looked to my right. White shirt, white shirt, pink, pinstripes. There, in string, sewn into a collar, four letters: “A.I.E.Q.” Who the fuck’s surname begins with a Q? Millionaires. Every single one. I’d be one too, before long.
It was us, wasn’t it? We were the balance. We were the boys who’d be richer than our fathers, in a world of children who’d be poor. We were the ones with the growing bank balances that balanced the debt. We were the ones receiving the interest on Aidan’s mum’s mortgage. And it would grow — that’s what compound interest does. We would use the money from the assets to buy the rest of the assets. It would get worse and worse. It wasn’t a crisis of confidence. It wasn’t the fucking of the banking system. It wasn’t an “exogenous shock to consumption savings preferences.” It was inequality. Inequality that would grow until it dominated and killed the economy that contained it. It wasn’t temporary, it was terminal. It was the end of the economy. It was cancer.
And I knew what that meant. It meant I had to buy green Eurodollars.
A green Eurodollar is a bet. A nice, clean bet on what American interest rates will be in two and a half years’ time. None of this complicated “lend one currency borrow another” stuff that you get in FX swaps. We are talking pure betting now. Casino stuff. We loved it.
On the short-term interest-rate desk, our job was not supposed to be betting. But we were given access to products like Eurodollars (and their equivalents in all the other currencies) so that we could “hedge our risks.” We hedged a fucking lot of risks, often risks we didn’t have. I was about to take the hedge of my life.
What I had realized was precisely why we were all wrong. We had been diagnosing a terminal cancer as a series of seasonal colds. We thought the banking system was broken, but fixable. We thought confidence had collapsed, but would recover. But what was really happening was that the wealth of the middle class was being sucked away from them and into the hands of the rich. Ordinary families were losing their assets and going into debt. So were governments. As ordinary families and governments got poorer, and the rich got richer, that would increase flows of interest, rent, and profit from the middle class to the rich, compounding the situation. The problem would not solve itself. In fact, it would accelerate.
The reason economists didn’t realize this is because almost none of them look in their models at how wealth is distributed. They spend years memorizing “representative agent” models, which view the economy as one single, average person. For them, the economy is only ever about aggregates, and distribution is an afterthought. Moralist window dressing. Finally, my degree was useful for something. It showed me exactly how everyone was wrong.
If I was right, it meant that markets were horribly mispriced. The recovery would never happen and the normalization of interest rates would never happen. At that point, the beginning of 2011, markets were pricing nearly six full hikes of 0.25 percent each from the U.S. Federal Reserve in the following 12 months. They were going to be wrong. Everyone was going to be wrong. Those rate hikes weren’t going to happen. I would be able to make money indefinitely, as the interest predictions got pushed back and back.
In the end I made the trade with overnight-index swaps. With those, you could get another bank to quote you a price for a single massive trade, and you could do the whole thing in one drop. I pushed a button, asked for a price on $700 million, and hit it. It felt good. Every single other fucker on the desk was betting on recovery and now I was clean betting against them. Let’s see who’s right: Everyone, or me. I liked that.
And then the earthquake happened.
When I got to my desk I had hundreds of emails. I called up a report from the Citi macroeconomics department. It said: “We anticipate the earthquake to be strongly positive for 2011 Japanese GDP growth.” The country would have to be rebuilt. I opened my desk and I pulled out a blue ballpoint pen and I quietly snapped it in half and I dropped both halves into the bin. I took my second pen and I did the same thing. Then I went to the stationery cupboard to get more pens.
Someone in Tokyo sent Titzy a video of one of our colleagues, who had been on the trading floor during the quake. He was crouched under his desk and gripping onto something, but his head kept popping up in a little yellow hard hat. He was trying to grab his mouse and do some trading while Tokyo swayed wildly through the windows in the background. Titzy forwarded the video to the desk, but no one found it funny. Do you know why? Because earthquakes make interest rates go down.
It’s weird, isn’t it? You spend three years of your life studying economics, then another three trading on it. You wake up at 5 a.m. and you read a hundred emails. Every day. You hire a kid fresh out of university so he can talk to you nonstop about economic theory. You finally come up with your grand idea and you bet your arse on it. Then you make $2.5 million, in a single day, because of an earthquake and a tsunami, and 20,000 people die, and all of the people who you are closest to, the people who you spend every single day of your life with, the people who taught you to trade, the people who taught you everything, all of them get smashed.
Even Billy was on the wrong side of the trade. He lost the most because he was the biggest. I think it was $5 or $6 million. At least he had it to lose. The other guys on the desk? One of them lost maybe $2 million, pretty much his whole PnL for the year. Another tried to hold on and fight it and ended up losing nearly four. That dropped him into the red. The smartest one tapped out immediately and only lost $500K.
I didn’t say anything. Just waited and watched, breaking pens. Making money. Titzy kept looking at me like I was a genius, like I knew the earthquake was going to happen. As if I caused it. The nuclear disaster that followed — where they evacuated 154,000 people from the prefecture of Fukushima and people thought the power plant might melt down — was good for my position. Up $3.5 million. Up $4.5 million. By a week in, I was up to $6 million.
Then I did something a little bit crazy. There was a sales guy on the floor on the desk next to ours. I liked him — a nice guy, but not the brightest. A crisp, clean-cut, nicely raised Englishman in his mid-40s. His name was Stanley. One day, in the midst of the nuclear panic, Stanley went crazy. He stood up at 11 a.m., in the middle of the trading floor, and screamed, “The nuke rods are exposed!”
The words echoed as desk juniors across the floor repeated them loudly to their own desks. Titzy stood up beside me and yelled it, too, his hands around his mouth. There was a chaos of noise and activity as people shouted at their brokers and each other. Stanley was still standing and repeating “The nuke rods are exposed!”
Titzy was echoing it like a clown. I told Titzy to shut the fuck up. He spread his hands real wide and shrugged wildly as if I was the mad one.
“Titzy,” I said, “what the fuck is a nuke rod?” He did that thing that Italians do with their hands.
I turned back to Stanley. He was still shouting. What did I know about Stanley? I was pretty sure he had graduated from Oxford. What was it he had studied? Was it history? Or was it classics?
“Titzy, there’s no way. There’s no fucking way Stanley knows what a nuke rod is.” Titzy wasn’t listening. He was deep in his screens.
I picked up the heavy brown telephone and I pressed the button to my Eurodollar broker. I covered my mouth with my hand and I sold a ton of Eurodollar futures. I wasn’t betting on a disaster any longer, I was betting on rates going up. You shouldn’t do that. You shouldn’t flip your whole position on a feeling, on a whim. But I was 24 years old and I did it.
The nuclear plant never exploded. I made another $5 million on the way back up.
The best trading, you do it with your nose. It smells like stupidity.
Excerpted from the book THE TRADING GAME: A Confession by Gary Stevenson. Copyright © 2024 by Gary Stevenson. Published in the United States by Crown Currency, an imprint of Crown Publishing Group, a division of Penguin Random House LLC.
