Traders don't speak to the press. When I worked on the floor of a major investment bank, I learned to recognise journalists' numbers when they flashed up on the telephone.
I would signal to my secretary to pick up the line and turn back to my Bloomberg terminal, irritated by even such a minor distraction from
the markets. The journalists would then call the next trader on their list, then the next, until finally someone - miles away from the heart of the story at a tinpot bank in Vienna or Milan - gave them a quotation they could use.
I would occasionally run into these reporters at conferences. Drinking with other traders at the hotel bar, I'd watch the journalists sidle up to us, hoping to pick up the inside line on the latest big trade. We would huddle closer and lower our voices. This is why the financial press is so often reduced to insinuation and hearsay.
The world of high finance deals in secrets. Whether it's plotting a hostile takeover or spotting an undervalued stock, traders tend to want people to know of their success after the fact, if at all. Many of the sources you see quoted in the financial press are either from smaller firms looking for free advertising, or research analysts at larger banks who, with compliance firewalls limiting the interaction they have with traders, are now little more than PR flunkies, far away from the financial coalface.
To give New Statesman readers a more horse's-mouth preview of 2011, I called in a favour with a senior trader at a leading European bank - a veteran of more than 25 years' experience who was one of the few to make it through the financial crisis smelling of roses. I wanted to provide a view of the markets from the sort of person you don't usually hear from in the press: one of those whose trades will decide if this year will be remembered as Mayfair or Old Kent Road in the great market Monopoly game.
Q: Equity markets finished 2010 with a bang. Does this mean we're out of the woods?
A: Very, very clearly not. There are numerous pitfalls that could derail the recovery. Companies and consumers are in pretty good shape and will drive performance in the near term, but the banks and government balance sheets are a mess.
Q: So, a double-dip scenario?
A: It's not as simple as that. You get all these ridiculous shapes - "L-shaped", "hockey-stick", "W-shaped". I think it's likely to look like a very long, jagged "W" for several years, which is to say that we will have a painful and volatile recovery that could last a decade.
Q: What did we learn from 2010?
A: At least at the end of 2008, we knew more than we did at the start of the year: banks and consumers were over-leveraged; the markets were far more closely linked than people had thought; perpetual growth was a myth. But 2010 has just raised more questions.
Q: What keeps you awake at night?
A: The break-up of the euro. The unaddressed issues on bank balance sheets. Commercial property in the UK. Spain.
Q: Which of the sovereign debts will be the next to go?
A: Portugal is the obvious one to follow in the footsteps of Ireland, but it doesn't have the same problems with its banks as Ireland. The elephant in the room is Spain. There are fundamental issues within the Spanish financial industry that get swept aside because the two biggest banks [Santander and BBVA] are in good shape. The cajas [local savings banks] are going to bring Spain down. They made loans to developers who built a huge amount of property they couldn't sell. The developers went bust; the cajas own the property but don't hold it at market value in their balance sheets. It's a nightmare and eventually it will have to be addressed.
When the EU says it's able to support Spain, it doesn't take into account the black hole that sits underneath the cajas. It is how Spain and the EU deal with this that will decide if the euro survives or if we slide into the abyss.
Cash is king
Q: What trade do you wish you'd done in 2010?
A: The obvious one is gold, but actually the best trade was buying what everyone was still trying to get rid of - ABS [asset-backed securities]. There were a bunch of funds set up in late 2009 to buy AAA-rated mortgage bonds and they made practically risk-free returns of 30-40 per cent. I couldn't do it. The bank had lost so much on these things in 2008 that it wasn't even worth discussing - politically unacceptable.
Q: What will be the best trade of 2011?
A: Buying sovereign debt. I'll be buying cash bonds in short-dated maturities issued by Portugal, Ireland and Greece. Everyone else is selling still, and the returns are amazing for what is basically German and French risk. Portugal is the raciest, because if Spain does go down, it will be massively hit.
A more off-the-run trade is buying up Spanish property. The cajas won't sell you foreclosed property at the clearing price, but they will sell it at the price they hold it on their books and give you a 98 per cent, non-recourse mortgage at close to nought per cent interest. It means you put down a couple of grand and, if my nightmare scenario doesn't play out and Spanish property recovers, you make a fortune.
Q: A final message for New Statesman readers?
A: Warren Buffett got it right: "Be fearful when others are greedy, and greedy when others
Alex Preston's column appears fortnightly. His novel "This Bleeding City" is newly published in paperback (Faber & Faber, £7.99)