Playing to win the money game is dependent not just on how you play the game, it also depends on not getting played. This requires an understanding of the component parts of the money game (and being able to think a few moves ahead).
The first step should be determining the most important component, and determining the most important piece provides an advantage in being ahead of the curve, and not being behind the curve. The most important piece to gauge where we are in the economic cycle in the U.S. is the 10-year treasury note rate. Unlike short-term interest rates which are completely determined by the Federal Reserve, the trend in the 10-year treasury note rate (see chart below) is more indicative of the direction of the economy, because it forecasts longer-term movements.
The 10-year treasury note has been trending down for a couple of decades, long before the Great Recession in 2009. This may suggest that the recovery since the Great Recession was only a respite from the secular downtrend in the 10-year treasury note, which began in earnest in the 1990s, and that there other factors at play that portend more trouble ahead.
This should cause a pause in how you are positioned in every asset class, especially equities in the stock market. To be sure, the value of learning, understanding and mastering the trend becomes more and more important in the money game going forward. Certainly, recognizing and knowing how to trade either side of the trend puts you at an advantage and keeps you ahead of the curve in the money game.
Stay tuned — there’s more to come on playing the money game!