The chart below not only shows the Year-to-Date returns, but also very nicely illustrates that concept called volatility, also known as risk.The management of risk is the number one preoccupation of a successful trader. If you cannot do this, if you do not think of it with your every breath, don't trade.
Trading for the short gain is a thing unto itself. This is why I say that one does not ask traders what to do when shaping their long term public policy, or draw serious economic conclusions from short term market movements. I have to admit that economists themselves, joining the ranks of most politicians and regulators, have a fairly poor track record of late on influencing public policy, but that is a matter for disgraced professions to mull over while they try to talk their way around another financial mess which many of their members actively helped to create.
If you wish, take well thought out long term investments and hold them in a reasonably constructed portfolio appropriate for your objectives. The markets are particularly dangerous now because they are awash with easy money and wilder than the statistics show due to complacent regulation. Everything in this life involves risk. These days things are often not as they appear, and even cash is not without risk. Life is a school of probability.
It is particularly hard to describe currency risk to Americans because most of them have never been outside their country except perhaps for an insulated holiday on the Pax Americana. A surprisingly large number of the Yanks do not own passports, except lately perhaps for purposes of domestic identification. Quite an innovation, to need a passport to go about your business in your own country.
I am not saying that this insularity is a bad thing necessarily, but a phenomenon that subtly but profoundly influences group thinking, the cultural weltanschauung.
And it can be the strength of a nation when it mobilizes to action, but also the weakness, the downside of a relatively isolated and homogenous society, as in the case of an island, ethnic group, or otherwise relatively inward looking society, easier prey for demagogues, and psy ops, and the flattery of frauds. Care for another helping of freedom fries?
But this self-containment is understandable. After all, it is a big and very diverse country, full of natural beauty, much given to the rewards of exploration and travel, a study in itself. And the people are on the whole hospitable, remarkably unpretentious, easy going, and friendly. The country has the gift of virtual self-sufficiency if it were to once again seek it. And it would be the world's loss.
This idea of education and experience is not to say that people need to be geniuses to be people. One of our girls is not quite the sharpest tool in the shed, but she is undoubtedly wise beyond her years, in an almost wonderful way, because she has been gifted with an enormous power of empathy and common sense. Each one can be beautiful in their own ways if you have an eye to see them as they have been created. Every flower has its own enchantments, varieties, and value in God's economy.
But as for a knowledge of money, unless one's profession has exposed them to practical currency exchange situations, they often have only a cartoon like concept of currency fluctuations and relative values as digits on a screen, an intellectual abstraction.
As one of my old professors used to remark, it smells of the lamp, ie hasty and academic without practical understanding. And give them a little power or good luck, and they can quickly become almost unbearable. One of the greatest benefit of an education is that it will teach you what you do not yet know, it will show you the distant horizons.
"And therefore as a stranger give it welcome.When a reasonably intelligent person remarks that gold cannot be money because its value fluctuates, while their own currency is doing loop de loops to the downside, and their bonds provide negative returns, you have to wonder, until you realize that they are captive to their self-imposed limitations, their limited personal experience, and education and wisdom have not been allowed to lift them out of their deep wells of subjectivity.
There are more things in heaven and earth, Horatio,
Than are dreamt of in your philosophy." Hamlet Act 1, sc. 5, 159–167
educare, Latin from ex ducare, 'to lead out of, to bring forth'And this I think is the interpretation I prefer for Dürer's Melencolia I. The exhaustion of knowledge, mechanical prowess without humanity or wisdom, which becomes frustrated by its inability to understand life, and to achieve contentment.
Granted, volatility is unusually high in the markets. But we are in a global currency war. Governments are in the markets, which themselves are awash with cheap liquidity and leverage. What else would you expect?
These are big events, and they will not be resolved in a day, a week, or even months.. Try to maintain your equilibrium, and you may wish to stay out of the way of the giants as they contend with one another. That is easier said than done, because the next financial crisis will be of a much greater magnitude, and everyone will be a participant, one way or the other.
US Ten Year Note does not include interest payments.
