Journalists, Traders, and Nuclear Physics

Shanghai -- As I was reading the latest Currency Market Analysis that I received yesterday from, I came across the following paragraph that I find not only enjoyable but also one (of the few) honest account(s) about the latest Japanese disaster and ensuing reactions. It's always interesting to see how everything is so strictly intertwined and how misunderstandings or inaccurate news do make a difference (see the sentence I highlighted below).

Journalists, Traders, and Nuclear Physics

As the tenth day since the Japanese earthquake passes, the worldwide financial markets continue to experience rapid and severe shifts on a daily basis. The nature of the crisis has evolved, as the threat of a nuclear meltdown has replaced the initial impact of the disaster in driving market movements.

In this environment, it is important to remember that journalists and currency traders collectively have very little knowledge of the fundamentals underlying this particular crisis. The fundamentals, after all, are nuclear physics. Diminishingly few lines of accurate newsprint have been published, and the extreme swings in the market have made it clear that misunderstandings are widespread. When journalists and traders begin acquiring doctorate degrees in nuclear physics, we'll get a clear picture of what is happening - and markets will become less vulnerable to mispricing.

In the interim, news headlines will continue to create less-than-rational market responses. For corporate hedgers, this means that short-term market entry opportunities may be abundant as exchange rates hit levels that would not otherwise be available. However, it remains prudent to maintain relatively high protection levels in the event that we see a return to the longer-term price trends that were in place prior to the disaster. Have a great week – and happy trading!

By Karl Schamotta, Senior Market Strategist