“The concept of a general equilibrium has no relevance to the real world (in other words, classical economics is an exercise in futility.)” – George Soros
The Loonie – To Hedge or Not to Hedge
We have been fielding more questions about currency and potential hedging strategies recently. We are not currency experts or forecasters, but we are keen observers of the lessons from history, respect long-term cycles and are eager to study how the world really works so we can position ourselves sensibly. When contemplating the recent trajectory of the loonie, we are reminded of George Soros’ theories that financial markets do not tend towards equilibrium as conventional theory would argue. Rather, that markets feed on their own misconceptions about events to drive exaggerated movements, which then feeds further momentum. Soros describes this two-way feedback loop between perception and reality as his theory of reflexivity. He claims that speculative runs on a currency can persist for a long time and relative movements in one currency against another are frequently of a long term, secular nature, often measured over many years, rather than days or weeks. That has certainly been the case for the loonie.