Thursday, January 14, 2016

Keynes Almost Went Bankrupt Trading Currencies

John Maynard Keynes nearly went bankrupt trading foreign currencies. So much for the myth that Keynes was a great trader.

I wrote in 2012:
WSJ is running a story today perpetuating the super myth that John Maynard Keynes was a great investor. Writes WSJ:
A new analysis of the investment performance of John Maynard Keynes proves that the famous economist also was one of the greatest investors of the past century.
Total BS.
According to a new study of  Keynes, he was nearly ruined by a big short position in currencies.

In 1920, he bet that the mark, the franc and the lira would fall but all three continental currencies rose against the pound and Keynes was confronted with a loss of £20,806 — a huge sum at that time and more than 10 times his annual income, reports The Times.

“He was probably very close to being bankrupt,” Olivier Accominotti, of the London School of Economics, and David Chambers, of the Cambridge Judge Business School, write in a study based on Keynes’s trading records.

According to Accominotti and Chambers. Keynes had rich friends, including Sir Ernest Cassel, the financier, who bailed him out. This allowed Keynes to put on the same trade again, this time successfully.

Keynes, who was the bursar of King’s at the time, speculated heavily in currencies from 1920 to 1927, when forward contracts, were coming into use, and again from 1932 to 1939.

In the 1930s, he proved successful in his trades, largely I believe, because he traded on inside information that FDR was going to prop up the price of gold. (SEE: The Super Myth of Keynes as a Great Stock Market Investor and More Nonsense on Keynes the Great Investor).


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