HUMMONEY - The Hardest Thing (Perspective)

- by Greg Lewin

The hardest thing in the world is to do nothing. And I’m not talking about lazy “do nothing.” I’m talking about pain stacking, heart aching, agonizing “do nothing.”

The sounds of the stock market’s call to action begin resonating early in the morning on CNBC. When things may be a little glum the machine churns into action, bringing out tried and true pundits such as Warren Buffet, assorted Federal Reserve officials, academics from our best universities and various self proclaimed all-star managers to impart their own versions of clarity, certainty and wisdom.

And who are we to offer a challenge? Sure you’ve read the stories of federal debt, state and local government defaults, unemployment, the failing social safety net, European country failures, food inflation, soaring oil prices, Arab riots, and the odd natural disaster, but of course you don’t have the resources of our celebrities.

How can they be wrong? They own businesses, they travel the world, they confer with the world’s great leaders and they even at times advise and assist our own government officials. They are the elite and we are simply players. They have insight and we are merely observers. So when consumers are urged to consume and investors are urged to invest we ultimately relent and often times become encouraged by our short term victories, and ultimately join forces with our more illustrious peers and take comfort and gain confidence in our association. Worst of all, we dismiss our fundamental observations as impediments rather than our own point of view. 

One of the phrases that has always troubled me more than most is “respect the market.” This is referring to the notion that the market’s behavior is somehow informed by some enormous collective wisdom.

So when the Tokyo market tumbles 10% on generational problems, and the next day world governments collude to inject billions of dollars to effectively create stock market demand and the market goes back up, what should we learn? Are the markets geared to inform or possibly to misinform?

When world economic policy collaborates to manufacture low interest rates in combination with an abundant supply of risk capital at the simple expense of mountains of (what amounts to) low interest variable rate debt, should we choose to argue and stand in the way of short term profitable behavior? Or might we use our own simple powers of observation to recollect that we have been down this road before?

We even seem incapable of learning from our most recent misfortune. Can anyone remotely detect investor behavior and leading economic thinkers advice that is reminiscent of the most recent housing crisis? Do you remember mountains of adjustable rate debt, rising prices attracting rising investor interest, rising market prices reinforcing risk taking behavior and collections of experts removing any sense of doubt?

In fact, these are virtually the same set of experts that proved so reliable in our last meeting with financial death.

So again, please tell me, exactly what were the markets informing the investment public of and how much respect did they really deserve?

To quote Rudyard Kipling from his wonderful poem “If”:

If you can keep your head when all about you

Are losing theirs and blaming it on you;

If you can trust yourself when all men doubt you,

But make allowance for their doubting too;

If you can wait and not be tired by waiting,

Or being lied about, don’t deal in lies,

So the question remains, can you be open and adaptable to new information but be true to your own compass and possibly do nothing when all those about you may appear to be profiting, yet from your vantage point, are losing their heads? 

For if you can do the hardest thing, somewhat apart from that which is widely encouraged, as the poem concludes:

Yours is the Earth and everything that’s in it,

And – which is more – you’ll be a Man, my son!

Well, I might have gotten a little carried away, but hopefully you get the point.  

--The views expressed here are of the author, HUMMoney contributor Greg Lewin; currently a General Partner at TLF Capital, an investment management firm. During the past 26 years he has been a senior money manager or partner in Wall Street firms including Neuberger Berman, Charter Oak Partners and Sailfish Capital.