I liked this. It was a complete departure from what I usually read but I found it very interesting.

Ugly Americans is pop business. It’s entertaining but superficial. Mezrich provides only the broadest outlines of the financial aspects of the deals he discusses. He’s much more interested in the Japanese take on sex, conspiracies surrounding the Japanese mafia (“Yakuza”), and the fact that his characters all attended Ivy League schools.

John Malcolm is the alias of a purportedly real person, or perhaps persons. Mezrich claims his book is a true story based on real characters, but he uses aliases for some unexplained reason. Seriously, I just read this book and I still don’t know why aliases are necessary. I guess I’m supposed to assume that “John Malcolm” somehow angered the Yakuza and is in danger for his life. Though what actions he took that would lead to that assumption remain unclear. It seems more likely that dramatic effect was desired by Mezrich. Though Malcom was hit by a car and his apartment was broken into, it’s far from certain these were somehow related to his investment activities. But I get ahead of myself.

John Malcolm grew up poor in New Jersey. His football skills gained him a scholarship to Princeton. He played in a football game of the Ivy League all-stars against a Japanese team before graduating in 1993. After the game in Japan, he met “Dean Carney,” the alias of another Princeton grad who was 10 or 15 years older than Malcolm.

After Malcolm failed to make it in the NFL, he called Carney for a job and got one. Malcolm moved to Osaka, Japan, where all trades on the Nikkei 225 (the Japanese stock market equivalent of the Dow Jones Industrial Average—a broad index of Japanese companies) are executed. Malcolm was basically a computer monkey for about a year; he simply entered the trades that Carney told him to, and received a salary of about $35,000 per year in 1994. Malcolm worked for Carney, and Carney worked for Kidder Peabody, an American investment bank and brokerage firm. Shortly after Malcolm started working, Kidder Peabody sustained heavy losses and was acquired by PaineWebber. A trader named Joseph Jett—his real name—worked at Kidder Peabody and caused its heavy losses over the span of four years. He exploited a glitch in the firm’s accounting system that essentially recorded losses as profits by valuing forward-dated transactions as if they immediately settled. This glitch ignored the time value of money, which is a big thing in finance. (The information in the last two sentences I got from Google because Mezrich declined to provide even that limited information; Mezrich pretty much left it at, “Jett lied.”)

After Kidder Peabody was sold, Carney went off to start his own hedge fund and raised $350 million. It took Carney about 8 months to raise the capital. In the meantime, Malcolm went to work at Barings Bank, an old English investment bank, or “merchant bank,” as the Brits say. Another turd in the punchbowl, Nick Leeson, bankrupted Barings Bank. Leeson continually doubled down on speculative positions. He bet that the Nikkei would go up and was wiped out when the Kobe earthquake hit on January 17, 1995 and temporarily decimated the Japanese economy.

Out of a job yet again, Malcolm rejoined with Carney once his hedge fund was up and running. This was around 1995, and Malcolm’s salary was $150,000 plus bonuses. How exactly Malcolm, Carney, and the other half-dozen traders made money is somewhat obfuscated. All I can do is relate what Mezrich told me, which isn't much. Their bread and butter was trading the Nikkei and exploiting arbitrage opportunities. They would buy and sell positions many times a day, almost always closing every position by the end of the day. In nominal terms, they would trade perhaps $250-$300 million, with profits of about $100,000 per day. Annualized, $100,000 of profit per day comes out to about $25 million. They would also try for big payoffs that once again go unexplained. Mezrich provides by way of description merely, “[A]n arbitrage scheme involving Indonesian municipal bonds…; a short-selling position in a Singapore-based textile firm that [a trader] had rightly determined was hugely overvalued…; and a quick in and out trade involving a South Korean hardware chain, which was expanding its outfit into Vietnam.” He continues, “[C]omplex arbitrage transactions involving certain Japanese convertible bonds that were the first of their kind. . . . [And] an idea involving a currency transaction between the yen and the U.S. dollar.” Oh, I get it. An idea involving a currency transaction. Yes, describing these deals or transactions can be complicated, but Mezrich didn’t even try. I crave the details, and Mezrich provides me with nothing.

