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KEVIN MUIR: So we had taken that stock, and it had gone from $210 down to $180, and then it had gone down to $160, and then we put it back into the index at, like, $220.
I like to divide MMT up into two things. One is the descriptive nature about how economies and how markets work, and one is the prescriptive kind of conclusion about what you should do based upon that.
If you look at the people who are really big MMT kind of proponents, like on the market side, they're often guys that come from the plumbing.
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TONY GREER: Hi, this is Tony Greer of TG Macro. I'm here to talk to my good friend Kevin Muir, strategist at East West Investment Management and author of the infamous Macro Tourist blog. We're going to talk about how he got his start in the markets, how he became such a great Fed watcher, his opinion on modern monetary theory, and what's cooking in Canada. Let's get started.
So I'm excited for this conversation with my good friend, Kevin Muir. Kevin has been an equity derivatives trader at the Royal Bank of Canada, he is currently a market strategist at East West Investment Management in Canada, and he is the author of The Macro Tourist global economic blog. Kevin, thank you for coming down from Canada to do this interview with me.
KEVIN MUIR: It's great. I've been looking forward to it for a long time, Tony.
TONY GREER: Yeah, man. You know, right on your Macro Tourist blog, it says, "all I bring to the party is 25 years of my mistakes."
KEVIN MUIR: Yeah, 25 years of mistakes. That's all I bring to the party.
TONY GREER: And as a student of the market, I really, really appreciate that angle of opening up to the markets and showing people what you've learned from your mistakes, because those are the best lessons for traders, right?
KEVIN MUIR: For sure. Some of the greatest traders out there, like Stanley Druckenmiller, he talks often about his mistakes in the '99, how he went and got long the tech stocks into the dotcom crash and stuff. And if you're not honest with those mistakes, you'll never learn. And anybody who tells you they never made any mistakes, you shouldn't listen to them.
TONY GREER: Exactly, exactly. So where did you get started in the markets? Let's just start right at the beginning. What was your inspiration?
KEVIN MUIR: Well, so I grew up in a household where my father was a research director for kind of an equity shop in Canada. So I grew up listening to a lot of stock market talk at the table. And when you combine that with my love of games-- like, even from the time I was a little kid, I would come up and want to play games, and games, and games.
I kind of always knew that I wanted to be a trader. My mom wanted me to be a lawyer or a doctor, and so I was a disappointment because I went off and followed in my father's footsteps in the capital markets.
TONY GREER: That is amazing. It was the same exact thing with me, where, purely, my father was an over-the-counter trader in equities for 30 years. And it was just dinner table conversation that made its way into your blood.
KEVIN MUIR: Right.
TONY GREER: Right? And so when I got out of school, I was just determined to get a job on a trading desk. What was your first practical application in the markets?
KEVIN MUIR: So I actually got a job, just like you. I didn't even finish school to be truthful. I was at University of Toronto, and I started to get a job at a discount stockbrokers division. And next thing I knew, I was the manager of that, and I was rearranging my school so I'd go at night.
And then I actually had a brief stint where I tried Chicago. I went and I decided I wanted to be kind of an open outcry trader. And I realized that wasn't for me. And I came back to Canada and I kind of put together all my skills, and I realized that what I really wanted to do was work on an institutional equity desk.
So I applied, and I was lucky enough to get a job at RBC Dominion Securities on the institutional equity desk, even before I'd finished my degree. I eventually got it at night. So for anybody-- kids, if you're listening, make sure you finish your degree. But I did get it--
TONY GREER: He's an educated man, that's for sure.
KEVIN MUIR: That's right. I did get it at night. But I was lucky enough to get a job in the early '90s at RBC Dominion Securities. And RBC was just a magical place. It was terrific. I got to sit with some really smart traders that I got to learn from. And it was unbelievable-- great learning experience.
What was really good about RBC was that they let you go with it. They didn't care if you were young. They didn't care if you had new ideas. If they thought you could make money, they gave you responsibility. And so before long, even though I was young, I was handling all the risk for the equity derivative book.
And so I did that in the '90s. And then in late '99, my wife got pregnant, and then we had our first daughter. And she was born with a heart defect. And it was kind of-- it was fixed at birth. And it was a very emotional time for me.
And I realized-- I kind of had one of those moments where I realized what was important in life. And even though I loved RBC, it was kind of a-- I'd hit this point where I kind of question what I wanted to do. And I decided that I was going to take some time off and think about it. So I quit.
And I quit to spend some time with the family. And while I was thinking about what I was going to do, I decided I'd start trading my own account. And I figured, you know what, if I trade my own account for a year, I can always go get a job somewhere else. Well, 1 year turned into 2, and 2, years turned into 5. And then the next thing you know, I'd gone 20 years, basically, just trading my own account. And my daughter was off to university, and I realized that I hadn't had a real job in a long time.
