Is the sky about to fall?

A reader of my daily stock market commentary emailed me with his concerns that so many negative financial issues are brewing, such as rising interest rates and budget and trade deficits, that the outlook for 2006 is quite gloomy indeed. I don't quite agree. My reader's comments were articulate and well made and completely consistent with a lot of what I read in the press and from commentators, but there still seemed to be something missing. Here's my response to his email:

Thanks for your comments. My only overall response would be that "the
markets" (stock, bond, commodities) are inherently unpredictable and we
would all be wise to be quite skeptical of any *certain* predictions of how
the markets "have to be" or "will be" or "what must happen". Sometimes
things "must happen" in a long-term thematic sense, but not necessarily on a
timeframe that even the most capable experts can predict with anything even
resembling approximate certainty. Just last year, Warren Buffett was *sure*
that the dollar would decline in 2005 and now he has apologized to his
shareholders for losing $955 million (almost a billion dollars) of their
money on this bad bet.

Most of your points (all of them?) have been made many times by many people.
I don't think I read anything that wasn't an accurate rendition of what I've
read before other places. I would simply urge you to be a little less
certain in your forecasts and allow for a wider range of variability and
uncertainty.

As far as the decline on Friday, I would offer Greenspan's advice: *never*
judge the trend by the latest data point in a data series.

I try to convince people to be skeptical of the "stories" that are being
peddled by Wall Street "professionals" (including the so-called "Doom and
Gloom" crowd). By all means, decide for yourself what path you are going to
take, but do so only after sifting through as much information as you can by
yourself and staying as far away as possible from the artfully contrived
stories that get so much attention in the press and are peddled by people
with agendas, whether rosy positive or gloomy negative.

As usual for most things in life, when presented a very wide range of
alternatives, the "truth" is usually somewhere in the middle, neither as
good as promised nor as bad as warned. And even if an expected outcome does
sometimes occur (e.g., the various financial events in the fall of 1998),
the best approach is to take out a reasonable level of insurance and then
bet on what you think is the likely outcome, not what *might* conceivably,
theoretically happen.

It doesn't make sense to live every day of your life worrying that maybe
tomorrow the sky will fall. At this juncture, my best instincts and my best
reading of the data (my reading, not some "stories" peddled by people with
dubious agendas) tell me that no great financial calamity will occur this
year or next. Sure, feel free to buy some of the "insurance" that Warren
Buffett is now offering in his new market bet, but I see no justification
for going around and telling everybody that "the sky is falling" (or about
to fall) when there is essentially no evidence of that to date.

In summary, I *don't* urge you to change your outlook simply because I think
you're wrong, but simply urge you to open your own eyes a little wider,
examine more of the world around you, think more on your own, and make your
own more thoughtful conclusions. If there is one thing I am certain about,
it is that as our global economic system becomes ever more complex we need
to treat certainly with more skepticism and allow for a wider range of
uncertainty. Your message seems to have too high a level of certainty
attached to it and seems too much in-sync with a lot of the "stories" that
are being promoted these days. Show me some original thinking or truly
insightful anecdotes and maybe I'll be persuaded. Caution: LTCM failed even
though they had two esteemed Nobel laureates onboard, so be careful when
depending on any so-called "experts" will gilded credentials. Focus on
common sense, but not fear or panic.

It is a scary world and so many people got burned in 2000-2002, but that's
not a good excuse for acting like there's a monster in every closet, under
every rock, and around every corner. Life is too short for that kind of
cynicism. My advice: buy a little financial insurance, enough so you can
sleep at night, and move on and look for productive, positive bets that you
can make that will be good for society.

And if you still feel absolutely certain the markets will crash this year
(or next) and feel tempted to bet the farm on that specific outcome and
timeframe, please recall John Maynard Keynes advice (paraphrased): The
markets can remain irrational far longer than you can remain solvent.

In any case, I do appreciate your comments since they do let me know how
real people are actually seeing and thinking about things.

To answer my headline question: No, the sky is not about to fall. Relax. Buy a little insurance if you want. Avoid speculative excess. Don't believe everything you read or hear. But mostly relax and find productive things to do with your life.

-- Jack Krupansky