November 24, 2012

Trading in a war zone

The financial markets could sometimes be described as a war zone, but if a real war happens, traders will still try to make money from the ongoing events. One example comes from the book From Beirut to Jerusalem, which I'm currently reading to increase my knowledge about the ongoing troubles in the Middle East. Here's an excerpt from the book:
Even when Beirut was at its most chaotic, the Lebanese figured out a way to profit from the vagaries of their own anarchy. They did this by speculating on their currency, the Lebanese pound. There were no exchange controls in Beirut, so Lebanese would constantly convert their pounds back and forth into dollars, trying to anticipate rises and falls in the two currencies. 
If, for instance, you converted your dollars to Lebanese pounds right before a prolonged period of quiet, you could take advantage of the Lebanese currency rising in value thanks to the economic stability; if you converted your pounds back into dollars a few hours before a car bomb exploded, you could make a windfall as the dollar soared and the Lebanese currency fell in anticipation of dislocations. 
Today [1980s], the most frequently asked question in Beirut after a car bomb is not "Who did it?" or "How many people were killed?" It is "What did it do to the dollar rate?" 
It may sound like it's a bit extreme to try to make money from car bombs, but it was a way to handle the stress of living in a war zone for many years. One other example from the book is the retired 89 year old Englishman George Beaver who always played a a round of gold each day during the war. Occasionally, he had to leave one hole out because the putting green was covered in shrapnel, or because of tanks that were advancing across the golf course.
Those who survived in the best physical and mental health were those who learned how to block out what was going on around them that was not under their own control and to focus instead only on their immediate environment and the things that they could control.
I am on my way to play tennis, and an Israeli F-15 suddenly flies overhead. Can I do anything about it? No. Is he coming to bomb me? I don't think so. So I continue on and play tennis.