Archive for May, 2010

A Matter of Time

May 26, 2010 Leave a comment

It was a big question: would European debt woes bring down the global financial system and economy the way the US debacle did in late 2008?

I say “was”. Because, ever since the EMU created a trillion dollar backstop for member countries and banks, the notion of insolvency has been taken off the table. Does that leave a weaker future for the euro and the EMU countries generally? Maybe. But consider:

These are just a selection of today’s headlines. The global economy is going to keep chugging along. That means it’s only a matter of time before economic fundamentals retake primacy and the bull market resumes its climb. Another way to say that: it’s overwhelmingly likely this is a correction and not a new prolonged bear.

Maybe this correction is about over, maybe it’s not. It’s felt like forever, but it’s only been a few weeks—this could drag out at least another few. Like 1998, it wouldn’t surprise in the least if we get near or touch the -20% mark for global stocks from their most recent peak—volatility has been so high, and the market swings have been so big (up and down), 20% relative to what we’ve been through right now isn’t so unfathomable. Maybe you’re one of those who calls 1998 a bear. I’m not, simply because it was so fleeting. That year, stocks recovered just as quickly as they fell, and it turned out to be a terrific year for stocks.

It’s fine to be fearful—the breakup of the euro is a big thing to contemplate, and most folks are gun shy from the last few years. But we’re quickly running out of fundamental reasons to remain fearful, and the bullish economic case hasn’t much budged from its position of strength since this episode began. This is looking like one of those many times in market history where discipline and sticking with the market will pay off before the summer’s end.

The Bearish Debt Bludgeon

May 20, 2010 Leave a comment

There’s been much made of Kenneth Rogoff and Carmen M. Reinhart’s recent book This Time Is Different: Eight Centuries of Financial Folly. Bears and Armageddon-mongers alike are using it as an intellectual bludgeon to “prove” we are all still doomed. Essentially, the book is an exhaustive study of sovereign debt busts through the ages, and many view its findings as a warning for what we’re going through right now in Europe . I’ve weighed in on this issue (and the book) here. But for those still wooed by Rogoff and co., this article is worth a look—a devastating (though somewhat technical) critique of the book and the ideas therein.

Kenneth Rogoff’s Sovereign Debt Warnings Are So Wrong, It’s Like He’s Living In a Different Time Period

By Marshall Auerback

Two for Tuesday

May 19, 2010 Leave a comment

1. Get this: The US economy might well return to its pre-crisis peak as early as next quarter. That would mean a new all-time high in GDP. If that isn’t stunning—and bullish—relative to today’s dour sentiment…well, I don’t know what is.

2. Why it is the Greek government was allowed to cut its budget deficit 42% after it got bailout funds, I’ll never understand. The world would’ve been saved a lot of heartache had they had that discipline pushed upon them by the EMU in the first place. This is the very point of market-determined yields on sovereign debt!

If This Be Austerity

May 15, 2010 Leave a comment

Sometimes we laugh at things that aren’t funny. For instance, I get a kick out of the notion that Portugal and other European nations in potential debt trouble are creating “austerity” measures – mostly by raising taxes with a dusting of actual spending cuts. But it’s really nothing to laugh at – fiscal reform is serious business for the euro’s future. To meet spending cuts agreements made during the creation of the bailout, Portugal has announced the following measures:

  • Increasing their value added tax (VAT) by 1% to 21%
  • Increase income taxes up to 1.5%
  • Increase corporate taxes 2.5%
  • And, lastly, almost like an afterthought, cut public sector salaries cut by an average of 5%

The Keynesian notion of increasing taxation in order to get fiscal budgets in order is ludicrous.  The answer is and always has been growing the tax base.  That is, growing the economy to pay down deficits.  More taxes won’t do it in the long run.  At least Spain seems to take this seriously, announcing the biggest budget cuts in 30 years.

The question of the euro’s long-term viability hinges on whether troubled member countries get serious about fiscal reform.  Or, as Paul Volcker said earlier this week, “You have the great problem of a potential disintegration of the euro.  The essential element of discipline in economic policy and in fiscal policy that was hoped for… has so far not been rewarded in some countries.”

Volcker’s words are probably a bit overwrought, but it is semi-concerning in the sense that the euro’s demise is being seriously contemplated.  Hence, the resumption of very high volatility in markets.  Right now, uncertainty seems to be winning the day – the European government is in many ways being as erratic as the US government was two years ago.  But in this case, the EMU was quicker, and already brought out the big bazooka of a near trillion-dollar backstop if solvency becomes an issue.  With that in place, it’s likely sooner than later that overwhelmingly positive global economic data regains primacy, and stocks resume their climb.

Fisher Investments Analyst’s Book Review: The World Is Flat

May 13, 2010 Leave a comment
It’s simply amazing to think The World Is Flat was first published in 2005, and already feels really old. These ideas just seem so self evident now. Penned by New York Times columnist Thomas Friedman, the book is in its third version. It certainly has its flaws, but ultimately is among the best tomes out there about modern globalization. In fact, the concept “the world is flat” (that is, technological advances and trade liberalization have evened the competitive global landscape) is near universal in today’s business lexicon. Yet in the five years since the book’s release, euphoria over the benefits of globalization and technology has been replaced by anxiety about competition and outsourcing. This book is a touchstone of that anxiety.Nonfiction books today often try to establish authority by saying, “This is the biggest change in the world!”, or “This book’s topic is the underlying reason for all things that are happening!” The World Is Flat is no exception. I’m not sure why folks so love the idea that this time is different. We’ve been outsourcing and reinventing our economy forever, and globalization has come and gone in waves for hundreds of years. So, rather than documenting some strange, new phenomenon, this book is an excellent analysis of a modern economic trend.

Mr. Friedman is more journalist than economist, which makes for entertaining reading, but the book is way too long. (I’ve long wondered whatever happened to editors over the last few decades—nonfiction titles are growing ever longer and more tedious.) Now the book has three editions, and Mr. Friedman has been goaded into stuffing it full of more stuff. It’s chock full of anecdotes and provocative but ultimately useless interview questions like, “What was the moment you realized the world was flat?” (Who cares?)

There’s a free market capitalist lurking in Friedman, and it’s great when he lets it run: He extols Ricardian trade (which says trade is ultimately a win/win), roots for globalization and competition, reminds us capitalism isn’t about how the economic pie is shared but about increasing the size of the pie (i.e., wealth creation), and cheers the entrepreneurial spirit.

He is right in all this, and those who fear outsourcing should visit the book’s first third. A chart of US unemployment over time shows it’s never—ever—been driven by how many jobs are going overseas, but rather by recession and expansion. The business cycle creates wealth by increasing productivity—allocating jobs and resources to the most efficient places (even if they’re in another country) actually adds to wealth creation. The US has reinvented itself—of its own volition—many times, and will do so again. Note that throughout much of the last decade (as the world was “flattening”), unemployment was quite low (under 5%). It wasn’t until a global recession that unemployment spiked. Short-term dislocation effects of unemployment are a legitimate concern, and certainly fuel populist support for protectionism. But since when has moving between industries been a bad thing for the US or global economy? Or would we still prefer to be an agrarian economy as we were 150 years ago to “save” jobs?

For all this, Friedman can’t help but often take a pessimistic tone about the US. A vast chunk of this book warns US citizens they must change to compete in the flat world. This is off track and more than a little offensive in parts. A true free marketer would never dictate what society must “learn”; instead, folks should be free to pursue their own self interest. But Friedman’s convinced the only real future job growth will be in software engineering, math, science, and such. Therefore, we need programs to create more scientists, engineers, and PhDs generally. He mixes this with an abundance of vague dictums like “we must be more versatile than ever before,” but we must also cultivate “greater depth” in our citizens.

Why is it that, suddenly, here on education, Friedman abandons his free market views for mercantilism? I don’t know. To dictate what a society must “learn” requires an omniscience and flexibility no single human can have. Which is one of countless reasons dynamic free market capitalism is so effective—it adapts without a central planner. It’s been precisely the freedom to choose that’s created such vast economic strength over time. I wish Friedman had the courage to go there. Instead, we get didactic gobbledygook about what we need to do as a society, which weakens his argument for free trade. Keep things free and fluid and opportunity should flourish. That will be, as it always has been, a stronger force for wealth creation than any command from on high.

Folks often don’t think in this way, but jobs and skills today considered ironclad may not always be. Decades ago we used to say learning certain skills or trades would provide a great career forever. But through time skills can become “commoditized”, that is, many workers become able do the work, and perhaps technology can largely replace those skills—like robotic assembly lines for cars. Today, we tend to believe trades like software engineering and the sciences will always provide job safety. Probably wrong. My guess is, as the world continues to develop, many parts of engineering and the sciences will become commoditized too. For instance, mechanical engineers are facing tremendous competition from software programs that can design products faster and better than ever before. Because of this effect, it’s imperative to allow the workforce to remain fluid rather than direct folks into this or that field of study.

The reason all this is offensive is it’s predicated on the myth the US is a nation of ignorant, indolent, lethargic, stupid folks more occupied with Britney Spears than Noam Chomsky. We’re Yankees. Yet, paradoxically, we’re also known as the most “Type A” workaholic nation ever. We take less vacation than anyone, have more stress, and more families working two jobs. We’re the biggest economy in the world and it’s in better shape than most after a nasty global recession. How can we be those things and simultaneously fat and lazy? They can’t both be right. If the education gap were truly so dire, then how can we explain that in the US grads are heading to college in record numbers?

This book attempts to be all-encompassing, and Friedman won’t stay away from politics. Our politicians must be “inspiring” and able to “explain” the situation, he says, to direct folks to get the needed skills to become competitive. We need an army of John Kennedys, according to Friedman, to lead all this new centrally planned competition. Wrong. Ronald Reagan (love him or hate him) is the best example of fostering competitiveness in a flattening world. Reagan indeed inspired the populace with his “Morning in America” concept. But instead of some bizarre and misguided centrally planned education expedition, he let Americans achieve their greatness by choosing their own paths.

Ultimately though, despite these weaknesses, Friedman delivers a book that asks us to embrace globalization, see the tremendous opportunities it can generate, and invites us to participate—a worthy message in an age of anxiety. *The content contained in this article represents only the opinions and viewpoints of theFisher Investments editorial staff.

Fisher Investments Book Review: The Richest Man in Babylon

May 11, 2010 Comments off

Running low on Shekels? Wish you could afford that nice goatskin your wife’s been asking for? Are you covetous of the new model mule—the one with 0.5 horsepower? Do you desire your cup to runneth over with libations? What about that designer robe of fine cloths that caught your eye in the bazaar last week? Tired of the same old salted meats and dry grains when you could be enjoying the rare spices of the world? Then have I got a book for you!

One of the longest running and bestselling investing books of all-time, The Richest Man in Babylon is attributed to George S. Clason, but there were probably many authors. The book first popped up in the mid 1920s as a series of short anecdotes widely circulated by financial institutions, and was eventually compiled and released as a book. It’s a series of allegories set in ancient Babylon meant to convey the “timeless” wisdom of finance.

Timeless, maybe, but in some ways it feels dated—stuff like IRAs, 401Ks, savings accounts, and the general notion of investment as a venue for retirement is hugely popular today…probably at least a little because of this book’s longevity and popularity. All this is certainly in the public consciousness by now (of course, whether folks heed the advice or not is another matter entirely).

