Hoodoo Child (Negative Return)

“Well I’m a Hoodoo chile,
Lord I’m hoodoo chile”

A “Hoodoo” in Wall Street’s folklore is a trader characterized by his/her excessive “bad luck”. A Hoodoo has what we call at TLofT the “Gift” or the ability to buy at the top and sell at the bottom.

I’ve to confess something to you, Fellow Traders: I lied to you in my previous post. I’ve been eaten alive by remorse and have not been able to sleep since, well actually I spent at least 15 minutes before I managed to feel asleep despite reading for the thousandth time “The Alchemy of Finance” (don’t worry, I still can’t understand it). In my previous post, I told you that I had a gut feeling that things will go really bad for Japan. False, it was not really a gut feeling, I used one of the most powerful indicator that I know: the Hoodoo.

According to Victor Niederhoffer’s “Education of a Speculator", a Hoodoo’s bad luck is highly contagious and one needs to run away from him/her as fast as possible to avoid to be personally hit by a financial disaster. While it is probably the highest of the risk I take in my trading, I like to play with fire and happen to be in contact with Hoodoos trying to profit myself from their Gift and hoping that I won’t be contaminated.

I met my first Hoodoo almost 10 years ago, while I was a young trader running the “Orc race” with Investment Banks and absolutely no idea about the Hoodoo concept. As my Master trader and his padawan (myself) were about to trade the hedge of an interest rate position, a Senior Prop trader from NY, in Paris for the day, came and ordered : "Wait this afternoon before hedging your position, the FED will speak" then left. The FED talked later but inevitably said the very opposite of what he said and the loss for not hedging was quite consequent. Well, it happens to be wrong and that doesn't make you a hoodoo so far but years after I found more about this guy: historically, ALL the desks he worked with collapsed when he was there. That's a signal that rings (I should write "sings") "Hoodoo, Hoodoo chile…". That story also shows that in the investment bank world, one can be a Hoodoo, lead on a regular basis to financial disasters and lose constantly money and have a senior position and accountabilities within the bank...

I've been told about a Hoodoo legend, a senior Forex trader. The old chap was losing money so constantly and trading the wrong side of a deal so systematically that he became a legend in his bank. He was so "Gifted" that he was well known and the matter of endless jokes even among the support functions of the bank: middle offices, IT, back offices,... But one day, he surprised the whole bank with a huge winner, finally! And all those guys joking at him in his back (of course he wasn’t aware of his legend status), stood the mouth wide open, amazed and just couldn't believe it. Well, actually they were right not to believe it… The trader actually had the wrong position as usual but what happened was pretty rare: his back-office confirmed mistakenly the other side of the position and the back office of his counterpart did a mistake as well and confirmed the wrong side too, so at the end the tickets matched and the deal was booked on the wrong side for the both counterparts… "Hoodoo, Hoodoo chile…"

During the past few years, I’ve met loads of Hoodoo candidates. The thing is guys who got a front office position in an investment bank after years of high education, years of slavery in internships and training programmes at the very precise moment the banking system went to the brink of a collapse clearly demonstrate a high Hoodoo potential… One of those guys is to me a confirmed Hoodoo: he had his personal record of being involved in companies he was working with that bankrupted, purchasing shares or assets at the top when he joined the front office in the booming business of CDOs. The CDO desk hadn’t known one single negative month since its inception, it hadn’t seen a positive one since he joined… In 2007 when he joined, the traders received record bonuses (to date) rewarding the previous year, since they (well, he at least) have received zero or so… So no doubt on the Hoodoo status of the guy… You know the song…

The thing is that guy recently moved to Japan. Our first reaction along with a few fellow traders also aware about his Gift was immediate: “We must short Japan” and that explains what I referred to as a “gut feeling”. Lately, in order to remove the bias on that conclusion, I’ve been re-thinking the interpretation we did about the move to Japan of our local Hoodoo. Maybe it doesn’t mean that the Japanese Economy will slump and Japan will be pushed in a double dip recession. It can alternatively mean that the Yen will dive: our Hoodoo is now paid in Yen.

Unfortunately, the Hoodoo indicator in that case doesn’t give us any clue what side we should trade. We need to do our homework to find out and monitor the situation in Japan very closely as a big move is likely to be there: you’ll see, the Gift is just the most reliable indicator ever.

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