The Heisenberg uncertainty principle is frequently confused with the “observer effect”. The uncertainty principle actually describes how precisely we may measure the position and momentum of a particle at the same time — if we increase the precision in measuring one quantity, we are forced to lose precision in measuring the other. Thus, the uncertainty principle deals with measurement, and not observation. The idea that the Uncertainty Principle is caused by disturbance (and hence by observation) is not considered to be valid by some,[who?] although it was extant in the early years of quantum mechanics, and is often repeated in popular treatments
To Quote Wickepedia, The uncertainty principle can be restated in terms of measurements, which involves collapse of the wave function. When the position is measured, the wave function collapses to a narrow bump near the measured value, and the momentum wave function becomes spread out. The particle’s momentum is left uncertain by an amount inversely proportional to the accuracy of the position measurement. The amount of left-over uncertainty can never be reduced below the limit set by the uncertainty principle, no matter what the measurement process.
This means that the uncertainty principle is related to the observer effect, with which it is often conflated. The uncertainty principle sets a lower limit to how small the momentum disturbance in an accurate position experiment can be, and vice verse for momentum experiments.
The observer effect is an interesting concept.
I liken the observer effect to the markets. I firmly believe the following. I believe that in a very high percentage of cases, by the time an observer, specifically, a financial journalist, be they print based or television based, when they comment, they impact the phenomena they are reporting (or are attempting to report about).
A case in point, go back 18 months ago when had 150 dollar oil. The US dollar was getting hammered. The popular opinion at the time amongst many journalists, financial and otherwise, was that indeed, the US greenback had overstayed its welcome as the world’s defacto currency of choice.
This idea crystallized when there were not so secret meetings between members of OPEC, Russia, France(of course) and China. At the time, there was a movement afoot to move away from the US dollar to a basket of currencies. (ie, the euro Plus ….. fill in the blank).
Coincidentally, we were going through the throws here in the US of our own ritual self-flagellation known as “a presidential candidacy”. At the time, it was fashionable to blame everything failing on the incumbent administration. It’s a time honored principal in US politics, no matter if its the 1860’s during Lincoln’s administration, the 1970’s with the Nixon/Ford/Carter tri-fecta. Ditto the Reagan/Bush era, etc etc etc.
The left is going to be feeling the pain this time, after electing their man of change here. Once again, the public sours against the incumbents. It is the American way, I would argue. Better to have a house cleaning election than a civil war every 4 years.
Back to when we had 150 dollar oil in the midst of the Presidential campaign. So many people were jumping on the anti US bandwagon, even in our own Media, that I would argue that that negative coverage, in and of itself, help create an emotional feeling in the US, and abroad (thanks to 24/7 cable news) that indeed the US was defunct. From Kyoto to the weak dollar, to nuclear proliferation, if you watched the news at that time, it was all bad. Lou Dobbs, strongly nationalistic in his own right, was so repetitively negative about EVERYTHING that even CNN showed him the way out the door. Seems like ratings trumps all in the end.
I can remember walking the streets of Chicago in Summer 2007 and 2008, amazed at the number of foreign tourists invading Chicago. From Germans, to French and Italians, and all different European nationalities, I can remember thinking that the fact that the US was on sale for the rest of the world, due to our weak dollar, had to mean we were within 6 months of a currency low.
Every time I got a whiff of powerful body odor camouflaged with too much polo cologne, I thought we were nearing the top in the Euro-tourist bubble back then.
The Apple store on Michigan Avenue, I am sure, longs for those halcyon days at this point. I am sure they couldn’t keep the ipods on the shelves, there were so many Europeans shopping. There was no VAT tax here at that point. (Just wait a few months now, though)
I remember watching Hillary floundering for a voice of populism. Seems she couldn’t figure out if she was a cub/sox fan or really a Mets/Yankee fan…But she was a fan of windfall profits tax on US oil companies benefiting from 150 dollar a barrel oil.
Ditto Comrade Maxine Waters, who quizzed the heads of US oil companies, on how they would feel if we nationalized oil, a la her fellow traveler, Hugo Chavez in Venezuela.
Right at that pinnacle of anti-American, anti US dollar sentiment, with the dollar dirt cheap in comparison to the media worshipped euro…. Well that was the flippin top.
However, when markets turn, its like a air craft carrier task force turning. About 100 ships all turn, and that takes a little time. They don’t change course like jet ski’s, although they certainly turn too fast if you are in a row boat sitting in their path.
I believe the final straw which sealed the fate of the dollar/euro spread and more importantly the yen/euro spread, was the moment it was leaked to the world that China, France, Russia, etc were meeting with some OPEC members about getting rid of that pesky US dollar and moving towards the more fashionable and hip “basket of currencies”. Talk about the folly of arrogance. That was a fade of all fades.
So as we sit, watching the US dollar sky rocket, lets not get too excited if we happen to be long the US dollar, and possibly long Gold/Silver.
This shift will have its life span, as well. Right now the world is speaking. It was under whelmed by Brussels throwing a trillion dollars at Greece, and basically buying only 24 hours of a bounce.
Where is George Soros on this? Probably quietly short the euro. Remember, his greatest most celebrated and publicized mega bet was his short of the BP sterling in the late 80’s early 90’s.
Could Soros be one of the speculative “wolves” that Brussels was eager to punish? It will be interesting to see how it all plays out.
In the mean time, I am waiting to get short the US dollar. My key will be when the Financial Times and the NYTimes, Time and Newsweek all write glowing articles about their long term love affair with the US greenback. Right about then, I think I’d want to get a motor for my row boat, to prevent getting rolled into oblivion by that naval task force which is about to tack into my face.
I am still friendly the US indexes. Volatility will be a constant, and I think we are due for some more 1000 point trading days. That is s function of computer trading. You average American is going to just have to realize that volatility will be here from now on.
You can complain about it, pine away for the good old days, or just deal with the fact that we are going to have some swinging markets.
Back in 1998 through 2004, I traded the Dow index vs the S&P. At that time very few professionals were using trading platforms for arbitrage.
The big players who did, were cleaning up. However, there was still enough noise and a big enough spread which allowed mere mortals to make a living scalping on a daily basis.
We regularly had 300 point trading ranges on a daily basis. And we traded up and down repeatedly in a day through those ranges.
Fast forward a decade. Computers have gotten so much faster and more sophisticated, that those opportunities to day trade have vanished. Vanished with the bid/ask spread.
The only item which remains is the underlying volatility. And large well capitalized trading operations are able to profit.
It is quaint nostalgia to think that an individual can compete on a scalping or day trading basis.
Longer term moves are all that is left to the average human being without access to cutting edge computer trading power.
The media, like always, is slow to recognize this fact, although the recent 1000 point brain fart in the markets was a wake up call for even the most dense financial reporter.
Volatility will be the only constant. What will be interesting is to see how or whom will best adapt to the volatility. The stakes are hugely profitable if you can figure out how to beat the black box trading world which characterizes today’s markets.
Good Trading
And for goodness sakes, use your stops. Risk Management is 90 percent of good trading. The other 10 percent is the willingness to think for your self.