What I like is the spirit it conveys—equating financial prudence with wisdom and teaching that achieving wealth is often a matter of personal responsibility. In today’s world, where populist anger equates wealth almost exclusively with greed, we could use a reminder that riches for most folks are the result of a lifetime of work ethic, discipline, and prudence. As such, it’s a great book for budding graduates and other young adults who need such lessons.

But it’s hammy. The characters speak like a cross between Hamlet and Yoda, and often descend into aphorism, banal platitudes, and a sort of prophetic righteousness that will elicit more than a few chuckles. In its own way, this feature contributes to the fun of the book more than it detracts. For instance, the “Seven Cures for a Lean Purse” feature great one-liners like, “Start thy purse to fattening,” “Make of thy dwelling a profitable investment,” and “Guard thy treasure from loss.” Even a perpetual sourpuss has to smile a little at these.

For some reason, ever since the King James Bible folks seem to think all cultures before about 1800 AD spoke the King’s English (A favorite quote: “Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field”). I guess the lofty language gives the sheen of wisdom. There’s always been the fantasy that “ancient” means wise. But none of these folks spoke this way in ancient Babylonia. Barely anyone could read or write. Yes, languages of antiquity were fairly well developed, but on balance were rough and far less sophisticated than much of what we have today. (Language is a technology too, and differing dialects have differing usefulness, particularly in fields requiring exactitude like the sciences and finance. But I digress.)

As allegories go, Babylon is fairly entertaining and drives its points home. But generally allegory is used to nuance and juxtapose lessons so as to broaden and deepen the teaching. I’m not sure there’s a lot of nuance in this book: save, be frugal but enjoy your life, and invest in things that generate income—we hear these dictums over and again.

Importantly, the story and its ancient setting actually obfuscate some of the finer points of today’s investing landscape. For instance, I doubt your average Babylonian citizen particularly had a long enough time horizon to see the benefit of compounding interest. Sure, some lived long and grew fat with years, but when you’re looking at an average lifespan of well below 50, and the occasional plague or famine, well, that starts to alter your long-term plans. Also, what’s magic about 10% as an appropriate savings rate? Why not 15% or 5%? There’s no discussion of such things, or of other basics like diversification (probably because diversification as a formal finance theory was still decades away in the 1920s). But not putting all your shekels in one clay wine jar is really important for novice investors to know.

Another example is gold. “The Five Laws of Gold,” which comprises a large chunk of the book, is sometimes misleading. I think what’s really meant here is “the five laws of money”, or capital. This seems like quibbling, but it’s an important distinction because much of this book is about how to generate future income. Well, gold is not a productive asset—it’s just a thing, a commodity. You have to do stuff with it to get income, that is, to create value. That’s different than owning a stock, for instance, which is ownership in a share of an enterprise that exists to create value.

You can have a lot of fun with Babylon. Where Warren Buffett would say something boring like, “I only invest in businesses I understand”, here you’ll get, “Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those who are skilled in its keep.” But I’d advise sticking with a modern dialect when discussing your investments with your advisor, lest you end up with a portfolio denominated in goatskins.

*The content contained in this article represents only the opinions and viewpoints of theFisher Investments editorial staff.

Chaos in the Markets & Good News Ahead

May 7, 2010 Comments off

With all the chaos in markets this week (evermore European debt concerns and trading flubs), a virtual truckload of positive global economic news went almost totally ignored. It was a terrible week for stocks, but all this is bullish looking ahead. Markets are likely to work through today’s fears (we’ve been talking about debt problems in Greece for months now), and as they do, what we’ll be left with is a global economy recovering and surging past expectations. That bodes well for stocks looking toward the rest of this year.

One can appreciate investor concerns with Europe , but my view is that we’re probably entering a somewhat overdue period of re-pricing risk among nations. That costs of capital are rising in countries with sluggish economies and high debt levels is not a catastrophic thing—and probably ultimately good. And keep in mind even with recent spikes in LIBOR, etc., costs remain very low on an absolute basis versus history. I’m not sure who can reasonably argue Greece’s debt costs should be as low as they have been—this is a country that’s traditionally spent a good chunk of its existence in default of some kind or another. A similar logic applies for any of the PIIGs— Portugal , Italy , Ireland , Spain …their debt costs should be higher.

