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 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.
Position: Long SMN.