Preview the NEW
Hedging Stress

Cigars Ease the Tension for the Big Dogs on Chicago's Futures Exchanges

The Treasury bond pit at the Chicago Board of Trade is particularly active very early one Wednesday morning in February. Alan Greenspan, the chairman of the Federal Reserve Board, has just finished telling Congress that the Fed might raise interest rates in a preemptive strike against inflation.

A few doors down from the Board of Trade (CBOT), Tom Baldwin has his eyes glued to the screen of a video monitor that keeps track of T-bond prices. "The market's crashing," he says at 9 a.m. as small rectangles of cathode-ray green flash at him, indicating that the market is making a big move. "It's dropped a point and a half in a minute. That's a lot. That would be the equivalent of the Dow dropping a hundred points in five minutes. That would be huge. A million dollars. [Greenspan] must have been very bearish," Baldwin adds, not knowing or much caring what the Fed chairman specifically said. Baldwin, like most pit traders, really cares only how the market is moving. "Wow. It's going straight down."

Lucien Thomas Baldwin III, who goes by the acronym "BAL" that he wears on the badge pinned to his purple trading jacket, occupies the top rung on the volatile, high-stress ladder of trading in the Treasury-bond pit of the CBOT. He became the biggest in the world by withstanding the slings and arrows of outrageous fortunes being made or lost in seconds. Not that there is an official ranking of this kind of thing, but Baldwin's exposure on any given day is in the neighborhood of $5 million. Fellow traders call Baldwin "The King."

"Right now, I don't have a position [in the market]. I'm sort of glad I'm not there," Baldwin says, unconvincingly for a man who started with $20,000 in 1982 and has been known to trade as many as 60,000 contracts a day with a total face value of $6 billion. "When there's a big move like this where it just goes one way for a long run, somewhere in there you're gonna be on the other side of the order, but if it keeps going like this, you lose money."

Baldwin knows all this from personal experience. "I've made $2 million in a day, but I've lost $5 million in a day," Baldwin says. Five million dollars. Lost. One day.

On March 17, 1989, Baldwin, at the age of 41, started trading early. Here's how the Chicago Tribune later reported what happened:

The time: early morning, about 7:25 a.m. Within minutes, the government will release the latest producer price index figures, statistics that can send bond prices rollicking. Baldwin is bullish and has been buying T-bonds since the market opened at 7:20, believing bond prices are about to soar. The news hits. Nearly 500 bond traders and brokers erupt in a maelstrom of shouting and waving. Buying and selling. By now Baldwin has purchased a whopping 6,000 T-bond contracts. His market position is the equivalent of the annual budget of a Third World country. He controls a staggering $600 million worth of T-bonds. The market turns. And tanks. And keeps on tanking. Baldwin has guessed incorrectly. He furiously begins to reverse himself, closing out his positions. One after another. All 6,000 of them. By 7:45 it is over. The dust settles. Baldwin studies his trading card. He has lost $5 million without blinking.

Now worth "multimillions"--true to trader form, he won't tell how much money he has--Baldwin is able to look back at that day with little emotion. "The market went down, straight down for two points and there was no out. It was instantaneous and never came back," Baldwin now explains quite matter-of-factly, adding that most people view what he does as gambling. "Then you start over." Or you smoke a cigar.

"One afternoon Tom comes into the back office," recalls Joe Howe, the owner of Jack Schwartz Importers, a cigar store across the street from the CBOT. "He's kinda quiet and sits down here and lights a cigar and we're talking a little. He asks me if he can use the phone to check on his trades. He calls and then sits down again and says, 'Well, when I came in I was down $800,000. Now I'm down only $200,000.' This was in about five minutes."

Fortunately for the traders who live and die by these riotous changes in fortune, the area around the three big futures exchanges that trade in Chicago has spawned a mini-industry that invites traders to relieve their stress. In the CBOT is Rubovits, a cigar store. Across the street from the CBOT is the Mercy Hospital Stress Analysis Program. But Jack Schwartz, next door to that, is the preferred sanctuary for many of the traders. Part of the reason is the interminable lighthearted abuse to which every customer is treated upon entering. The shop also boasts the "coldest [soda] pop in town" and free matches. But probably the biggest thing the smoke shop has to offer traders is a level of understanding that comes from having been there.

The manager of Jack Schwartz is Billy O'Hara. For 17 years, O'Hara, now 41, traded on the Chicago Board of Options Exchange. He left about two years ago and began working at the cigar store, a move that allowed him to stay close to his friends.

"I tripped over the trading business when I was 20 years old and was involved with it for about 19 years working for a brokerage house and trading for myself and learning the business," O'Hara says as he explains why he got out. "It's riskier today than it's ever been. If I'm 28 years old and I lose all my money, it's not gonna change my life at all. You know, I'm still eating pizza five nights a week. I don't have kids at 28! At 40 years old I have responsibilities and just don't want to take that risk anymore of waking up one day being a couple of hundred thousand dollars poorer [when you haven't taken] what you think is a lot of risk. And it happens," insists O'Hara, whose biggest loss was $80,000. "I saw people who lost all their money when they were 50 years old." O'Hara, who has three young children, adds, "You know, to just have a kid in college, I don't know if I could say to him, 'You have to come home. I just don't have the money to do it anymore.'"

