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JWPR028-FM JWPR028-Busch June8,2007 18:20 CharCount=0 World Event Trading i JWPR028-FM JWPR028-Busch June8,2007 18:20 CharCount=0 Foundedin1807,JohnWiley&Sonsistheoldestindependentpublishing companyintheUnitedStates.WithofficesinNorthAmerica,Europe,Aus- tralia, and Asia, Wiley is globally committed to developing and marketing printandelectronicproductsandservicesforourcustomers’professional andpersonalknowledgeandunderstanding. TheWileyTradingseriesfeaturesbooksbytraderswhohavesurvived the market’s ever changing temperament and have prospered—some by reinventing systems, others by getting back to basics. Whether a novice trader, professional, or somewhere in-between, these books will provide theadviceandstrategiesneededtoprospertodayandwellintothefuture. Foralistofavailabletitles,visitourWebsiteatwww.WileyFinance.com. ii JWPR028-FM JWPR028-Busch June8,2007 18:20 CharCount=0 World Event Trading How to Analyze and Profit from Today’s Headlines ANDREW BUSCH iii JWPR028-FM JWPR028-Busch June8,2007 18:20 CharCount=0 Copyright(cid:2)C 2007byAndrewBusch.Allrightsreserved. PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. PublishedsimultaneouslyinCanada. WileyBicentennialLogo:RichardJ.Pacifico. Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedinany formorbyanymeans,electronic,mechanical,photocopying,recording,scanning,orotherwise, exceptaspermittedunderSection107or108ofthe1976UnitedStatesCopyrightAct,without eitherthepriorwrittenpermissionofthePublisher,orauthorizationthroughpaymentofthe appropriateper-copyfeetotheCopyrightClearanceCenter,Inc.,222RosewoodDrive,Danvers, MA01923,(978)750-8400,fax(978)646-8600,orontheWebatwww.copyright.com.Requeststo thePublisherforpermissionshouldbeaddressedtothePermissionsDepartment,JohnWiley &Sons,Inc.,111RiverStreet,Hoboken,NJ07030,(201)748-6011,fax(201)748-6008,oronline athttp://www.wiley.com/go/permissions. LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveusedtheir besteffortsinpreparingthisbook,theymakenorepresentationsorwarrantieswithrespect totheaccuracyorcompletenessofthecontentsofthisbookandspecificallydisclaimany impliedwarrantiesofmerchantabilityorfitnessforaparticularpurpose.Nowarrantymaybe createdorextendedbysalesrepresentativesorwrittensalesmaterials.Theadviceandstrategies containedhereinmaynotbesuitableforyoursituation.Youshouldconsultwithaprofessional whereappropriate.Neitherthepublishernorauthorshallbeliableforanylossofprofitorany othercommercialdamages,includingbutnotlimitedtospecial,incidental,consequential,or otherdamages. Forgeneralinformationonourotherproductsandservicesorfortechnicalsupport,please contactourCustomerCareDepartmentwithintheUnitedStatesat(800)762-2974,outsidethe UnitedStatesat(317)572-3993orfax(317)572-4002. Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthatappearsin printmaynotbeavailableinelectronicformats.FormoreinformationaboutWileyproducts, visitourWebsiteatwww.wiley.com. LibraryofCongressCataloging-in-PublicationData: Busch,Andrew,1961- Worldeventtrading:howtoanalyzeandprofitfromtoday’sheadlines/AndrewBusch. p.cm.—(Wileytradingseries) Includesbibliographicalreferencesandindex. ISBN978-0-470-10677-8(cloth) 1. Stockexchangesandcurrentevents 2. Investments. 3. Stockexchanges. I. Title. HG4551.B872007 332.64(cid:3)2—dc22 2007002384 PrintedintheUnitedStatesofAmerica. 10 9 8 7 6 5 4 3 2 1 iv JWPR028-FM JWPR028-Busch June8,2007 18:20 CharCount=0 For Michelle, Samantha, Andy, Albert, Jake, and Jessie v JWPR028-FM JWPR028-Busch June8,2007 18:20 CharCount=0 vi JWPR028-FM JWPR028-Busch June8,2007 18:20 CharCount=0 Contents Foreword ix About the Author x Acknowledgments xi Introduction 1 PART I Infectious Diseases CHAPTER 1 The Black Plague: A Paradigm for Today 5 CHAPTER 2 1918 Spanish Flu 17 CHAPTER 3 Mad Cow Disease 25 CHAPTER 4 Severe Acute Respiratory Syndrome (SARS) 47 CHAPTER 5 Bird Flu 69 PART II Natural Disasters CHAPTER 6 Hurricanes 83 CHAPTER 7 Earthquakes and Tsunamis 121 CHAPTER 8 Global Warming 135 vii JWPR028-FM JWPR028-Busch June8,2007 18:20 CharCount=0 viii CONTENTS PART III Politics CHAPTER 9 Terrorism 151 CHAPTER 10 Government Change 171 CHAPTER 11 Government Scandals 189 CHAPTER 12 Modern, Short-Term War 205 Conclusion 229 Bibliography 231 Index 237 JWPR028-FM JWPR028-Busch June8,2007 18:20 CharCount=0 Foreword P estilence, natural disaster, and acts of terrorism are each unpre- dictable in timing, location, and scope. None, however, is unpre- dictableinitseffectontheworld’sfinancialmarkets. Animmensewindowofprofitopportunityoccurswhenthereisliquidity andpricedislocation.Tradersandinvestorsinthethickofmarketupheaval often are not able to seize the opportunity, simply because they do not understand what is happening. Understanding the complex relationship between a global event and the collective market psychology at the time thattheeventoccursiscrucial. Thisistheessenceofworldeventtrading(WET). Justasmarketsconsistentlyshifttheircollectivefocusindetermining thedriversofpriceaction,asuccessfulmacrotradermuststandreadyatall timeswithavarietyofstrategiestoemploy.Asoneweaponinthatarsenal, proficiencyinWETisindispensable. In-depth knowledge of past events and how their impact was mani- festedintheworld’sfinancialmarketsisnoteasytocomeby.Itisdifficult tovisualizetheramificationsofanunusualsituationordevelopmentunless youhaveexperiencedorstudiedmanyotherseeminglyone-offevents.As- sociatedpricemovementsaredifficulttounderstandandgaugeforanyone otherthantheveryexperiencedmarketprofessional. Andychangesallofthisbyteachingyounotonlywhattolookat,but how to look at it. By examining global events spanning the gamut from naturaldisasterstocountry-specificpolicyerror,heleadsthewayineach instancethroughacompleteanalysisofhowthemarketsreactedandwhy. Drawing upon his 20 years as a currency trader, as an analyst, and as anauthor,Andytakesyouthroughmanyoftheseminaleventsofthepast fivecenturiesanddissectseacheventandthemarkets’reactiontoit.The result is a virtual road map, with detailed explanations of how real-world financialmarketsbehaveunderduress. Whatfollowsisamustreadfortraders,academics,policymakers,and studentsofmarketseverywhere. BILLLIPSCHUTZ PrincipalandDirectorofPortfolioManagement HathersageCapitalManagementLLC ix