World Event Trading
08/01/2007 12:00 am EST
Andrew Busch is a well-respected expert on the world financial markets, and is frequently quoted and interviewed in the financial media. His new book World Event Trading: How to Analyze and Profit from Today’s Headlines is one of the more unique and interesting financial books that I have read in quite a while. Though often times trading books deal with the minutia of market movements, Andrew examines three types of world events: infectious diseases, natural disasters, and politics, from a historical perspective before showing how all three impact the financial markets.
Now, as a former biochemist I was immediately drawn to the discussion of past epidemics, because I had never viewed them in terms of the economic environment of the time nor considered, for example, what aftereffect the bubonic plague might have had on the 13th century economy. Although using this type of analysis to understand today’s markets might seem at least a little farfetched, there certainly are patterns that repeat themselves. Andrew details the impact that the outbreak of mad cow disease had on the British markets, including the Pound FT100, interest rates, and individual stocks. Once the scare spread to Canada the impact was strikingly similar. With these patterns in mind, it becomes clear that lack of accurate and complete information, and the accompanying confusion and uncertainty, have more effect on the economies than the reality of the disease. This was also true for the SARS epidemic, which is also covered in this section.
In part two of the book, Andrew looks at natural disasters, including hurricanes, earthquakes, and even global warming. With Hurricane Katrina fresh in all of our minds, the detailed coverage of the economic impact of past hurricanes is quite fascinating. The impact on the markets is covered in detail with a particular focus not only on the energy markets that are often severely impacted but also the insurance sector and the dollar. In a few of the examples, a market actually forms a low in conjunction with the natural disaster, but more often it will coincide with a correction within the major trend.
In the final section, under the headline of Politics he covers how terrorism, government changes, government scandals, and modern, short-term wars affect the markets. As was the case with natural disasters, the reaction of the markets to a terrorist attack is dependent on many other factors. For example after 9/11, US rates declined initially but then moved higher for the next six months. Spanish bond yields, in reaction to the Madrid train bombing, moved higher in the first three months before starting a longer-term decline. While Andrew does provide extensive charts throughout the book, it would have been much easier for the reader if the dates in question were annotated.
Andrew points out that trading on world events is the opposite of a trading system, but provides a convincing argument that world events can have characteristic influences on a market over a period of time. This is not to say, however, that the market reacted the same way to each world event of the same type. By knowing what has happened in the past and being acutely aware of the major financial markets around the world, one can be better prepared to capitalize on these events when they occur. To this end, the book can also be quite handy as a reference guide of charts to easily see how the market reacted at a particular world event, possibly giving insight into market reactions to current or recent world events. I found this to be a very interesting book and on a recent trip had to pry it away from one of my colleagues. I recommend this book to anyone who is curious about the financial markets and world events, and is interested in the relationship between the two.