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Foreign Exchange

Lee Oliver's Christmas quiz

As it’s nearly Christmas or, if you want me to be unusually politically correct, the ‘holiday season’, I thought I’d run a little competition.

Blowing my own trumpet

This is the last column I write in 2006 and I thought I’d lead off with a great e-mail I received from a Danish reader last week.

“I enjoy your column very much, since you display a wonderful cynicism and scepticism about market talk and rumours. I share those sentiments very much, but then I have also been in this market far too long (22 years),” he wrote.

I have to say that most of us are swift to provide negative feedback. Luckily perhaps, this has not been the case with the Weekly FiX. Sure, there’s been the odd moan and groan, but generally the response has been good.

My Danish reader went on to suggest a plausible explanation of why the dollar weakened from mid-November.

“It seems that it was local intervention in Korea (KRW) and Singapore (SGD) which started it all. When they were done buying USD against their local currencies, the two central banks naturally needed to rebalance their reserves, where their dollar holdings now exceeded the desired percentage. So they went into the market and bought euro versus the dollar and sold dollars against the yen... the sight of Asian central banks selling dollars at those levels panicked people... It is probably not the entire truth, but it is the best explanation I have come across so far. Thank you again for a great column.”

It is me who should be doing the thanking. Feedback (positive or negative) is always welcome, so please keep it coming.

Remembering Roy Bridge

On Monday evening, I went along to the RAO Bridge memorial lecture. This year the event coincided with the 50th anniversary of ACI UK, which many of us still refer to as the Forex Association. The event was far better attended than I thought it would be, a nice mark of respect for Roy Bridge.

Roy was instrumental in setting up the UK Forex Association back in 1956 and he, with others of course, played a key role in shaping the FX market’s development. I may be biased, but it’s hard to see an example of a better market than the largely self-regulated FX industry; the soft and clever guidance over the years of officials such as Roy are undoubtedly a major reason why.

This year’s lecture was delivered by Paul Tucker, executive director of markets at the Bank of England. As most of you know, Paul is also a member of the Old Lady’s monetary policy committee (MPC) and I have to say his speech was very good. I’m not going to rewrite it and pretend its journalism. A copy of it is available on the Bank’s website and it is well worth reading for the insight it sheds on some of the factors influencing the MPC in its rate setting.

Naturally, I do have a couple of gripes. The first is that the wine was not that great and after six glasses, I was starting to get fed up with it. The second is something I have alluded to before. Although well-attended, I was actually one of the youngest ACI members present. This is a real shame. When I joined the market, my boss Ron Smith-Galer, the man apparently behind the revolutionary YoursMineShag trading platform, made me join the Forex Association and then to go to all its meetings. His reasoning was that I would meet people of the same age and in the same position – desk jub – as me. These contacts, he said, would be useful as my career developed.

And he was right. Now though, there seems a school of thought that, with the FX market becoming increasingly electronic, there is no need to network. In my view, this is – to use the vernacular – a complete load of old bollocks. Today’s breed may not realise it yet, but it is still important to get out there and network. Many ACI branches outside the UK are still incredibly well supported. I don’t see why ACI UK should be any different. A small band of sponsors have continued to support the ACI, but it would be nice if the banks did what they used to and pay the subscriptions, get their staff to go to the meetings and put the weight behind a body that plays an important role in the industry.

Rant over.

Money making FX hedge funds

Now, before all those very important, big swinging Dicks working in hedge funds get all uppity, I’ve not got it in for you, OK? But you see, I’m a simple soul and I wonder how hard it would be to outperform many of these much-acclaimed  demi-gods.

Of course, there are many super-talented traders among the hedge-fund fraternity who make shed loads of money for their investors. But my bet is that there are many more drossy ones who got lucky at some stage in their career and who couldn’t even run a bath, let alone a hedge fund. Given their secrecy, there is little point me ringing up any of the funds I’ve heard rumours about and asking if they’ve done their cods (translation: lost a lot of money). They simply won’t tell me.

Fortunately, I don’t really have to. A company called Parker Global Strategies has been reporting on the performance of currency-only hedge fund managers since as far back as 1986. Parker produces an index of the performance of 80 programmes from 65 different companies in the US, Canada, UK, Ireland, Germany, France and Switzerland.

According to Parker, the funds it monitors have, when taken all together, actually underperformed its benchmark risk-free cash rate, based on the 90-day US T-bill, by 8 basis points this year. It seems investors would have been better off buying a 10-year bond and using the dividends to buy options – an extremely simple, structured strategy that would have protected the downside while, possibly, providing some upside potential, depending on the timing of when the options were taken out and which way round they were.

Even looking at their performance longer term is not overly impressive. From January 2000 to October 2006, the FX-only hedge funds monitored by Parker have made a return of just 54 basis points over the 90-day T-bill rate. Not that impressive really, is it?

Christmas quiz

As it’s nearly Christmas or, if you want me to be unusually politically correct, the ‘holiday season’, I thought I’d run a little competition. I have set 10 questions, the answers to which can be found in the copy I have produced for Euromoney in 2006First prize is lunch with yours truly – or, if you prefer, lunch without me. I will award double points for anyone who answers correctly a question about the institution they work for.

1. Name the only bank with the confidence to admit, on the record, that it pre-empted its clients’ orders?

2. Who was the highest profile individual loser to get plucked and stuffed by Turkey?

3. Name the bank that is still, apparently, sulking after I labelled it as “transparently stupid”.

4. Who made the now infamous claim that the dealing room of the future would contain just a computer, a man and a dog?

5. Which airline sold me a seat better suited to Heather Mills than Mr Angry?

6. “If the management couldn’t see what was going on, they must have had shit for brains.” Which bank is this perceptive and very experienced trader referring to?

7. What was the first job of the man apparently behind the revolutionary new trading platform, YoursMineShag?

8. Who promised to sort out Ruby Wax at this year’s Euromoney FX poll dinner, and where does he work?

9. How many global FX heads has Merrill Lynch actually had in the last decade?

10. Who is the FX market’s highest climbing participant (probably)?

Send your answers to me at fx@euromoney.com

  The winner is announced in my first column of 2007.


The Weekly FiX: What's going on in the world of FX this week? Get your FiX to find out.       

  Lee's biography   

  Lee Oliver can be contacted at fx@euromoney.com.           


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