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Buy to the Sound of Cannons: The Relationship Between Global Violence and Asset Prices

Mon, 04 Feb 2013 11:04:01 GMT

"Buy on the sound of cannons, sell on the sound of trumpets" ~ Nathan Rothschild, 1810 Maybe you haven’t heard the above quote, but you’ve certainly heard this variation with the same meaning - “buy on fear and sell on greed.” Easy to say, hard to do.  It is far more comfortable to speak those words in a lecture hall than it is to execute on them during a civil war.  And as we’ll see below, it is not always sage advice, especially in the case of currency trading. Fear is one of our oldest emotions.  First we must nourish ourselves to live.  Second we must avoid danger in order to survive.  The biological fear response saturates our bodies and brains with hormones and neurotransmitters and throws our rational prefrontal cortex offline.  In the midst of fear, our breathing, heart rate, circulation, muscle tone, digestion, and sensory interpretations all change.  As our fear prepares us for fight, flight, or freezing, it creates an...

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