Have you started your blog yet? What are you waiting for? Your world of bright ideas is at your finger tips. Here's a re-tread post from my blog. This post was my attempt to articulate the trouble I was having with the USD shorts in view of the relative risks I saw elsewhere.
That internal turmoil also served as my fuel for tackling subprime mortgage problem (which turned out NOT to be just subprime but rather a larger CDS problem) and eventually connecting the dots to the mortgage insurers AND the insurance companies who were large purchasers of these fixed income securities. All of that lead me to conclude that we were setting up for a systemic risk event, and that no asset class would be safe.
My point is not to crow, but rather to highlight how YOUR blog (remember, it can be private!) will help you concretize and organize your thoughts–you can instantly recall them as follows…
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Saturday, November 21, 2009
Cognitive Dissonance
Any of us that have had a psychology class are familiar with cognitive dissonance, though it is unlikely that we think about it in our everyday life. I needed a refresher on this definition, and I give it to you, courtesy of Dictionary.com.
Mental conflict that occurs when beliefs or assumptions are contradicted by new information. The concept was introduced by the psychologist Leon Festinger (1919–89) in the late 1950s. He and later researchers showed that, when confronted with challenging new information, most people seek to preserve their current understanding of the world by rejecting, explaining away, or avoiding the new information or by convincing themselves that no conflict really exists. Cognitive dissonance is nonetheless considered an explanation for attitude change.
I like to pay attention to things that bother me, as my subconscious has a lot on the ball. Readers are familiar with my "What do I have to believe is true?" wonderings out loud when I'm confronted with things that are perplexing to me. My current troubling wonder is the so-called dollar carry trade.
I don't pretend to be knowledgeable about the intricate logistics of carry trades, currency reserves and the like. I know enough to be dangerous….and I know enough to sense danger. I do know this: The USD is still the reserve currency, commodities are still priced in USD, and the boat is listing rather heavily to the side of the boat where the shorts are congregated. And being a contrarian just for the sake of being a contrarian risks one's being label a curmudgeon. Or, perhaps I'm just a coward and unable to take risks commensurate with reward.
But for all of the problems with the US economy and the dollar, we still have a pretty good system. (Or perhaps that is my rationale for dealing with this dissonance!). To me, being short USD (and long commodities) feels like shorting a stock that may have a takeover bid at any moment. Is it (short the dollar) the 'smart' or the 'too-good-to-be-true' trade? Father Time always answers that question for us. And perhaps I need to do a little navel gazing to make sure that I'm not the one in the weeds and everyone else on the path to low risk riches.
(Editor's note: If you don't want to do your own blog, but you do want to write an article from Slope on occasion, please write me!)
