OlsenBlog

We have published a small booklet ‘Global Economy under Siege – Possible Initiatives’. The booklet is based on a post that I published 14th December 2009. The booklet includes visuals created by Lisa Wilkens. Pictures can mean so much more than words. I hope that you enprepared a small booklet that you can download as a pdf or have us send you a copy. It includes the text of a post that I published on the 14th December 2009 and has since been edited. Lisa Wilkens has created visuals to accompany the text. A picture is worth a thousand words, thank you Lisa. I hope that you enjoy the booklet. I look forward to your feedback.

The global crisis has fueled a debate of what needs to be changed. People have focused on regulatory reform and on the need of imposing restrictions on compensation packages for bankers. The debate has failed to address wider and more fundamental issues. In the following I give a brief overview of initiatives for change that I propose. My ideas have germinated over the course of thirty years. The proposals for the reform of the financial markets are based on my work in high frequency finance and hands on experience in building two businesses active in financial markets. The other proposals are inspired by my system theory, the theoretical foundation of my work in high frequency finance and also leverage insights gained by studying law. (more…)

Obama calls for a stronger Renminbi: does he have real clout or is this just a publicity stint to appease voters back home? China is the powerhouse of international finance. It has accumulated the world’s largest pool of currency reserves of 2.3 trillion USD. By imposing strict capital controls China has been able to peg its exchange rate to the Dollar. Its ultra-competitive exchange rate has allowed China to grow its exports disproportionately. Today, exports in the amount of 1.4 trillion USD account for 32 percent of its GDP. The low cost Chinese products are the de-facto price benchmark of manufacturing goods across the world. The prices put downward pressure on manufacturing prices and force businesses to offer their goods at prices that are not sustainable and do not allowfor long-term investment and reserve accumulation. This has a distorting effect and drives companies across the globe out of business leading to a loss of valuable human capital. (more…)

In recent months, stock exchanges have come into the public spotlight for their business practices. The introduction of flash orders that give preferential treatment to a certain group of customers has undermined public confidence in stock exchanges as institutions that vouch for fair market prices. The introduction of flash orders happened in the wake of a development that has received little publicity. There is a growing scientific literature in finance that explains how market prices depend on the details of the order flow and how traders can influence market prices. An increasing number of market participants take advantage of these discoveries for their own and their investors’ advantage…

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Author: Richard B. Olsen, Founder and CEO of Olsen Ltd

Modern society is divided. On the one hand people have access to advanced technologies in medicine, computers, Internet communication and mobile phones. We make telephone calls around the world from one remote place and frequently do things that appear miraculous. On the other hand, many face abject poverty; one half of the world population subsists on an income of less than USD 2.50 a day as measured in 2005, see World Bank Development Indicators 2008. This is not all; there are other negative factors, such as profligate use of non-renewable resources, large loss of biodiversity, pollution of the atmosphere, and chronic armed conflict and suppression of human rights in many different areas of the world. There is a mismatch: We need to redress the imbalance between technological prowess and poverty and bring the global economy into sync with the environment…

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By: Richard B. Olsen, Founder and CEO of Olsen Ltd

Today, we use technologies on a regular basis that only 20 years ago appeared impossible. If you had told anyone in the 1970s that today’s world would boast an installed base of more than 1 billion of personal computers, this would have been viewed as utopia. Or who predicted ten years ago that mobile phones would exceed 3.5 billion by 2008? For that matter, nobody expected that Moore’s law of doubling of computing speed every two years stipulated in 1964 would still hold true in 2009?

In technology, we have been able to exceed our wildest expectations, so why not try to achieve the same in social issues? The contributions to the economics section of the blog will span a wide range of areas that are critical for such an endeavor…

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By: Richard B. Olsen, Founder and CEO of Olsen Ltd

The interest rates associated with individual currencies are one of the most obvious yet least-understood forces in the foreign exchange marketplace. Their most negative effects capture public attention during carry-trade bubbles, such as the recent (summer 2007) rise—and then abrupt fall—of the New Zealand dollar versus the Japanese yen. But day-to-day, currency traders are misled by a broken market mechanism that encourages pricing to skew away from any connection with reality.
In the following interview, Richard Olsen, co-founder of OANDA, discusses this little-understood issue. The solution he recommends—and has put into practice at Olsen and OANDA, the prominent online forex brokerage he founded in 1995—is continuous interest-rate payment, second-by-second, on all open positions.
Continuous interest makes the yield component of every currency transaction real. In a marketplace where fundamentals are few and far between, and where pricing tends to lack any fundamental frame of reference, continuous interest will help stabilize markets and enable incremental intervention to avoid valuation free-falls…

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Enclosed are the slides of a talk that I gave in context of the launch of the Asia-Pacific operation of OANDA Corp. I hope that you will find the content of the slides interesting. The talk explains, why tick by tick screening of market prices is so important for a successful analysis of market trends. It gives recommendations of how retail and institutional investors and corporations should respond to the current crisis. The foreign exchange markets offer significant return opportunities. For corporations and other institutions with currency exposure, the implementation of currency overlays are essential. I then outline, how the governments and central banks can be pro-active to overcome the current crisis. I suggest that they should launch a global early warning system for financial markets and the economy at large, start a program of dynamic foreign exchange interventions to stabilize volatility and finally launch an effort to digitalize the financial markets to get rid of the outdated business practices. You are invited to comment and ask questions…

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The credit and equity markets have been rocked by exceptional events. The currency markets have seemingly been spared of a lot of grief, even though there have been large scale price moves of 20 and 30 percent, but not as detrimental as the events in the other markets. We argue that it is only a matter of time until similarly catastrophic events occur in the currency markets. We argue that central banks have to take a pro-active role in the foreign exchange markets to dampen volatility and prevent big price shocks in the currency market. We are not arguing for large scale interventions, but for an ongoing quantitative intervention strategy to provide market liquidity in the spot currency markets, whenever there is a short-term imbalance of demand and supply. Imbalances of demand and supply have an amplified impact: price spikes trigger margin calls, which lead to a cascade of margin calls setting in train massive price dislocations…

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