Trigger Event : Cleanse Your Mind of Preconceptions, Dig Down Deep & Think Outside the Box

The Trigger Events in the VIX Asset Allocation Model can be traced to identifiable causes. The ones given in 2007 were linked to the improvident extension and expansion of credit in the United States.

I previously mentioned in an earlier post that understanding the potential ramifications of the events causing a disruption needed to be well underway with the Alert given by the Model in February 2007. After the occurrence of the Trigger Event in August 2007, that process needed to be accelerated into high gear as the highest priority. 

When undertaking the process of understanding the ramifications, the first step is to cleanse your mind of all preconceptions about the causes and the opinions that you may have heard from others including those in leadership positions such as the then Treasury Secretary Paulson and even Bernanke. At this moment in time, you have to draw your own conclusions after digging deep into the evidence, seeing how widespread it might be, and then to develop scenarios about what is likely to happen when the chickens come home to roost. Re: The chickens have come home to roost

For an individual investor, the process can not be as thorough as the one a large organization can accomplish. A heavily indebted real estate company would draw a different course of corrective action than a large financial institution holding a lot of exotic paper containing loans that are the source of the underlying problem. The real estate firm, recognizing the possibility of a credit contraction and a possible recession, would want to suspend any new development, secure more firm loan commitments, and to sell some property at what would hopefully be higher prices. I saw this happen in 1973 when my father just halted all new construction and just finished what had already gone beyond the foundation stage.  A bank, assuming there is competent management at the top, would unload securities whose value would likely plummet based the thorough and in depth investigation process started in 2/07. New sources of income would then be apparent to their trading operation. After doing my selling of stocks and mutual funds, my reaction was just to buy SKF in November 2007, but that double short ETF just spooked the heck out of this codger, so it was jettisoned way too soon.   

Remember what Santayana said. What is done is done, but has anyone really learned anything from it.  The Most Abused Word: Reform/Buys of IR & DD/Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology