DIXI
April 16, 2023 -Weekly note
I wasn’t going to write anything this weekend, but I made a few notes, and thought I would just put out a couple of abbreviated bullet points.
However, I got a call Friday afternoon from a friend from the old CME floor who informed me that James Dean passed away (acronym DIXI). His obituary, linked below, has this brief line:
Jim became a member of the Chicago Mercantile Exchange in 1977 and was a legendary trader in the Euro Dollar pit.
So, I am just noting a couple of brief market points and then add a little story about DIXI. Maybe it’s fitting that he passed at the same time the Eurodollar contract did.
Yields backed up significantly this week despite good inflation data. YOY CPI was 5.0% from 6.0% the previous month. Core was still 5.6%, but PPI was 2.7% yoy from 4.6% last. Auctions and a generally weak USD appeared to weigh on treasuries, with tens up 19 bps on the week to 3.517%. The safe haven bid from last month’s banking failures reversed as many officials downplayed risks to deposits and to the banking system in general. However, KRE, the regional banking ETF is reflecting a different story.
As Bluto Blutarsky says in Animal House, “Did you say ‘over’? Nothing is over until we decide it is…” Just because issues are transferred to the FHLB, doesn’t mean the system is in the pink of health.
A tweet from Charlie Bilello:
US Asking Rents are lower than they were a year ago, the first YoY decline since March 2020.
https://twitter.com/charliebilello/status/1646867406306922497
WASHINGTON, April 15 (Reuters) – U.S. Treasury Secretary Janet Yellen said banks are likely to become more cautious and may tighten lending further in the wake of recent bank failures, possibly negating the need for further Federal Reserve interest rate hikes.
Are hikes over? FFK3 traded as low as 9497 on Friday, before settling 9498.5. I calculate 9494.6 as the final FFK price on a 25 bp hike on May 3. Obviously the market still thinks a 25 bp hike is on the way, leaning more toward Waller than Goolsbee and Yellen. In any case, FFF4 settled at 9551.5 or 4.485%, projecting eases into the end of this year.
VIX ended the week at the low of this calendar year 17.07, while MOVE is back to levels from January at 118.8, having surged to 198 in March.
DIXI
I was working on the floor of the CME for Commerzbank at the time as a desk broker. My booth was on the aisle right in front of the pit, in what we used to call the 3rd and 4th options. Desk booths tiered up from either side of the pit, like stadium seating. The first 4 quarterly contracts at that time comprised the bulk of the Eurodollar complex.
Let’s say it’s December 1997. The first contract would be March of 1998. That “front contract” had its own pit. The next contract would be June 1998, and that too, had its own part of the pit. In actuality, the Eurodollar pit was pretty much a huge rectangle, with a section on one end for the first contract, then the next contract, then the next two (the 3rd and 4th options) and then everything else further out… the back months, reds, greens, blues, etc. The back month contracts were physically built up; tiered higher, which allowed for sight lines to the desks and to the other contracts. The 3rd and 4th contracts were also tiered just slightly higher than the front two contracts. At every juncture of the pit locations, spread clerks would stand. Everything was about sight lines and location.
Anyway, this was the period of 1998 and 1999, in a rate hike environment. I will go into details about the economic landscape at another time, but for now I just want to mention a particular trader, Jim Dean, whose acronym was DIXI. He was a sizable trader. He would trade both in the pit, and occasionally would walk out of the pit and start flashing orders in; I mostly just saw him spreading the first four quarterlies.
At the time I would guess that he was late forties, perhaps slightly older. If you saw him on the street, you might mistake him for…hmmm, for what? Just an ordinary Joe. Slender, average height, wire rim glasses. As a rule, his pants were always just a bit too short. Wore track shoes. But what set this guy apart in terms of appearance was his hair, always meticulously in place, and in the restroom he was very careful about neatly combing his sandy hair before he left. And indeed, he was one of those guys that would pull out his comb anywhere on the floor if he felt something was out of place. Here’s the picture: track shoes, flood-length khakis, some sort of non-descript plaid shirt under his trading jacket, not a hair out of place. Go figure.
Anyway, at the time he was trading in 500 lot to 2000 lot clips, or at least that’s what I saw. Those were large orders. We were in the midst of a Fed that was tightening. At the time (and of course it still happens now, in the current environment) a particular contract would gap down several ticks, and these were full basis points. So it might be 44 bid, trade a couple of hundred at 43 and then just go offered at 42 without much trade. Remember, this was before the advent of electronic trading. Things were much ‘gappier’ then.
So, DIXI used to stand in the pit, and then might come out and stand right by me at my desk, as you could easily flash orders to all four contracts from that location.
Now, the other somewhat eccentric thing about DIXI was that he had a calculator, one of those little hand-held ones with the solar panel in the corner, and he would take it out of his trading jacket pocket every now and then to either sum his position or do some other type of calculation. He would actually take it out of his pocket and raise it over his head toward the ceiling, I guess to capture the floor lights to power it. It was almost like a comical religious gesture, ridiculously lifting this calculator towards the lights.
He was standing next to me one day in a fairly active market. He had just been trading in the pit and was now standing outside to trade more. As I said, the third and fourth option pit was slightly elevated, so a trader standing in the pit couldn’t see DIXI, but of course the clerks on the perimeter could. Remember, there are hundreds of people in the euro$ complex. And if a pit filling broker like Mike Murphy (MMF) was getting an order to sell 2000, the pit wouldn’t instantly know that was DIXI, it could have come off a desk for Goldman or Citi, etc. If the pit immediately knows it’s DIXI, it’s not the same as if huge orders are coming off the Goldman desk, because Goldman might KNOW SOMETHING. So, here’s DIXI standing next to me, the pit clerk is indicating that 44’s are trading in EDU, DIXI flashes an order to sell 2000, he immediately gets some type of partial fill, maybe 300 and moves his order down to 43, while flashing other orders into the March pit (bidding); sells another 400 or so in Sept, and then moves down to 42 and gets filled on the balance and flashes in to sell another 2000 at 42, which then goes immediately offered and starts trading 41. The pit clerks are noticeably flustered because they’re trying to make sure of the count/prices. And he just looks at me and says, “I don’t want to even give them a chance to breathe.”
So here’s a guy that probably made $200k in those few minutes, pulling out his calculator and holding it towards the fluorescent lights to make his calculations, with his perfectly combed hair and short pants, and I’m thinking, hey DIXI, how about spending $5 and just buy a f-cking calculator with a battery. Yes. He was a legend.
| 4/6/2023 | 4/14/2023 | chg | ||
| UST 2Y | 382.1 | 409.0 | 26.9 | |
| UST 5Y | 336.2 | 360.4 | 24.2 | |
| UST 10Y | 332.5 | 351.7 | 19.2 | |
| UST 30Y | 354.5 | 373.6 | 19.1 | |
| GERM 2Y | 255.4 | 288.1 | 32.7 | |
| GERM 10Y | 218.3 | 244.0 | 25.7 | |
| JPN 30Y | 130.0 | 130.0 | 0.0 | |
| CHINA 10Y | 286.4 | 283.0 | -3.4 | |
| SOFR M3/M4 | -158.5 | -148.0 | 10.5 | |
| SOFR M4/M5 | -53.0 | -56.5 | -3.5 | |
| SOFR M5/M6 | 1.5 | -2.0 | -3.5 | |
| EUR | 109.22 | 109.97 | 0.75 | |
| CRUDE (CLK3) | 80.70 | 82.43 | 1.73 | |
| SPX | 4105.02 | 4137.64 | 32.62 | 0.8% |
| VIX | 18.40 | 17.07 | -1.33 | |
