(5 of 5)
Traders insist that speculation is not the driving force in the dollar's decline. But some concede that it is, at least, not insignificant. James Sinclair, partner in the New York money-brokerage firm named after him, estimates that individual speculation accounts for 18% to 20% of total currency trading. In Western Europe, he says, "it is the fashionable thing to do. The profits I've seen are almost obscene. I could tell you about a guy sitting across this desk in February who then had only $1,600 and only about two weeks ago sold $1 million. He is a nut; he carries more contracts than he can afford, especially naked shorts." Translation: the speculator has sold dollars he does not own, hoping to buy them back at a profit, any cambists try to dampen the speculation. Senior traders generally limit how many dollars a subordinate can handle each day and tell the young cambists to refuse any orders from clients who have not established a line of credit. Their own motivation, they say, is simply to get the best deal for their clients.
In relaxed moments, however, some cambists go on to describe how one could manipulate the market if one wanted to do so. Primary technique: sell when the markets are quiet — early in the morning, or during the lunch hour, or best of all on Friday afternoon, when most cambists have closed their books and are starting to go home. An order then to sell, say, $40 million — only fair-sized by today's standards — can cause the market to drop sharply, since nobody is around to buy much. The exchange rate will plummet. Then a thousand other cambists will worry: "What does the seller know that I don't know?" and stampede to sell. Rates will plunge further, and the original seller can buy back the dollars at a handsome profit. Warning: if some unforeseen development causes the dollar to take off on one of its occasional brief upward flights, the cambist and his clients will take a bath.
In the end, the cambists function less as market makers than as weather vanes, registering every slightest change in international sentiment on how the dollar is going. They point out that they have no vested interest in seeing the dollar sink; they could make quite as much money for themselves and their clients riding the dollar up. But they have no faith at all that the U.S. will take the hard decisions needed to bring American inflation down to reasonable rates. They are waiting for President Carter to announce his Stage Two anti-inflation program, with a predisposition to believe it will be a ball of fluff, inducing their clients to sell more dollars than ever out of disappointment. Over to you, Jimmy.