Hedging Morals

If you know me, you know I’m not big on Kantian ethics and morals. Nevertheless I found myself in the middle of an ethical conundrum today. If I believe that the new Hamas-Fatah alliance and trouble in Iran will result in greater perceived risk for Israel then it makes sense that I short the Shekel and sell Israeli government bonds. The dilemma arises in that once I own the position I make money if Israel gets bombed, something that I definitely don’t want to see happen as a Jew with many relatives living there. My moral and monetary incentives are instantly misaligned.

The same is never the case when shorting US Treasuries or dollars – after all with that I’m betting on Bernanke’s babble, not another 9/11 which would have pronounced effects on all global markets - unlike Israel which is too small to affect many countries outside of its region.

In any case I put on the trade. I don't believe that Israel is in a good place right now, and even though I pray that nothing happens I know that's damn unlikely. With Israeli CDS spreads being as tight as they are now any serious militant attack is going to widen them considerably. One could say that the trade is like a call option on my morals (if something bad does happen, at least I'll make money) but I'm not going to go down that path. The bottom line is that when trading, especially with other people's money, you have to put your own (non-collective) morals and individual incentives aside so that you can execute the best possible strategy.