So I reached out to one of my friends at East West Investment Management that was my competitor at CIBC. And he was kind enough to take me in. And it's been great kind of getting back into the swing of things there.
TONY GREER: What type of fund is East West Management?
KEVIN MUIR: So we're a portfolio manager. It's kind of a family office that's-- we also kind of advise high-net-worth individuals and families. And it's a lot of that. And it's been terrific in terms of expanding my-- kind of getting out there and listening to different pitches from different fund managers has been a wonderful experience and something that I really enjoy, actually, just listening to the different ideas. I've never kind of had any idea of all the different ways that you can make money in different kinds of funds out there. So it's been fascinating.
TONY GREER: Well, clearly, you found a couple of the ways if you were working for yourself for 20 years.
I think it's really interesting that you said you didn't really like open outcry, and then you wound up evolving into having essentially the job of a local trader, where you're trading your own money on your own for a long time.
KEVIN MUIR: That's correct.
TONY GREER: Obviously you were very astute at that, and able to make it through and continue being successful. I feel like we both came from the early '90s, what I call the Renaissance age of interdealer banking trading, right?
And I'm open and honest with everybody, and I miss breaking phones. I really do. That's one part about the newsletter business that I don't get to do often. And that was like sort of the release, like a big play on a sports field or something like that. Have you got any good phone-breaking stories from those days?
KEVIN MUIR: Do you know what's interesting? You say that you like breaking phones. And that was actually the genesis of why I started writing The Macro Tourist letter, was because people used to ask me, what do you miss not sitting on an institutional desk? And to me, I didn't break any phones, but I miss the camaraderie, and the betting, and the gambling, and kind of being around and hearing the trading talk. And so I miss that.
And then people ask me, what else do you miss? And I said, well, when I was at RBC, and I was kind of trading for our book, we would trade size, and I would be setting prices. And so someone would say, we're going up on a couple million of something, do you want to buy something? And I'd say, yeah, I'll buy $250,000 or $500,000.
And then when I went and started trading for myself, people used to phone me up thinking I was a real shooter. And they'd be like, we're going up on a couple million, do you want to buy any? And I said, well, I'll take $10,000, but I understand if you don't want to write the ticket. You know, because I--
So I missed that. And that was one of the reasons that I kind of got out and started writing the letter, was to kind of talk to people and to kind of put something out there so that I could meet wonderful people like you. And it was terrific that way.
And so now, in terms of remembering back to a story, we were the market maker for what were known as tips. And tips are not Treasury inflation-protected securities in Canada. They were actually the Toronto 35 index participation units. And in being the market maker, we were obliged to always provide markets-- post bids and offers out on the exchange. But we were also obligated to fill the trust-- the trust that owned the underlying index with the index rebalances.
So that means if something was going into the index, we had to sell it to them and short it to them at the close. And then if something was coming out, we had to buy it at the close. And so anyways, so going to the index rebalance, we were obligated to go in, take in, like, five stocks that were coming out of the index. We were supposed to buy these millions of shares, and then short the stocks that were going out.
And this was in early 2000. And what happened was-- I don't know if you remember, but the market didn't top nicely. It didn't just go straight up and then go straight down. And this was in-- I believe it was March. And I went back and looked at the chart, and I realized that between the March, there was a two-week period where the NASDAQ went down 15% in a week.
So it was one of these days when I got up and we had to do this rebalance at this time. And one of the trades that I had to do was I was going to be long-- or short. We were putting the BlackBerry in Motion-- Research in Motion into the index. And I was going to be short like two or three million shares of BlackBerry at the closing price. And BlackBerry was trading at like $200, and it was a big-momentum stock, and it was lots of volatility.
And I woke up on the day of the rebalance, and what had happened was the market had gapped down. So it was like the first really bad day that we'd experienced in a while. And the market gapped down. And Research in Motion was down $35, like from $210 to whatever.
TONY GREER: Yeah, 15%.
KEVIN MUIR: Yeah. And all of a sudden, we're trading along, and I'm trying to buy some, and I hear, over the hoot-and-holler system, I hear a client wants to bid on 50 Research in Motion, BlackBerry. And I say, OK, well, the market was like, let's say, $180 to $182. And I thought, I'll bid $178 and then he'll come back at $180, and we'll go back and forth, and it'll be like that.
So I said, $178, bid your 50. And all of a sudden, he said, sold. And I was like, holy smokes. And I think I lost like $2,000 on the way down. So I printed the remaining 48, and I'm long at this price. And I'm like, what am I going to do? This stock's gone no-bid, and there's just like-- the market keeps crapping out, and I'm all of a sudden going, you know, I know we're putting this into the index later, but right now the thing looks like it just has no bid at all.