Anyway, there are really only three deals that matter. The Hang Seng is an index of Hong Kong companies. During a downturn in the economy, the Hong Kong government purchased about 10% of the Hang Seng and created a large tracker fund, similar to SPDR indices. In the mid-1990’s, tech companies were heating up and becoming large. The Hang Seng needed to rebalance the companies included in the index by including some new, large tech companies, and removing some older, dying companies. One such company was Pacific Century Cyberworks (“PCC”), basically the Yahoo! of Asia at the time. Once it became clear that PCC was going to be added to the Hang Seng, the question arose of how and when that would happen. Demand for shares in PCC rose because the Hong Kong government would need to buy shares to keep the balance of the Hang Seng accurately reflected. Or so many people thought. Malcolm went to Hong Kong and spoke to many investment bankers to try to determine which bank would handle the purchase for the Hong Kong government. Once he found out that none of the banks was handling it, it forced him to reconsider his assumption that there would be a massive purchase. Instead, Malcolm deduced that the largest shareholder of Pacific Century Cyberworks, Richard Li, would sell his shares to the Hong Kong government directly. Therefore, instead of a massive price increase on the day of the supposed purchase, Malcolm determined there would be a massive decline or sell off as investors realized that the large purchase had already been made on predefined terms. So Malcolm shorted PCC and made approximately $20 million in one day.

The second deal was very similar to the first, but bigger. The Nikkei was going to rebalance by adding 15 new tech companies and ousting 15 older, dying companies. Malcolm researched which companies were likely to be added and removed. He spoke to journalists to determine when and how it was going to be done. It was going to be done all in one day. Through Carney’s hedge fund, Malcolm made huge bets. He risked about $800 million in capital shorting the companies that would be kicked off the Nikkei and buying the companies that would be added. He made $500 million off that series of trades for Carney’s hedge fund. Prior to the trade he negotiated with Carney to keep 10% of the profits, and give 5% to his friend Akari, another trader at Carney’s hedge fund. Malcolm was 27 years old, and he had made $50 million for himself.

The third trade involves Malcolm’s friend Akari. Akari was Malcolm’s age, and the first person to show him around Japan. Akari worked at the same places as Malcolm, and brought Carney an investment idea that turned sour. Akari’s deal involved Japanese real estate. Japanese banks had $100 million in loans that Japanese companies owed but couldn’t pay. The collateral for the loans was real estate, specficially warehouses and office buildings worth about $50 million. The Japanese banks sold the loans to Carney’s hedge fund for $10 million. Akari planned to sell the real estate for $50 million and pocket the $40 million difference as profit. But why would the Japanese banks agree to sell $50 million worth of real estate to an American hedge fund for $10 million? In short, the Yakuza, or Japanese mafia, intimidated the banks into not collecting on the loans or foreclosing on the property. Mezrich’s unwillingness or inability to provide details rears its ugly head yet again. He says the Yakuza are pervasive throughout all levels of Japanese society. They permeate politics and commerce. The Yakuza became squatters in the buildings, holding parties and raves. When Akari and Malcolm went to visit the properties, they were threatened with knives by tattooed thugs. Though the banks and subsequent American investors may have had a legal right to the property, the Japanese police, politicians, and judges were unwilling to enforce those rights.

