Friday January 13, 2006 - 11:37:04 GMT
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Black Swan Capital - www.blackswantrading.com
“No profession requires more hard work, intelligence, patience, and mental discipline than successful speculation.”
This year was shaping up nicely for the euro, and possibly badly for the dollar, now a whole 13 days in. We thought European growth was on track and gaining momentum, but Mr. J-C Trichet, ECB President, was unexpectedly pessimistic, and the euro thus retreated.
It is interesting that so often the things we think we know to be drivers of a currency turn out to be false. And yet we continue to build themes and scenarios that make sense to us, but may have little or no basis in reality. It is a strange game we play. And it is no wonder a recent study determined psychologists make better investors—it’s a head game in the end. “On average the psychologists earned three times as much as economists and physicists in the stock exchange game,” was the conclusion.
And this excerpt from an article by Paul de Gruawe, professor of economics a the University of Leuven, which appeared in the Financial Times yesterday makes it clear why we gravitate to technical analysis. And many are now past the technical/fundamentals and have moved completely into systematic i.e. let the computer decide.
“The analyst, who does not know more about the fundamental value of the dollar than the unsuspecting buyer [of Belgian chocolates], invents stories. Thus when the dollar goes up, the analyst goes on a search for variables that move in the right direction and that can be linked to the rising dollar, carefully eliminating from the analysis all the other fundamental variables that move in the wrong direction. And so we are told that the strength of the dollar last year was due to interest rate differentials favouring the dollar. The further widening of the current account deficit, which in a previous analysis got centre stage, is carefully dropped from the new analysis.
“The honest story of why the dollar increased last year is that we simply do not know. But we do not like to admit that we do not know. Our psyche abhors the darkness of ignorance. That is why analysts’ services continue to be demanded. They fulfil a psychological need to understand. Exchange rate economics these days satisfies this need by telling a new story each time the dollar goes up or down.”
We continue to toil away with our techno-fundamental discretionary approach knowing full well a new day has dawned and there are new reasons to be had. We can only do the best we can do. And by the way, it’s a full moon, so be careful out there.
Black Swan Capital
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