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September 30, 2004

Survival in the Trading Jungle: The New Laws of the Stock Market An Insider's Guide to Successful I

By Gregory Bresiger

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  • Survival in the Trading Jungle: The New Laws of the Stock Market An Insider's Guide to Successful I
  • Page 2

by Michael J. Panzner

(Prentice Hall, Upper Saddle River, New Jersey, 291 pages) $24.95

Traders, especially institutional traders, have much to worry about these days.

This book suggests that they should be asking more and more questions about uncertain markets. They should also consider the effect of elections on the economy.

How stable and predictable are markets? Are they, as the advocates of the Efficient Market Theory (EMT) insist, always correctly priced? And how effective are central banks in regulating markets as well as smoothing out their persistent volatility?

Michael Panzner, a former trader and salesman over two decades for firms such as J.P. Morgan Chase, Soros Funds, Dresdner Bank and ABN Amro, uses this book to poise these hard questions. Clearly, he is skeptical that the regulators can reduce the trading bumps. And he is fearful that trading and investing will become much more difficult than in the 1990s when almost everyone seemed to win. But the markets of the 1990s are now just a dear memory.

Panzner argues in these pages that volatility has become so in bred in markets that they have become jungles. Indexes are, at times, distorted by the increasing incidence of volatility.

The author of this impressive, compelling work also contends that institutional traders are vulnerable to these new higher levels of volatility. Therefore, the book contains analysis of various market and economic problems along with a series of proposed strategies for coping with them. Panzner calls these survival techniques actions plans. He notes that buysiders, aware of the new realties of the stock market jungle caused by unprecedented volatility, are taking defensive steps. For example, when there is a sharp move in a market, Panzner says, sage buysiders are paying attention to what happens after the initial swing in an index or a stock price share.

"In some respects," he writes, "the follow-up action appears to reveal a measure of hidden supply or demand that has been poised to react when a fleeting opportunity presents itself. Although it is more art than science, one general rule of thumb worth keeping in mind is if the recovery bounce that occurs within the first hour of a catalyst-driven slide fails to recapture at least two-thirds of the initial move during that time, then there is a reasonable chance that at least a short term retest of the initial lows - or worse - will soon unfold." (page 223).

The author, who is now vice president of an international financial services firm, also calls into question the ability of central banks to prevent bubbles and crashes. Our own central bank, he suggests, doesn't command the respect it once did.

For example, one of the leading American investors, Warren Buffett, no longer puts all his faith in the almighty dollar as America's economy starts to slow down because business is going abroad.

"Berkshire Hathaway," Panzner writes of Buffett's investment vehicle, recently began "buying foreign currencies for the first time ever, on concerns about the United States' deteriorating trade balance. Consequently, this raises the prospect that an even modest retreat could turn into a full-fledged rout if domestic investors really start to join in." (page 254).