On a day like that Wednesday in February, the traders appreciate the way they're treated. One walks by the store, looks in and shakes his head. He doesn't want to talk about it. On bad days, traders might get a Coke or a new cigar on the house.

"When it's a bad day, our job is to feel it and know we can't cross that line that you normally can cross with a person," O'Hara says. "We would never make fun of the day they had. We want them to come in the back room and we've had people come in here that just need to sit. 'Come on back here and we'll close the door.' We had a guy in here who worked across the street for 45 years as a member and he came back here and broke down. And the phones are ringing and he's crying and we're crying for him. You should have seen the place. It was like an encounter session. What's important now is this guy, because he's a friend of ours. Just got to the time where he decided he's had enough. He couldn't make it home so he came here."

Don't misunderstand, O'Hara says, things are not always so sad.

"What we like to provide is a friendship and a haven for people to come in and celebrate with us," O'Hara says. "I would say we sell more cigars for celebrating than we do on a bad day. [The traders] will just keep on walking on a bad day. They're down, they're sulking, and we understand that and we still say 'Hi' to them when they go by, but we won't make fun of them."

In his short career, Tom Baldwin has not given many people much cause to make fun of him. He has turned the profits from the pit into something of a conglomerate, even though he became a trader to avoid corporate life. In 1989, the Baldwin Development Co., along with ING Bank of the Netherlands and Chevron Oil Co., bought the historic Rookery building, built in 1888, on LaSalle Street, and renovated it. Baldwin Asset Management Co. manages the Rookery and other properties. MC Baldwin Financial operates managed futures funds. Baldwin has his own jet, which he uses mainly to get to and from his country house on Michigan's Upper Peninsula. He spent 70 days there last year.

The 50-room house, along with 19 other buildings, oversees 3.5 miles of lakefront along the shores of Lake Superior on 5,000 acres of wildlife sanctuary. The whole complex is a national landmark. Oh yeah, the house is made out of logs and has a price tag of $12 million. The first owner of the house was a successful American who came up with such quaint notions as branch banking and who helped create a little enterprise called General Motors. Buying the house led to Baldwin being the "other" bidder for the JFK humidor in last year's Jacqueline Kennedy Onassis auction at Sotheby's.

"The house was built in 1919 by a guy named Lewis Kauffman. I have his humidor from that era, so I really like humidors and I really was a fan of John F. Kennedy," says Baldwin, who bid in the auction from Chicago with the express intent of buying the humidor, a gift from comedian Milton Berle for JFK's inauguration. "So I kind of went with [the attitude] 'I didn't care what it cost.' I kinda, sort of thought it would cost about $150,000 because I'd heard Milton Berle was going to pay up to a hundred. So I thought, 'Well, screw him. If he thinks he's gonna buy it for a hundred, he's gonna have to pay a whole lot higher than that,'" Baldwin says with a laugh. He only told Joe Howe that he was going to bid six figures for the JFK humidor. Neither Howe nor Baldwin thought anyone else would bid that high. Of course, Marvin Shanken, the publisher of Cigar Aficionado, bid higher, and higher, and higher. Baldwin shakes his head. "And, you know, $510,000 is where I dropped out. So I was disappointed."

Howe calculates he could have saved one of the two final bidders a significant amount of money. "I'm pretty sure I'm the only one who knew that Tom was going to bid for the humidor," Howe says while tasting five different cigars downstairs at Chicago's Havana Café Cubano. "If I had known that Marvin was going to go that high, I would have put together a conference call with Tom to work out a compromise and maybe they would have given me a commission."

Baldwin began smoking cigars more than two decades ago, after getting his MBA in agribusiness from Santa Clara University. "I used to work in a meat-packing plant, and the general manager and I used to smoke cigars together," Baldwin remembers. "So back then is when I actually started smoking cigars. Usually the biggest one I could find."

Though he wasn't smoking drugstore cigars back then, his taste has improved since. "I don't really smoke the same ones," Baldwin says. "Gloria Cubanas, Davidoffs. I started out smoking Pleiades, then Davidoffs and then Gloria Cubanas and then Cuban cigars, sort of the current fad." The cigars are stored in one of four humidors, one of which, an old Dunhill box full of Cuban La Gloria Cubana Medaille d'Or No. 2s, sits on the credenza in his office.

