RISK ASSESSMENT WEDNESDAY: A LESSON IN BEING HONEST WITH MYSELF
As an investor, one of the most crucial elements in order to achieve the success you desire is to be 100%, unequivocally and without boundaries truthful with yourself. I have been doing this for some 17 years now, with a great deal of success as well as a great deal of setbacks along the path. One of my greatest weaknesses has been the inability to have an honest relationship with respect to what I understand to be truth and what is perceived as truth that ultimately ends of being undeniably false.
I expect nothing out of this website. I'm not looking to make money off of subscription fees. I'm not looking to get investors. I'm not looking to connect with professionals that will connect me with a greater network of professionals. I simply want a journal to document my thoughts. A journal I can come back to and review for holes in my frame of thinking. If I happen to assist an investor or two and broaden your thinking with respect to the markets then that's a bonus for everyone involved. This frame of wanting nothing but to give allows me to be totally honest with my successes and especially my mistakes. And from that I continue my growth.
With that said, it has become abundantly and painfully clear that I don't understand what is going in the bond market at present. My trade on TMV was grossly premature in its entry. I didn't observe the warning signs along the path that would have alerted me that my thesis with respect to the trade was flawed.
The question now becomes what to do about the trade. The position isn't the size where I need to panic for fear of blowing up. If bonds continue to rise I won't like it, but it won't kill me either.
It seems that my line of thinking with respect to Twist being factored into the fixed income markets was the line a lot of fund managers were taking. This caused a lot of short covering to take place today along with further buying into long-term bonds as the thinking is that the Fed will protect bond holders through a steady regimen of being on the bid. The downside can't be that much, right?
Whenever a governmental entity becomes involved with attempting to manipulate open markets, it creates a sense of complacency amongst investors in that market. Bond investors will be under the impression that the Fed being on the bid will limit their risk over the intermediate to long-term. If the risk suddenly becomes amplified as the a result of that market taking an unexpected path, then the reversion to the mean will be extremely violent as expectation of risk ends up diverging from the reality of the risk.
Given the magnitude of the destruction in yields and the fact that I continue to believe that risk will be put back on in the market over the coming weeks, getting out of my broken TMV trade isn't an option here. My greatest risk is that we are in the midst of a black swan type of event in bond yields that sees the decline take on a life of its own. I can only see this scenario taking place if economic destruction coincides. I don't see a period of economic destruction a la 2008 approaching....yet.
Whereas my thinking with respect to the bond market has been incorrect, my short Euro trade and short gold trade have been doing well. I continue to be bearish on both, especially gold. Accordingly, DZZ is my largest position currently.
