“The reward for flabby thinking is eternal damnation to mediocrity”
J. Pstrokonski
The only commodity which is in constant oversupply, it seems, is feeble-mindedness.
If a financial model clearly does not match reality, what do you do?
a. Step back for a moment and consider ways in which the model may be incorrect, look at alternative models, and try to figure out how well they match reality.
b. Screw the thinking, and just blast straight on through. Assume that the model is correct, and pound the table, screaming that reality should be where your model is.
Unfortunately, while finance is the industry most requiring levelheadedness, it is simultaneously the one industry with a severe lack of it.
Take, for example, the widespread view that the interest rates on JGBs will have to eventually soar as the pool of money available to buy them (savings) dries up.
Reasonable-sounding upon an initial reading. But how many people take the next logical step in reasoning?
How many people realize that this is completely impossible?
Consider, for a moment, what would actually happen if the price of JGBs did in fact crash.
Have you forgotten the lessons of 2008? Imagine AIG, but then every single financial institution in the country – large, medium, and small – was on the hook big time if it went bust.
Most financial institutions in Japan are heavily dependent on the price of JGBs not crashing.
This kind of crash would just simply make every bank in Japan go bust.
This cannot be allowed to happen!
The only way the system can be allowed to continue is to keep the market propped up at an artificial level while inflation starts to take hold. If you do not follow this yet, see here.
There are so many eyes-wide-shut delusions alive at any one moment (Australia is currently home to another), and as a contrarian, to make a killing all you have to do is ignore the mainstream media and take one additional logical step.
Just one step.
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