And so all of a sudden, I'm kind of trying to trade out of it. And next thing I know I'm offside like $3.00, and $4.00, $5.00. And the sales guy on the other side says, my client wants to know if your client has any more to buy. And I said to him, client?
TONY GREER: I am the client.
KEVIN MUIR: Yeah, I'm like, client? That was me. And he says, oh. And then I said, well, who's your client? And there was a pause, and he said Cap. And I looked at my buddy, and I said, who's Cap? And I had no idea who Cap was. And it was Capital-- it was a big, big client. And what these guys were notorious for was, when they started selling, they sold, and sold, and sold, and sold.
And so it was like kind of like Fidelity. When they started coming for-- when they put in an order, it lasted weeks. So my buddy, my best friend looks at me and he says, you're screwed. And I just had this complete shed of panic. I was offside, and all I could imagine was him continuing to sell and the market continuing to go down, down, down, down.
TONY GREER: My hands are sweating already, by the way. I know what that feels like.
KEVIN MUIR: Well, what happened was, though, the market started to turn. And I kept trading it around. I kept trying to make a dollar and here and there, and kind of kept getting long. And I eventually bought another 50 from him, and another 50, and another 50. And by the end of the day, it was one of those emotional rallies. Like, you know when the market-- it was down all morning, and everybody has sold, and then all of a sudden the bids come at the end of the day, and it just starts rifling up? Well, that happened. And then, not only that, everyone that had to rebalance had to buy Research in Motion.
So we had taken that stock, and it had gone from $210 down to $180, and then it had gone down to $160, and then we put it back into the index at, like, $220.
TONY GREER: Total reversal.
KEVIN MUIR: Total reversal. And we did it on size. And it was one of our best days. And it was scary, and it was fun, but it was definitely one of those kind of moments you never forget.
TONY GREER: Yes, exactly. You just took the words out of my mouth. You never forget when you engineer into and out of a situation like that. Because like I said, I can feel the pressure that you were under from you telling the story, from being an interdealer-- a banker and liquidity provider. And it's kind of those things, as your money starts sliding away from you, you start calculating different sets of consequences and what you're going to do about it.
KEVIN MUIR: Right.
TONY GREER: So that's the part that makes your heart pound. These experiences are not likely to happen again in the same format. Because I feel like the market has changed so much. The structure of the market has changed. And I guess the way we participate in markets has changed.
What sort of advice would you give to a young person that's coming into the markets that just wants to get a job in trading like we did? And by the way, just to confess, I tell all the young kids that I speak to about this that they should start reading The Macro Tourist blog.
KEVIN MUIR: Oh, that's very kind of you.
TONY GREER: No, absolutely.
KEVIN MUIR: So yeah, it's tough. Goldman Sachs, I think, at one point had 200 equity traders, and I think they're down to 2.
TONY GREER: Yeah.
KEVIN MUIR: And so it's-- I always tell the kids that you better really, really want to be a trader. Because the reality is there's all sorts of old guys like us that are sitting there on the desks still, and you're competing against them.
But I do have some good advice for them-- or at least what I think is good advice. So a couple of things-- I tell the story about how I got my job. And when I came back from Chicago and I wanted to get a job on an equity desk, I looked at the kind of 5 big firms that I wanted to work for. And I found out the head trader's name, and I sent off resumes.
And then my dad said, well, now you're going to follow up with a phone call, right? Because you can't just send off a resume. So I followed up with a phone call. So I get up one morning, and I'm going to school at this point, so I pick out a time at 11 o'clock when I figure he's not going to be too busy, and I phone up the first fellow.
And I somehow get patched through to the guy, and all of sudden, he realizes what I'm doing, that I'm some kid that's trying to get a job. And he yells at me. He yells at me, and I just like-- he tells me basically to go pound sand. And I am heartbroken.
So I kind of put down the phone, and I stop. And I come back, and I kind of-- walking around with my head down. And my father comes home that night and says, well-- he phones me up and he says, well, how did it go? And I said, well, not good. The first guy yelled at me. And he said, oh-- and he laughs about it. He thinks that's funny.
And he says, how did the second one go? And I said, what do you mean? I didn't do the second one. These guys obviously don't want to hear from me. And he said, no, no, you're going to get on the phone and you're going to phone these guys. And that's the kind of lesson that I have to everybody, is that you can't give up and you have to realize that it's going to be tough slugging. And people are going to yell at you, and people are going to say, I'm not interested.
But I had a fellow that's actually kind of a notorious-- or I shouldn't say, maybe, notorious-- very well-known figure in the