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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