Nick Knight: His Swagger Can Sway Markets

He calls his presentations "The Nick at Nite Show," playing on the resemblance between his name and the U.S. cable-TV network that screens classic reruns. But Nicholas Knight's showmanship wasn't the only reason why Nomura Securities Co.'s 3,000 salespeople were glued to closed-circuit video monitors around the world on Jan. 17. Since his last chat with the troops in July, Nomura's London-based global strategist had been roiling markets in Japan and Southeast Asia with well-timed calls. What would he favor now?

At a time when most U.S. analysts are worried about the Dow's record highs, Knight, 32, currently likes America. Why? Although many analysts think a modest U.S. rate hike is coming, Knight believes Federal Reserve Chairman Alan Greenspan might boost short-term interest rates as much as two percentage points in a "preemptive" bid to put down inflation expectations once and for all. That might cause a "shock wave" on U.S. markets. But over the long haul, it could also assure "the 3% world: 3% growth, 0%-to-3% inflation, 3% short rates, and the holiest of holy grails, long bonds closer to 3% than 6%." And that would be "extremely positive for bonds and equities."

"NEVER AGAIN." Knight is no stranger to controversial predictions. But anyone who followed his headline-grabbing Jan. 5 recommendation on Asia (table) earned a pretty penny. Through the second half of 1993, Knight steadfastly recommended steering clear of Tokyo in favor of booming Hong Kong and Southeast Asia. But Knight flip-flopped on Jan. 5, terming those Asian markets overheated and urging clients to jump back into Japan. In a flash, Hong Kong tumbled 10% and Malaysia 30%, while Japan's Nikkei stock average climbed nearly 5%.

Many Knight customers--pension and mutual-fund managers on three continents--say this is no fluke. In these circles, Knight, a Cambridge University-trained economist, is starting to gain a reputation as a market-watcher in the same league as Morgan Stanley & Co.'s Barton M. Biggs. One New York manager, for example, recalls a phone call from Knight on the morning of Sept. 16, 1992, advising him to buy British stocks despite the sorry state of the London market. Knight told the manager: "Buy everything you can find."

That evening, Britain dropped out of Europe's Exchange Rate Mechanism and slashed interest rates. Stocks soared.

Knight also predicted last February that the Nikkei would rocket from 16,850 to above 21,000. It did, gaining nearly 25% over the next three months. Then, in May, he announced he was bearish on Japanese equities. In the ensuing month, the Nikkei dropped more than 8%. Knight remained so downbeat through the fall that displeased Japanese Finance Ministry officials summoned the head of Nomura's Tokyo research arm to their headquarters. But Nomura didn't muzzle Knight, who did not switch signals on Tokyo until Southeast Asia's record-breaking yearend rally convinced him that Japan offered more value. Even the Nikkei's 4.9% plunge on Jan. 24 has failed to dampen Knight's sanguine outlook for Japan. Its current political turmoil will not block more interest-rate cuts or government spending programs to boost the economy, he predicts. "The market is going to move higher, through 24,000."

Knight's beginnings in the market were hardly auspicious. A native of the unfashionable outer-London Essex suburbs, Knight was an analyst at James Capel & Co. when he turned bullish on equities just in time for the October 1987 crash. "The pressure of the crowd turned me into a bull at the top," he says. "Never again." Chastened, Knight now polls money managers "to get a vision of where the herd is going." He then tries to scope out which economic signals the herd may have overlooked.

Knight's style began to blossom when he joined Nomura in 1989. Today, he livens up his shows with props, charts, a palmtop computer, and lots of talk. Not everyone is a Knight fan. Inside Nomura, some grumble that Knight bases his views on shifting investor sentiments. Shrugs Knight: "The strategist is never universally popular."

Knight has no shortage of cheeky one-liners for 1994. The U.S.? "A bull market in disguise." Europe? "If you're long France and short the U.K., you're going to get murdered." Asia? "If you're long Hong Kong and short Japan, you're dead." From this Nick at Nite, you get bold forecasts. So far, many have been money-makers.

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