The scale of the initial short covering was small, and many traders did not notice it. Most people were waiting for the short side to collapse, ignoring the increasing number of long positions being opened. The Japanese stock market continued to rise, and the bullish sentiment was strong, with tens of thousands of long positions being opened daily. It was easy to overlook the smaller numbers—the continuous opening of long positions. In this situation, the shorts gradually closed their large positions, and with the delivery date approaching, people's attention shifted to the new main contract.
By the time the majority of the market reacted, the shorts had successfully closed more than 80% of their contracts. With only two or three trading days left before the final delivery, the main shorts closed the remaining 40,000 short positions at 36,000 (due to the approaching delivery, the futures price tended to align with the normal Nikkei index), successfully exiting the December contract.
However, this price was 2,000 points higher than their average entry price. Commentators pointed out that the loss from this 40,000 position alone was as high as $300 million.
In fact, the shorts lost more than $1 billion on the December contract, and this was just from the secret operations in Kobe. The losses of the funds that followed them were incalculable.
On the contrary, due to the influx of new capital, the January futures contract was successfully suppressed, and Jim's group did not lose much, only around $300 to $400 million.
The January contract would be a new battle.
This would be a more challenging month than December, as the market sentiment had been fully mobilized. Apart from the satisfied bulls, most market participants were also bullish on the Japanese stock market. People were speculating whether the Nikkei index would reach the historical milestone of 40,000 points before the New Year.
Jim changed his strategy.
He divided his funds into three parts and invested them comprehensively in the three months. The ideal plan was to attack the Nikkei index from all angles. However, reality was harsh, and he suffered losses in all three months. In this month alone, he was forced to post more than $1.5 billion in margin.
Now, he had only about $2.5 billion left, and this amount was decreasing as the Nikkei index continued to set new highs.
If this situation continued, he would have to use all his reserves before the Nikkei index reached 40,000 points, and then watch as the exchange forcibly liquidated his positions, gradually retreating under the relentless attack of the bulls.
The best outcome would be to exit in time and preserve a few billion or a few hundred million dollars. The worst outcome would be a margin call, leaving him with nothing.
After all, he had followed orders and invested most of his funds into the January contract, waiting to deliver a fatal blow to the Japanese stock market on the Monday of Christmas.
He dared not disobey the orders!
But watching billions of dollars evaporate into thin air filled him with deep frustration. In this situation, he naturally had to do something.
The entire trading team was in low spirits. Before coming to Japan, everyone was full of confidence, imagining that the Japanese index would be steadily pushed down by their operations. However, the harsh reality told them that this defeated nation in World War II not only had an unimaginable resilience on the battlefield but also in the stock market.
They had lost confidence and no longer believed they could complete their mission. If it weren't for Jim and Matt's strong suppression, they would have quit long ago.
Watching thousands of dollars vanish daily, even the most resolute would eventually break.
These once proud traders now moved like zombies, mechanically issuing orders in front of their computers.
After discussing with Matt, they decided to invest $100 million in the February long market. They hoped to hedge their risks by riding the Japanese market's momentum and, privately, to earn some extra money to reward the exhausted traders.
The reason they did not invest more was that the number of futures contracts this amount could buy would not exceed the position limit and could easily be counted as part of their losses, giving them a reason to report to their superiors. As for hedging risks, it was purely self-comforting; compared to their massive position in January, this amount would not hedge much risk.
Traders' income is directly linked to the wealth they create, and even the top traders can only get up to 10% of the profits. Jim and Matt's suggestion was immediately accepted by all the traders, who knew that the final profit would be their reward, and any losses could be attributed to the January contract.
Matt, originally sent by the European consortium to balance Jim, also became an accomplice. In the face of money, all duties, secret missions, and promises went to the wind.
Jim chose the broker, and Matt, who did not speak Japanese and was not as familiar with the local market as Jim, was unaware. However, Maxim knew that Jim had definitely found more than one broker and had his own funds to manage. They had privately reached an agreement.
This practice is known in economics as moral hazard. Moral hazard has existed for a long time and is not limited to them; it will continue to occur among financial professionals.
After secretly taking action, everyone breathed a sigh of relief. They could now face the fact of losing money more easily, as the losses were not their own, and the financiers behind them seemed indifferent.
The team, with renewed morale, re-engaged in the January 1990 contract, ready to take on the Japanese market again.
Coincidentally, Jim's $150 million long order was quickly matched by a fund from Hong Kong, forming a counterparty. This counterparty was none other than Zhong Shi.
Back in early December, Zhong Shi felt the time was ripe to short the Japanese stock market and quietly returned to Hong Kong.
This time, he faced no obstacles at the border. On one hand, the political turmoil had largely subsided, and on the other, Liao Chengde and the Guangdong authorities had likely intervened, allowing Zhong Shi to pass through easily.
In Hong Kong, Zhong Shi immediately convened a four-person meeting with Liao Chengde, Andrew, and Zhong Yi. Liao Xiaohua was excluded from this core team and was currently under house arrest, ordered to reflect on his actions.
When Zhong Shi proposed shorting the Japanese stock market, everyone was stunned.
Liao Chengde, being cautious and experienced, supported Zhong Shi's every decision unconditionally, as everything he had now was due to following Zhong Shi, even his son's life.
Zhong Yi had matured rapidly over the years. Although he was not yet capable of operating independently, his research on international economics had already achieved some success. His HKU mentor considered him an excellent student and was considering writing a recommendation letter to send Zhong Yi to the U.S. for a Ph.D. This was the first time he opposed Zhong Shi, but he knew his cousin's personality and that once a decision was made, it would not be changed.
What no one expected was that the most intense reaction came from Andrew.
Andrew had always been a broker, and in a situation where everyone followed Zhong Shi's lead, few paid attention to his opinions, and he did not mind.
However, this time he firmly opposed and presented a compelling argument.
"The Japanese market has been rising for more than three years, and most people continue to be bullish. Do you know what the total market value of Japan is now? It's twice that of the U.S.! How can you possibly move the Japanese market?"
"I sent you the data, and I believe you've seen it. You must know that the two funds in Singapore have already had several confrontations over the Nikkei futures. The result is clear: the Japanese market continues to rise, and the shorts have lost billions of dollars, more than your current net worth!"
When Zhong Shi instructed Andrew to monitor the Nikkei futures in Singapore, Andrew敏锐地察觉到，钟石又发现了一个投资热点。他在仔细研究了三个月的期指走势后，非常肯定做多将是一个赚钱的大好机会。
From the U.S. stock market, funds were quickly redirected to the Singapore market. Zhong Shi was heartbroken; these stocks, bought in 1987 as part of the "Nifty Fifty," would likely never be available at those prices again.
Fate is often coincidental. Just as Jim released his buy order, it was matched by Zhong Shi's entry into the market. (Thank you to the reader "Guimi" for the generous donation! I also hope more readers will support this book!)