7 Ways Forex can make a Difference in Managing Your Projects. Published October 2016

 

 If you think that Brexit outcomes will have little effect on small and/or mid-cap projects…consider this.

Using Forex to forecast foreign currency behavior can keep managing costs of projects agile.  Coping with the unforeseen or getting to know currency market unknowable(s) in an age where the global paradigm rewards anticipators of currency shifts, is smart. But ignoring market sentiment’s influence on currency punishes those who rely on the traditional quantitative malaise. Brexit stands as an example of how social outcomes are factors that can shift project costs.

  1. Shadow bankinginfluences 85% of daily loan activity and is a major participant in traditional short-term commercial paper trade. Currency rates fluctuate at any moment and influence financial market behavior. Whether an upscale clothing and accessories chain or a business that provisions global services.  The price of renting money to meet daily operational cost and or fund a project may change in a heartbeat due to changes in global currencies and the interpretations of Forex trading. Phenomenon like Brexit will alter the behavior of shadow banking and its partnerships.
  2. No matter the size of our project funds, the troubles of large global banking institutions, like Germany’s Deutsche Bank, can influence the availability and cost of preserving global liquidity.
  • There is anticipation of a Brexit led relocation of banks with the accompanying brain drain from the UK.  It will have a ripple effect throughout local economies.
  • Contrary to current indicators of sustained economic growth, a recession will rear its head. A delimited pound will play itself out within the next year and will influence other global monies.
  1. Realignment of trade agreements, influences of tariffs and the costs of imports play an important role in cost of supply. Will your supplier pass that additional cost down to you?
  2. Even after finalization of the Article 50 agreement, the years of negotiating the messy divorce will and has diverted energy from the economy as it realigns trade agreements. Nervous businesses are already looking to reassert old trade agreements and create new ones inside and outside of the EU.
  3. While the Brexit event has lowered pound value, making exports cheaper, supply side economics will soon slow the pace of good news markets.

Next to the US dollar and Euro, the pound is widely used globally as legal tender for goods and services. Sovereign currencies pegged to the Euro and the sterling will experience the slowing markets first. Costs to ongoing projects will be at the whim of changes in expenditures to supply and will influence demand.

  1. In 2013, the EU had a population of 210 million making it the second most traded currency in the world. According to the IMF, the Eurozone has the second largest economy in the world. Because UK is a major trader within the single market, the Brexit will have implications to global monetary markets for generations. It would be pure folly to ignore Forex forecast of currency trends.
  2. By reciprocal agreements with larger global banks and shadow institutions, all US banks have some exposure to European financial systems. Hedging rules apply. The further out to completion of project the heavier the risks to rate changes. Forex can alert project managers of changes in the fundamentals effecting rate changes.

Think about this. A sovereign’s coin is like a living organ that is reactive to any social or political irritant. While tracking hourly journals of Forex markets will not satisfy all of your quantitative efforts, it is an excellent bell weather of how foreign currencies may influence your project scope.

The science of Forex forecasting  offers the advantages of anticipating trending costs over the life of a project. That keeps a Project Manager nimble. Consider this. Market sentiment will increasingly shift global monetary performance. As in the Brexit, which has forever changed how we anticipate human economic behavior and its influence on money.

 

Stand Alone Quant Analytics without Human Behavior Economics will not suffice by Uday Raval

The growing phenomenon of global socialism and protectionism influences the paradigm paralysis or the failure to recognize how current models of thinking are dominating investor behavior. This has become an important component of how data models are failing at predicting asset price behavior across the globe. While age-old ideas centered on quantitative modeling, number crunching, and reviews of comparatives of past performance is still widely used. Quantitative analysts ignore the nascent economic concepts that actually drive and predict pricing. This new construct is human behavior.

Simply put. Any asset price is a function of quantitative information and human behavior. Prices and yields are predictive of quantitative fundamentals and behavioral economics.

We use Human Behavioral Economics scoring, to capture and quantify sentimental data. Our calculation methodology and its component scoring are proprietary. It behaves as an instrument that captures each overt and subtle human sentiment operational in trading markets. Human Behavior Economics is a method that quantifies the subtle differences between what investors say, think and their actions.

Investment management absent Human Behavior Analytics using rules based on standalone quantitative modeling merely represents sub substandard and outdated modes of investment management.

Earlier market traders centered on antiquated quantative correlative modeling that no longer work and are yielding abysmal returns.

In delivering alpha, traditional quant analysts follow truths based on mathematics and statistical analysis. This approach merely verifies and group together evidentiary financial shifts. It ignores the fundamental proof of Human Behavior Economics while fueling trends in pre-boxed analytics. Current methodologies of investment has reached its peak and has exhausted its outperformers or the select few.

Before considering this new investment strategy, first initialize an honest analytical compilation of your portfolio’s performance. In addition, think how the historic predictors of currency behavior was brought on by social influencers, as an unexpected Brexit. This socialistic event changed forever global investment behavior. So in order to solve for social unknowns a new approach to quantifying human behavior must translate into a viable vehicle for a sound investment strategy.

This wealth building approach starts by exploring how we quantify herd mentality that alters investment sentiment. Many strategists understand the importance of quantifying how market sentiment acts on and translates into a viable tool for investment growth. Nevertheless, many fail to produce a measurement of market sentiment that will change incrementally wealth outcomes. That approach requires the next generation in behavioral predictors.

Human behavior analysis or human psychology is that meme upon which investment behavior should be reliant on and up until now, it only represented unstructured information. To become useful this information must undergo vetting and a cleaning up of unusable statistics. Raw data becomes usable information and enabled for conversion into a myriad of valuable quantitative tools ready for investment analysis. This is where the new breed of human behavior analytics in investment planning plays an important role.

There are many investor sentiment indicators and analytical tools available, but are they able to capture the real essence of human behavior analytics. In addition, are these investment applications able to exhibit an in-depth understanding of the constant shifts in current financial sentiment?

Uday Raval

Barbara Cerda, Editor