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| Jeremy Blatch looks at how giving can be an antidote to fear in the current crisis. | 03/03/09
Millions of column inches of news type and countless hours of media debate over the last few months testify to the difficult economic and geopolitical times in which we are current living. Politicians, power groups and economists engage to blame each other, whilst they once again consult their now “’ fractured “’ crystal balls, as to how to save the world. As like Pharo in Egypt at the time of the great famine, they find no way to interpret or value the signs of the times. How they must wish for a Joseph to bring them the wisdom that they lack? We have indeed arrived at a ” Minsky Moment”. At its core, the Minsky view was straightforward: When times are good, investors take on risk; the longer times stay good, the more risk they take on, until they've taken on too much. Eventually, they reach a point where the cash generated by their assets no longer is sufficient to pay off the mountains of debt they took on to acquire them. Losses on such speculative assets prompt lenders to call in their loans. "This is likely to lead to a collapse of asset values," Mr. Minsky wrote When investors are forced to sell even their less-speculative positions to make good on their loans, markets spiral lower and create a severe demand for cash [that can force central bankers to lend a hand]. At that point, the Minsky moment has arrived. We are at that point now, or have been for some time. "Greed and fear” are the drivers of the market not the constituent parts. The perfect market is neutral ,has a buyer seller and the speculator assumes the risk . in a just system the risk taker should not only reap the rewards in good times but should also be allowed to fail if things go wrong . The inept handing of the Recession of the early nineteen hundreds led to the Great Depression of 1929 which lasted years. This was a Minsky Moment. The same political incompetence that failed to allow corrupt and incompetent business to fail is in danger of repeating the same mistakes half a century later, as they attempt to print money and legislate their way out of the current morass. But we have been here before in recent times. Several of the most intellectually gifted and experienced exponents of financial markets, left the Salomon Brothers and founded the Long term Capital Management Hedge Fund in 1994 Its success was meteoric but this was not enough for the founders who borrowed heavily against their main assets. Belief in their own intellect turned to arrogance as they sought to predict the market. Words such as : pride comes before a fall; this time is different; power corrupts; come to mind. They used what they could not afford to lose (other people’s money) to gain what they did not need to gain. ! Arrogance clouded their common sense. The result was bankruptcy. The business was bailed out by a consortium of banks in the late 1900’s supervised by the Federal Reserve, who were quite content to throw good money after bad. By the year 2,000 it had folded. This was a clear warning salvo for the present crisis. How could these highly gifted and experienced people have finished so badly? Pride! In reality most of us may be in some way responsibility for this economic crisis. However, for the capitalist system to succeed we need to let incompetent or corrupt business fail, in order to ‘weed out: the nettles and briars”‘so that that the rest may grow healthy and not be contaminated. Political interference cannot correct or legislate against the most basic of human conditions , greed and priviledged self interest! We have been in the grip of a forced sale of assets as a through fear of further falls in asset prices and traders who are forced to cover their speculative positions. This produces a downward spirall leading in some cases to a mispricing relative to their intrinsic value, of real assets such as commodities and sound companies, whilst at the same time performing the function of ‘burning off the dross’ in the market place. As for what the future holds, is the cup half full or empty.? I always see it as full. The world has seen a level of growth and prosperity since the Second World War that would have taken thousands of years to achieve in other centuries. We have more books now than ever before in the history of the world. 100% more people are in full time education than during the last century. We have received advances in Medicine far outreaching anything our forefathers could have dreamt of. The ‘boom and bust’ of the economic culture in a developed society with an emphasis on consumerism and comfort, is a reflection of the priorities of the society which leads to excess and eventually bust as Minsky proclaimed. However this is a time when real assets, commodities, consumer staples, sound companies may be bought at a price cheap, relative to their real value, but we must be prepared to be patient and not greedy and hold them for the long term. The worlds economy is not going to disappear it will eventually revert to the mean. A real asset is cheap now only because everyone is selling it. If the real intrinsic value has not altered and if it does not alter, one will make a healthy profit over time. Money is made through investing by the annual compounding of common stocks over time. How we manage our personal investment portfolios however will depend on many other factors. I doubt whether a mother with a child dying of malnutrition in the slums of Guatemala, or a child abused and sniffing glue on the streets of London, or a teenager who is an alcoholic in Gibraltar, is too much concerned by the state of the world's financial markets. It is notoriously risky to try and “’time the market”” but there is never a wrong time to give. To "time the donation’’ so to speak, as for a starving child or addict tomorrow is often too late! In these uncertain times within financial markets, you may be looking more for protection of capital rather than growth, safety rather than risk. What the banking crisis has shown us is that the only sure way to reduce fiduciary risk is to diversify between banks. Whether in a corporate or individual capacity our cash has to be put somewhere. By placing some funds into the Solidarity Money Market Fund you diversify and protect your liquid assets, whilst showing Solidarity with those who need help. We have lived through the ‘’greed”’ but we have no need to live in fear. To be truly thankful for all that we have, and give what we can, will help dispel the fear of losing what we have. “’ All creatures great and small the good Lord made them all”, so the song goes. The two things that the rich and poor have in common is that God loves them both; they both come into the world with nothing and will leave with nothing. JB |
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