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Monday February 5, 2007 - 13:04:17 GMT
Black Swan Capital - www.blackswantrading.com

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Risk we can't quantify...

Key News
• Key Reports Due (WSJ):
10:00a.m. Jan ISM Non-Manufacturing Business Index. Expected: 57.0. Previous: 56.7.

Quotable

"As far as the laws of mathematics refer to reality, they are not certain, as far as they are certain, they do not refer to reality."

Albert Einstein

FX Trading – Risk we can’t quantify…

We know volatility has been unusually low across global financial markets—especially currencies. We know there “seems” to be plenty of liquidity. And we know there are huge amounts of leverage being used to exploit low volatility in world with “seemingly” plenty of money.

We use the word “seem” for a reason when we talk about liquidity. For if asset values were to decline abruptly for any of a whole host of reasons we can’t predict, there will be a rush for the exits as collateral (or underlying equity) melts fast when leverage is employed—let’s call it a compressed liquidity crunch.

Our view on the yen is a view about risk. Sooner or later risk, which is both unknown and unquantifiable, will be priced back into this world of global markets. And when it does, the 1$ trillion behind the yen as a funding currency, and the interwoven counterparties on both sides of the trade, will rush for cover. That will move the yen higher.

Some say things are just fine. Stop all this worry wart stuff. Derivatives are to be praised for spreading risk and reducing volatility. And their spread, which is nothing less than a revolution in global finance, insures us the future will resemble the recent past.

Thus, there is no need to worry about a major debacle in the hedge world. They have their derivatives and leverage under control. After all they do “stress testing.” But it’s silly to believe you can account for risk theoretically when you don’t know them and you can’t quantify them even if you did.


“’Fools ignore complexity,’ said Alan Perlis, the US computer scientist, ‘Pragmatists suffer it. Some can avoid it. Geniuses remove it.’ The world's central bankers, who are fretting about the growing complexity of financial markets, are clearly not fools. But unless a genius comes along with a solution, they will have to be pragmatic about complexity, and all of the risks that it entails.”

Financial Times

“In real life, you do not know the odds, you need to discover them, and the sources of uncertainty are not defined. Economists who do not consider that what was discovered by noneconomists as knowledge draw an artificial distinction between Knightian risks (which you can compute) and Knightian uncertainty (which you cannot compute), after one Frank Knight who rediscovered the notion of unknown uncertainty and did a lot of thinking but perhaps never took risks, or perhaps lived in the vicinity of a casino. Had he taken economic or financial risks he would have realized that these ‘computable’ risks are largely absent from real life! They are mostly laboratory contraptions!

“Those who spend much time with their noses glued to maps will tend to mistake the map for the territory. Go buy a recent history of probability and probabilistic thinking: you will be showered with a names of alleged “probability thinkers”, all based on these sterilized constructs. I recently looked at what college students are taught under the subject of “chance”, and came out horrified: they were brainwashed with this ludic fallacy and the outlandish Bell Curve. The same applies to people doing a PhD in the field called probability theory. Furthermore, assuming chance had anything to do with mathematics, what little mathematization we can do in the real world does not assume the mild randomness represented by the Bell-Curve (i.e. the Gaussian ), rather the scalable wild randomness. What can be mathematized is not usually Gaussian, but Mandelbrotian.”

Nasim Taleb, The Ludic Fallacy, or the Uncertainty of the Nerd

Jack Crooks

 

Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



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Amazing Trader EVENT RISK Calendar:

Mon 18 Dec
10:00 EZ- final HICP
Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account
Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude
Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP
Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes
Mon 25 Dec
00:00 Christmas Holidays

Forex Trading Outlook


Potential Trading Opportunities

  • POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.


  • POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
  • POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity

  • POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
  • POTENTIAL PRICE RISK: Medium- Wed --15:30-- US- EIA Crude

John M. Bland, MBA
co-founding Partner, Global-View.com EXCLUSIVE: Global-View Daily Trading Chart Points Updated

EXCLUSIVE: Global-View Free Forex Database updated




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