Leveraging Time

I've been around for you
I've been up and down for you
But I just can't get any relief
--Reo Speedwagon

Building on the previous post, there should be a relationship between leverage and time preference. Time preference reflects desire to satisfy needs in the present.

Individuals with high time preference consume resources rather than save them. Investments are shorter term in nature. Positions are put on a 'short leash' using a trading mentality.

Individuals with low time preference are prone to save resources for future consumption. Investments are longer term in nature. Positions are put on a 'long leash' using an investing mentality.

Increased leverage should reduce time preference. Because leverage magnifies losses, people engaged in carry trades must react relatively quickly to prices that move against them, lest they lose money much quicker and approach insolvency.

So, the next time you wonder why individuals, organizations, governments increasingly seem to fixate on the short term, the answer is simple.

It's the leverage, cookie.

position in SPX