Forex Trading Strategies – Trading Snow – What Global Warming Can Teach Us About The Market

If the world is becoming warmer every year how come there is so much freaking snow? That was the central question of the week as massive snowstorms brought London, Frankfurt and New York to a standstill this holiday season. Millions of travelers across the world have been stranded including Kathy, who as I write this, is spending an all nighter at JFK as she mulls the prospect of abandoning her ski vacation in Whistler.

For all those miserable travelers, the idea of global warming must seem like a cruel joke as winter unleashes her full fury over the east coast of North America and a vast swath of Eurasia. However an interesting article in New York Times this week explains how global warming is actually responsible for this mess. Titled, “Bundle Up Its Global Warming” the article goes on to explain to explain exactly what’s happening.

“ As global temperatures have warmed and as Arctic sea ice has melted over the past two and a half decades, more moisture has become available to fall as snow over the continents. So the snow cover across Siberia in the fall has steadily increased.The sun’s energy reflects off the bright white snow and escapes back out to space. As a result, the temperature cools… In response, the jet stream, instead of flowing predominantly west to east as usual, meanders more north and south. In winter, this change in flow sends warm air north from the subtropical oceans into Alaska and Greenland, but it also pushes cold air south from the Arctic on the east side of the Rockies. Meanwhile, across Eurasia, cold air from Siberia spills south into East Asia and even southwestward into Europe. That is why the Eastern United States, Northern Europe and East Asia have experienced extraordinarily snowy and cold winters since the turn of this century.”

Yet what I found most interesting about the article was this throwaway sentence at the end. “Most forecasts have failed to predict these colder winters, however, because the primary drivers in their models are the oceans, which have been warming even as winters have grown chillier. They have ignored the snow in Siberia.”

I am always astounded by the similarities between weather forecasting and trading. Both disciplines require a massive amount of analysis of very complex systems that often result in surprising outcomes that can befuddle the best of experts. The global warming thesis teaches us that we may often be right in our analysis but wrong in our conclusions. (QE -- leads to weaker dollar and lower US yields? Uhh, yes in theory but no in practice. )

Ultimately the implications of both Global Warming and QE will probably turn out to be true, but in the meantime the events of the past week teach us to never rely on theory to inform our day to day actions. Just because the world is getting warmer doesn’t mean we can throw our mittens and ear muffs. As human beings and as traders we must be always humble when faced with the reality of Mother Nature or the markets and remember that even when we are right on the facts we may often be wrong on the outcome.

Boris Schlossberg

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