The Stocktwits team shared this Nick Leeson tweet the other day as the Nikkei hit 21 year highs:
Nikkei225 at highest level today since 1996 – probably not far off my break-even point. If only they’d waited!!
Who is Nick Leeson and what does he have to do with the Nikkei?
From his Wikipedia page:
The beginning of the end occurred on 16 January 1995, when Leeson placed a short straddle in the Singapore and Tokyo stock exchanges, essentially betting that the Japanese stock market would not move significantly overnight. However, the Kobe earthquake hit early in the morning on 17 January, sending Asian markets, and Leeson’s trading positions, into a tailspin. Leeson attempted to recoup his losses by making a series of increasingly risky new trades (using a long-long future arbitrage), this time betting that the Nikkei Stock Average would make a rapid recovery. However, the recovery failed to materialise.
Leeson left a note reading “I’m Sorry” and fled Singapore on 23 February. Losses eventually reached £827 million (US$1.4 billion), twice the bank’s available trading capital. After a failed bailout attempt, Barings was declared insolvent on 26 February.
After fleeing to Malaysia, Thailand, and finally Germany, Leeson was arrested in Frankfurt and extradited back to Singapore on 20 November 1995, though his wife Lisa was allowed to return to England. While he had authorisation for the 16 January short straddle, he was charged with fraud for deceiving his superiors about the riskiness of his activities and the scale of his losses. Several observers have placed much of the blame on the bank’s own deficient internal auditing and risk management practices. Indeed, the Singapore authorities’ report on the collapse was scathingly critical of Barings management, claiming that senior officials knew or should have known about the “five eights” account.
Leeson pleaded guilty to two counts of “deceiving the bank’s auditors and of cheating the Singapore exchange”,[2] including forging documents.[10] Sentenced to six and a half years in Changi Prison in Singapore, he was released from prison in 1999, having been diagnosed with colon cancer, which he survived despite grim forecasts at the time.
While in prison, in 1996, Leeson published an autobiography, Rogue Trader, detailing his acts. A review in the financial columns of the New York Times stated, “This is a dreary book, written by a young man very taken with himself, but it ought to be read by banking managers and auditors everywhere.
He did say he was sorry!
While Japanese investors are cheering 21 year highs in the market, this week is also a historical one for the US at our markets continue to hit all time highs.
October has been a month to fear for investors since the 1987 Stock Market Crash.
Not this year!
Not to jinx the rest of October but Michael Harris remembers the crash well and has some lessons and charts.