There were never any direct threats to Malcolm or Akari. Malcolm’s Japanese girlfriend, Sayo, apparently tried to warn him several times about the Yakuza. Her broken English and Malcolm’s little Japanese did not make this clear. Malcolm was in a severe motorcycle accident when a BMW hit him on a private road and drove off. Also, Malcolm’s apartment was vandalized. Mezrich implies that these were warnings from the Yakuza, but the evidence is unclear. Either way, Malcolm became angry at Carney who was only concerned with financial profit and not the safety of his traders. Though Akari’s deal went sour, he still cleared $25 million from his 5% stake in Malcolm’s Nikkei rebalancing deal. Even paying back the original $10 million to Carney, Akari would have netted $15 million. Though Malcolm conceived the Nikkei rebalancing deal himself, he gave 5% to Akari because they were good friends, and Akari had originally shown him the ropes. Malcolm was always a gaijin (i.e., a non-Japanese person, perhaps it has derogatory undertones?) somewhat uncomfortable with Japan's "Water Trade" (i.e., the sex industry in Japan) and certainly uncomfortable with the Yakuza. Malcolm left Japan with Sayo, moved to Bermuda, and opened his own hedge fund.

Overall, an interesting story. I wonder how much of it is true. And I would love more specific information about the trades and strategies. A quick google search shows that John Malcolm is likely Michael Lerch. If so, enjoy your money, Mr. Lerch, and watch out for the Yakuza.

Good book, light reading, funny and a great story to tell, yakuza characters and Japanese sex stories, well worth the read. This is not an instructional book about how markets collapse or a Michael Lewis-type book that will be misconstrued as a path to ibanking. It's a story. A bit of hero worship, but a fine story, well told. You do have to wonder how many people read it and thought, 'I wonder if that's still going on.... and where do I apply?' Worth reading for a cultural look at Anglo-Japanese relations.

Despite enjoying two other books by this author I had to give up on this one after a few chapters. Too much sportsball references.

Good. A little overly descriptive in instances that don't call for it but still good

I was a bit put off by the language of this book, the way in which they described Asian features & culture felt eroticized and “exotic” and something that might have flown in 2004 but feels like we know better now.

That said, the story is neat, the plot is cool, and I like the writing style other than the above.

This reads more like a thriller/love-story, however I was more interested in Hedge Fund shenanigans in East Asia.

This book is a very entertaining fictionalized story about young Ivy League Hedge-Fund Cowboys who raid Asian Markets for Millions.
This is a very entertaining book that reads like a novel, it is a must read for anyone who wants to be involved in the finance world in Asia.
I only wished that it was more technical.

More hype than substance story of ex pats stock trading in Japan. Having spent time living as an ex-pat, although not in Japan, I was not astounding by the amazing story. Guys were doing the same and more on Wall Street at the time. The story is almost an extended magazine article and ends with the American expressing his distrust for a foreign culture which he doesn't really get (or the author doesn't really get.)
The story is supposed to be a true recreation, although the coincidences are just too coincidental where the hero happens to be at the places at the right time - which kind of leaves the book looking more like fiction than a "recreated" account.
The suggestions of Yakusa are also a stretch to make the book more sensational, with accounts of Americans visiting Japanese sex clubs/bars. It might sell more books, but it makes the book seem pretty superficial.

An exciting and fast paced book based off of a true story involving American Cowboy Traders pioneering arbitrage trading on Japan's Nikkei 225. John Malcolm is an Ivy League grad who takes a job trading for one of the top traders in Japan. Along the way Malcolm learns many valuable lessons on his quest for insurmountable riches. This is an R rated book, reader beware.

I read /Ugly Americans: The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions/, by Ben Mezrich:

https://www.curledup.com/uglyamer.htm

This book is the Liar's Poker of Asia, more specifically Osaka and Tokyo (mostly), with a little bit of Singapore and Hong Kong.

Highly recommended.

Another non-fiction adventure from must-read author Ben Mezrich, this time following the adventures of the swashbuckling Ugly Americans as they pillage financial exchanges in the Far East. And once again he latched onto a story full of drama, greed and life and death consequences.

The MIT blackjack books got me started with this author, but Ugly Americans and Rigged The True Story of an Ivy League Grad's Wild Adventures from Wall Street to Dubai were even more engrossing.

From what I've read, a number of Mezrich's books are up for movies, so I offer this standard advice: if you are reading this and there is a movie version of Ugly Americans out, READ THE BOOK FIRST! 21 is proof positive that the big screen and those who supply it can not do justice to the writings of Ben Mezrich.