Some people like listening to music or watching TV. I like watching financial markets. Aside from the exceptional cases where asymmetric information makes investing unfair, markets are generally efficient. The price discovery mechanisms involved, especially in commodity pricing, is something I am continually astounded by. Will it be an especially cold winter? Look at commodity prices. Will fracking technology advance greatly in the coming years? Check the price of oil futures. What are the odds that Apple's new iPhone will be too expensive for consumers to buy? Check Apple equity options. Are the credit ratings for a country not reflective of the reality? Check their credit default swaps. The information hidden amongst financial markets, especially derivatives markets is awesome in the actual sense of the word.
The availability of such a vast array of information, therefore, makes it difficult to understand those who make comments that are directly refuted by financial data. Why is this important? If you believe that any financial instrument is undervalued you should buy the stock. If you believe that any instrument is overvalued you should "short" it, or borrow it from someone else, sell it immediately and return the instrument by purchasing it at a later date. In this way you will have pocketed the difference between the current value and the lower value when you buy it back.
For example, if I believe the political and economic situation in a country is dire and that that country is headed for disaster, the steps that I take are very obvious. The easiest way to do this, that is bet on the imminent demise of a country, would be to buy a credit-default swap or CDS. The CDS immunizes (almost completely) the owner of the swap against the default of other financial instruments the investor has purchased. So if you own a corporate or government bond in a country and are worried the government may default on its debt obligations for example, you buy the bond and the corresponding amount of CDSs. Alternatively, if you have no investment in that country but believe that country is headed for default you buy the CDS anyway and sell it later on, as "insurance against default" appreciates. However, if just the opposite is true, and you believe the credit-default market has overpriced the risk of default for a country, you can short that swap.
In other words, political pundits can easily put their money where their mouth is and should be kept honest by those that listen to them. You believe the demise of a country is imminent? You think the leader of that country is driving the country towards disaster? Great, short the country however you can. However, if you scream day and night about the ills of a country and how its leadership will drive the economy into the ground yet simultaneously invest in that same country, you are a hypocrite and I have no respect for you.
I'm often approached to invest in "great" trading ideas. My go to questions are: What percentage of your assets have you invested in this idea? Do you own a home? Have you put it up to support this trading idea? If the answers to all of these questions reveal the investor has invested very little in his or her own idea and the vast majority of their assets are tied up in "safe" assets, then they don't really believe in their idea and I stay away. You think the appreciation or depreciation of a currency is a lock? Your currency positions should align with these ideas.
So the next time you hear a political pundit speak disparagingly about a country and its ability to control its economy, ask them what their financial position is vis-à-vis that country. Are they actively betting against it? If not, why not? Similarly, those that talk greatly about a country, are they invested in that country's currency markets? Maybe only some of their assets are denominated in foreign currencies? This ratio is exactly how much they believe their own words and we as consumers of their commentary should put only that much credit into the words they are saying.
If you have no skin in the game, nothing to lose, it's easy to criticize, but if you can't put your money where your mouth is, you too don't believe the things you are saying.
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