By 10:30 a.m. on the day of the Greenspan comments, Baldwin has left his office and is in the pit. He just couldn't stay away from the action. Everyone else knows he is there, too. In his chosen field, Tom Baldwin is so successful that other traders honored Baldwin with the creation of a hand signal at the CBOT. The Wall Street Journal described the move as "clerks...furiously brushing their hair back with one hand--pit pantomime for 'bald.' " Baldwin loves it, the trading in particular. The signal comes in handy when Baldwin is trading and others want to follow his moves. "Shadow trading" is what such a maneuver is called.

"Here we go, Baldwin!" shouts trader Steve Horowich.

"Baldwin's a big buyer at 18," interprets Paul Johnson, a broker, after flashing a series of hand signals with Horowich. "I think he bought a thousand." That's 1,000 contracts. At $100,000 per contract, that's $100 million.

Baldwin's presence brings new fervor to the pit. He appears to be picking his spots and many of the traders seem to be looking at him. Baldwin's arms go up, tilted slightly forward, hands cupped downward, inviting others to trade. Suddenly, he spots an opportunity. Baldwin's arms flail, fingers gyrating while signaling, and then the right hand jabs forward with the forefinger pointing across the pit to the trader with whom he has just done the deal. Baldwin quickly records the transaction on a trading card and, without turning, reaches over his right shoulder and hands the card to a clerk. He is calm, his eyes already scanning the pit for the next, um, victim.

While Baldwin is scanning, Jerry Zawaski, a veteran trader, stands outside the pit. He is talking to different people, trying to gauge what's going on. Zawaski is well known to friends around the CBOT as "Zee-Wa," from his badge with the legend "ZWA." The system of using these acronyms--never more than three letters--is vital to tracking the split-second trades Zawaski makes with up to 600 other traders in the T-bond pit. The acronyms, the loud, colorful jackets and the seemingly chaotic process of using hand signals to indicate how many of what commodity a trader wants to buy or sell are all part of what the exchanges call the "open outcry" system.

Standing above the new $182 million, 60,000-square-foot trading floor of the CBOT, the open outcry system looks like a hallucination of oversized peanut M&Ms all fighting to get inside already too-crowded bowls. ZWA has not started trading yet, and some days he simply won't.

Jerry Zawaski was raised in a large family without much money on Chicago's South Side. Now he uses two-dollar bills with his signature on them as a calling card. He tells people the deuce will bring them luck. At 45 years old, Zawaski has more money than he ever thought he would.

"I'm rich," Zawaski says in about as precise a response as he cares to give with respect to where 16 years as a full-time trader of U.S. Treasury bonds has put him and his family on America's socioeconomic ladder. "You never talk about the money and how much is made," Zawaski explains about the trading culture, while on the last throes of a Davidoff Aniversario and driving what he calls his "big-ass black Mercedes," glove compartment stocked with "power snacks" optional. "If someone tells you how much they make, just cut it in half," he adds. "The kitchen in my house," Zawaski will admit somewhat incredulously, "is bigger than the bedroom I shared with five brothers when I was growing up."

The custom-built 6,400-square-foot home on the North Shore is where Zawaski heads after every working day in the trading pit at the Chicago Board of Trade--after taking a few detours.

"Hi, guys," Zawaski says to the attendants as he pulls into the parking lot of Sportsman's Park, a racetrack about 20 minutes away from the Board of Trade. Zawaski knows them by name. He visits the track about twice a week after a couple of hours on the trading floor.

"I go have lunch and then I usually try to be home by 3:30 every day," he says. "That's when the kids come home from school. It's a great lifestyle." Still, Zawaski says that Karen, his wife of 10 years, expects more of his time at home. "We have fights about it sometimes," he admits.

"My neighborhood in Wilmette is right near Northwestern [University]. Our neighborhood is populated with all these MBAs from Northwestern. They leave at six in the morning and come home at six at night," Zawaski says, building up to the argument he uses with his wife. "I go, 'Hey, you want me to go get a job where I'm going 12 hours a day and then hit the couch because I'm so exhausted?' That's my retort, which isn't too much. It doesn't fly." He laughs.

The trade-off (isn't there always a trade-off?) for the big cars, the million-dollar-plus net worth and being able to see the kids grow up is stress. We're not talking about "I'm-an-hour-late-for-the-big-meeting" kind of stress. What Zawaski and his colleagues go through every day is the kind of stress that comes from putting everything you own and have worked for on the line. If you win, you get the big house in Wilmette, you play 50 rounds of golf every summer, and you take vacations at the Ocean Club on Paradise Island where you bet an average of $576 on each hand of black-jack and see Kevin Costner having breakfast with Sean Connery. If you lose, you are out what most people would consider a year's salary. Or worse.

Log in if you're already registered.

Or register for Cigar Aficionado today—it's free.

Registration allows you to:
  • Keep track of your favorite cigars in your personal humidor.
  • Comment on all our stories.

Forgot your password?

Ratings & Reviews

Search our database of more than 17,000 cigar tasting notes by score, brand, country, size, price range, year, wrapper and more, plus add your favorites to your Personal Humidor.