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- Publié sur Amazon.com
I believe George Soros is going to like this book! His theory of "reflexivity", which is his own take on the "madness of crowds" view of the market, keeps coming up as one of the primary investment approaches you need to win at - or at least understand - how the currency markets work.
The authors, Barbara Rockefeller and Vicki Schmelzer, clearly explain using dramatic examples that prove Soros' reflexivity proposition -- where Soros believes that the biases of the big market participants, such as hedge funds and Sovereign Wealth Funds, often enter into how they value the Euro or the US dollar, which in turn radically shifts the price of these instruments. The traditional ways of looking at economic fundamentals, in particular the "efficient market theory", gets run over and left at the side of the road by the biases of the big players.
The authors also adapt a concept called "matrix" theory, which, as they explain in the first chapter, is a form of sophisticated analysis that Ben Bernanke at the FED employs when trying to assess levels of country risk in the world's financial system. They use their matrix model to try and determine how the big market players like the central bankers, hedge funds, Sovereign Wealth Funds, the big interbank traders, carry traders, multinational corporations, large mutual and pension funds and ETFs, as well as retail investors, and high frequency traders, all tend to act differently to all the different types of fundamental news, the perceptions and expectations about news worthy events, as well as to important indicators in technical analysis.
One of the most interesting relationships that they refer to is how the currency traders at the largest banks, who are essentially the brokers for some of the largest hedge funds and Sovereign Wealth Funds, also often invest large speculative or proprietary accounts for the banks they work for. These big traders in turn clearly get to see how the large hedge funds and Sovereign Wealth Funds are trading before anyone else does. And obviously they sometimes act on this privileged information. Is this illegal? No it is not. The authors point out that Congress has not passed any legislation to prevent this kind of "front running".
So, given that the biggest bank traders clearly have an edge in playing the game, if we ourselves wish to profit from this kind of market behavior, ("when in Rome", do as the big bank traders do) then it makes sense to try and think like the big hedge funds, the Sovereign Wealth Funds, and the big bank traders. Do these large traders use fundamental analysis, technical analysis, or the George Soros theory of reflexivity?
Rockefeller and Schmelzer point out that the big players are much more likely to use technical analysis in making their trading decisions rather than traditional economic fundamental analysis. And the authors also show that the Soros theory of reflexivity is extremely important. And in my opinion, if we as investors can understand what particular bias or market perception that the big players are using at a particular time, than, in addition to using basic technical analysis, then we ourselves would have an edge as well. All we really need then is a good crystal ball.
The authors also do a superb job of explaining risk appetite and risk aversion, and they think that the concept of risk is of exceptional importance in understanding the currency markets as a whole. They explain this concept with a multitude of examples throughout. The biggest players most definitely react to the shifts in market sentiment concerning risk more than any other factor.
This is a thinking person's book, and I believe it deserves the full 5-star rating. Although it is not always easy reading, given the complexity of the currency markets, happily both Barbara Rockefeller and Vicki Schmelzer are both excellent writers. They "add a spoonful of sugar (to make) the medicine go down."
It's a good book. Well worth finding a place of honor on your book shelf.