October 19th 1987, will forever be known as ‘Black Monday’ – or the day the stock markets crashed across the globe. By the end of October 1987, panic had spread and most markets went spiraling down by 20%.
32-year old Andy Krieger carefully watched the currencies rallying against the US dollar, as an aftermath of the incident. He targeted the New Zealand dollar, believing it to be overvalued. He shorted it using leverage, earning $300 million for his company as a result.
Within a span of a few hours, New Zealand’s central bank had realized that Krieger held more of their currency then they did!
Early Life and Career
Andy Krieger graduated from the Wharton School of Business, Pennsylvania, after studying Sanskrit and Philosophy. In 1986, he joined the Bankers Trust, after working with Salomon Brothers. He quickly gained a reputation for being one of the most aggressive dealers in the market. Top management was so impressed that they allowed him a trading limit of $700 million, as opposed to the normal $50 million limit.
The Raid on the New Zealand Dollar
Just after the Black Monday crash, investors rushed to other currencies, dumping the US dollar in the process. Krieger knew that there would be some currencies that would be highly overvalued, creating good scope for arbitrage. He identified one of these currencies to be the New Zealand dollar, also known as the “Kiwi.”
As he had a fairly large trading limit, he used it to sell the Kiwi, with a leverage of 400:1. This amount exceeded even the actual circulating liquidity of the currency. Within a few hours, the currency went down 5% against the US dollar, and Andy Krieger ended up making $300 million for his company.
Krieger now controlled more Kiwi dollars than there were in circulation in New Zealand. It comes as no surprise that this incident caused major controversy with the New Zealand Central Bank. They went on to contact Bankers Trust, insisting that they get Krieger out of their currency.
Bankers Trust themselves gave a very small portion of this profit to Krieger. Shortly afterwards, he quit the firm and went on to work for George Soros, who is also known as “the man who broke the Bank of England.”
Strategies and Trading Style
While many will credit luck for Krieger’s winnings, fundamental analysis played a significant role. Krieger had the right information and market monitoring skills to actually identify the currency that was overvalued. In hindsight, this could have cost the company a fortune, but his confidence in his findings took care of the rest.
Another thing to consider here is that a good trading strategy is also all about when to exit the markets. Even though Krieger was right at that time, NZD went bullish in 1988, which means that he ended his position at precisely the right time.
Successful traders like Krieger are always on the lookout for learning new things in the market, and they never take their eyes off the latest developments. His techniques were unique and effective. So much so that Bankers Trust had to restate their forex profits after he left, as they couldn’t understand his complex trading methods.