A crisis of uncertainty

09 Oct A crisis of uncertainty

Koulopoulos

If I’m overdue for a posting, it’s only because – like everyone else in the known universe – I’ve been trying to keep myself as busy as possible to avoid coming up for air to read the headlines. It’s a mess, no doubt about it, but we are living through an era that will go down in history as a prime example of how we not only repeat the mistakes of the past, but add to the magnitude of those mistakes each time we do.
The question on everyone’s lips, of course, is how did we get into this predicament? (Read on…)
First, a few disclaimers

• I AM NOT AN ECONOMIST. (I like being right more than half the time.)
• I AM NOT A PESSIMIST. (But I’m about to sound like one if you don’t read all the way to the end of the post.)
• I AM NOT STUFFING MY MATTRESS WITH CASH. (Yet).

Where to start? Well I’m not an economist, and that may be a good thing in this case, since the collective brainpower of the world’s economists, a handful of Nobel prize winners, and the smartest of the smartest financial minds did little to keep us out of harm’s way. In fact, they drove us into the midst of the storm, and I have to admit, unabashedly, that I too believed that they were all smart enough to keep us and our 401(k)s safe.
What’s clear now is that the danger of where we are and where we are going has much less to do with what we have learned about the past and so much more to do with what we don’t know about the future. It’s what for years now I’ve termed “The Uncertainty Principle.” I’ve written about it, talked about, and consulted on how to deal with it. Yet, I still didn’t think we would be so blind to uncertainty as we have been.
Maybe I should have listened to Peter Drucker. In a conversation we had nearly eight years ago, he said to me, “Tom, we are not in the middle but in the beginning of a period of great uncertainty.” His advice to me was simple (and I still have the audio recording to listen to!) “Stay liquid.” He felt every business needed at least 12 months of solid cash to weather the storm.
So what’s my take on the problem at hand? Well first of all I’m sick of the continued line of crap we get whenever we hear a Wall Street expert being asked this same question. If you listen it’s easy to see how wound up most of these “experts” are in their own web of complexity. It isn’t that complex, and we don’t even need to get into political head banging to explain which side of the isle is to blame.
The problem is that there is “no place left to hide.” That’s all there is to it. It used to be that we could weather a financial crisis by moving money elsewhere and covering up the tracks of the previous mess. Soon enough the next growth market would eclipse the last and onward we would go. And if the mess was large enough, there was always an ocean or a continent or two to cross and find safe haven – can you spell E-U-R-O?
Game changers
But two things happened to change the rules of the game.
First, in case you haven’t heard, the world is flat, or at least close enough to flat to make visibility across and into other economies much more likely. By the way, when I say “visibility,” I’m talking about the impact of sentiment and perception as much as anything else. When we react now, we do so as a global population of lemmings heading to a single global precipice. Nice imagery, eh?
Second, the smart folks who made a living covering their tracks by wrapping a small mess in an ever bigger more complex mess, and who convinced themselves and everyone else that complexity equaled value, got very, very, very good at doing just that. The financial instruments that were being sold were simply impossible to understand. Wall Street had Nobel physicists writing formulas to make the world appear not only utterly complex but, through that complexity, to convince us that there was some unknown law of the universe at play guaranteeing that they had the insight inaccessible to us simple minded mortals.
I think insight of that magnitude is better termed delusion, but again what do I know? I’m no economist.
So here we are and there’s why. So what? Well, again keeping it simple, “learn to live with it!” The biggest failing of the current crisis goes to the root of my Uncertainty Principle, which says that “as uncertainty increases, the time to respond decreases.” Simply put, if you wait, you’re screwed, but you REALLY want to wait. We can’t. If we wait to act, we fuel global perception that uncertainty has triumphed. Any action is better than inaction – and yes, I understand the risk. But, the only relevant question in my mind is “does the risk of action outweigh the risk of inaction?” Just look around you right now to see.
This is probably the greatest financial mess most of us over the age of 30 will see in our lifetime (sorry to those under 30, but your turn will come!). But here is the good news (as the optimist emerges from the chaos): it’s also the greatest opportunity we will ever have to make some fundamental changes in how we operate in this new transparent, uncertain, flat, interconnected, crowded world.
When we look back on this…
I’m convinced that when we look back on this, we will see it as a fundamental turning point in how we built the foundation for the next 50 years of economic growth. I want to be part of that – and that’s exciting!
Oh, but did I mention that I’m not an economist?