The endeavour of projecting today's conditions, trends and relationships into the future inevitably results in errors of judgement - and economists continue to get caught out by the ever-changing market environment (often at the worst possible times).
Two examples of this this year have been the removal of the Swiss franc's peg to the euro and the lowering of the Chinese renminbi's peg to the US dollar. In each case, the changes led to dramatic events that caught economists completely off guard. The old theory is 'diversification' can provide protection from such events, but the more it is practised, the closer one's performance comes to achieving mediocrity. In contrast, analysis of market behaviour delivers what it promises: a sensible basis upon which to make sound investment decisions, reduce dangerous exposures and protect aga...
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