In business life, among the hardships--and I mean life or death--in corporate life--I was not emotional. I always felt clear eyed about what needed to happen. I never doubted my decisions, and I was confident that the end would be satisfactory (not meaning to sound boastful but earnest in my duty). But there were times when that confidence was overcome in my private moments where I felt an abject terror of the consequences of my being wrong. I didn't have those conversations with anyone. Not even my husband. But in this blog format, I can cheerfully tell you my abject terrors!
The singularly most important lesson that I've learned over the last year is the extraordinary lag between when facts are available to the market v. when the market chooses to act (only today did HIG spook the insurers--I wrote about them in April of 2007). I've reasonably side-stepped the downdraft. That's only one half of investing success--and only 1/2 of the hurdle. The second half is stepping in during the hopeless period and bellying up to the bar (I guess you could say "bellying up to the bear"). With respect to market matters, I do not have such confidence as others are able to muster and roll up and jump in with a "damn the torpedoes" type of swagger.
Now, what if my reluctance to wade into this market is not emotion but reason? And what if the 'reason' of others, based on past markets and patterns, is merely emotion? An inversion of the two so to speak. Here's the thing that I have trouble with..... We've had a credit bubble of such magnitude that has built for so many years, how can the global economy possibly rebound without the engine of funding (credit)? How can any bounce be sustained in any meaningful way?
While the credit markets have blown up, we've still some body and psychological blows that have not been dealt, not been felt. We've yet to see evolving unemployment numbers and declining consumer spending over successive (not just 2 or 3) quarters. How many times can WMT be recommended? At what point in time does the consumer just buy groceries and not the higher margin items? How can we have the despair needed to form a real bottom until we see these things?
I'm an ignorant nobody with no fear of being wrong! I will gladly say that if this is the type of bottom that is formed, and I'm too fearful or ignorant to see it, then I'm just a cloven hoof in the crowd. Maybe I'll be referring to this post in the future as an example of where I was wrong in remaining cautious--a common mistake among the average investor. But I cannot see, nor has anyone pointed to, where the liquidity bellows are going to be pumping in a way that is efficacious in providing additional liquidity.
We may be keeping the balloon from deflating, but we are not making it bigger. It's got to get bigger to have growth, unless I have some fundamental misunderstanding of the way things work. We're merely trying to prevent collapse, nothing more. Worse, there is a hole in that balloon: the consumer. How is the consumer to fare with reduced lines of credit, loss of jobs, frozen wages?
Perhaps Larry Kudlow with his prickish smugness has an answer. He's a monologue. (You can insert names of others). Never changes his point of view though circumstances change. Free market and capitalism! Yeah, right. Free market and capitalism gone wild put us in this pickle jar. And the pickle jar isn't Claussen. No this pickle jar is a special one where a mad scientist consigns Nature's aberrations in the horror movies. This pickle jar will be one that every eccentric economist will have on their shelf. Students will look sideways at it for fear of looking at it head on would bring about palsey. That felt better.....
And what we did for the financial institutions--which is to give them enough money to not go under---we will be doing for the consumer. The consumer too will have to de-leverage. The consumer is the smallest unit. Like the financial institutions, the bellows (two-man bellows with Ben and Hank) are fixing over-leverage with the consumer. We will not be creating new funds for goods and services--we'll be creating funds for the consumer to de-leverage. If the financial institutions get this money and then fail to help the consumer, then I believe the worst. Do not forget that the consumer is 70% or so of GDP. Based on what you see, how do you see a reinvigoration of the world economy?
Should the bill pass this evening, we may get a temporary reprieve through a relief rally, but I see a steady drone of bad news coming. But maybe that is emotion and not reason. And I will own my being wrong. And, I'll be jubilant to be wrong. Ebullient, ecstatic and crazy happy in my wrongness. I may change the T to a S (thinking v. sensing) on my M-B score. I truly will be transformed into a different person.
I'd like to reprise with my friend Selden's quote--he's dead of course, and I don't know him, but his lovely little book has been my compass, and I feel close to him:
Historical parallels are likely to be misleading. Every situation is new, though usually composed of familiar elements. Each element must be weighed by itself and the probable result of the combination estimated. In most cases the problem is by no means impossible, but the student must learn to look into the future and to consider the present only as a guide to the future. Extreme prices will come at the time when the news is most emphatic and most widely disseminated. When that point is passed the question must always be, "What next?". (p. 54)
What next indeed. I'm fearful of the answer to that question in weighing the elements and looking to the future, and I do not believe that we've seen the most emphatic news and most extreme prices. Why? Everyday the story gets worse. Another unanticipated stalwart has fallen. Bottoms are not violent--he counsels, too. They are dull. This is violent. Reason? Emotion? I would trust you to tell me.