Entering this weekend, I’d imagine many investors are feeling shaky and thinking this is late summer 2008 all over again. A re-pricing of risk for European countries may be somewhat disorderly, but isn’t likely to derail the global bull market in progress.

Immoral Suasion

May 6, 2010 Comments off

If this isn’t evidence big banks aren’t petrified of the feds right now, I’m not sure what is:

JPMorgan’s Glassman Says It Was ‘Stupid’ to Criticize Senators

Criticizing the government is a national pastime in the same way baseball is; not being able to criticize the feds is like telling New Yorkers they should be sunnier—it’s one of those certain, unalienable rights. Never mind that not only is JP Morgan’s general criticism accurate, and not only do most folks who watched the hearings believe it to be true, but goodness forbid we might have hurt the feelings of some grown, rich folks who lord power over us.

Then again, maybe this headline is truer than I realize: As a business consideration, it’s stupid to criticize senators right now because with the weapon of financial reform in their control, it’s certainly not a good idea to be on their bad side, lest JP Morgan (one of the most supportive and stable US banks through the crisis, I might add) get hammered. It’s just a shame this situation exists in the first place.

The Myth of Deregulation

May 5, 2010 Comments off

What is this “era of deregulation” that keeps popping up?  I’m totally mystified by the now accepted belief that, starting somewhere around the Reagan administration, we’ve been in a 30 year trend of tearing down rules. This has been blamed for everything from the financial crisis to the tragic oil rig explosion in the gulf.

Reasonable folks should reject this notion out of hand until someone can come up with a study that proves as much. I know of no major industry today that has less regulation than 10 or 20 or 30 years ago. Not a one. I’m not even certain that for most industries the pace of new regulation hasn’t been accelerating.

Stuff like Sarbanes Oxley and FAS 157 (yes, everything from actual regulation to accounting rules are more, more, more, today), didn’t do a darn thing to stop the recent bear market and probably worsened it. And in high risk, dangerous environments like an oil rig off the Gulf coast, the sad fact is accidents will happen. In fact, safety records for energy companies have trended upward over time. I’m no oil rig safety expert, and I’m certain there is always more that can be done to protect those brave folks who work under constantly treacherous conditions to supply the world with energy, but I’m also convinced the so-called market-driven incentive to harm these people in the name of profit is far overwrought—safety track records alone dictate huge insurance costs for these companies.

No one is arguing there isn’t a need for enforceable laws in a democratic society. But the fantasy that ever-increasing regulation by a group of elites is going to “protect” folks by mitigating the booms and busts of capitalism, or will tamp down occasional investment euphoria, or will prevent human tragedies like plane crashes and oil rig explosions, is sheer folly and contrary to hundreds of years worth of lessons about how capitalism actually works and creates wealth for society over time.

Fisher Investments Analyst’s Book Review: The Age of the Unthinkable

May 3, 2010 Comments off

Joshua Cooper Ramo’s The Age of the Unthinkable, ends up missing the mark, but for the right reasons.

Several clients have brought Joshua Cooper Ramo’s new book to my attention: The Age of the Unthinkable: Why the New World Disorder Constantly Surprises Us And What We Can Do About It (long enough title?).The author is a distinguished guy: Managing director at Kissinger Associates, a “geostrategic” advisory firm (I’m not entirely sure what that means), and former assistant managing editor of Time magazine. But this review is going to be detailed, and very critical. It’s not that the book is so bad, it’s just that it’s so close to being right…but isn’t. Its subject is geopolitics and not expressly capital markets, but Ramo throws them all into the same bucket—saying they’re all “complex” systems (more on this in a bit). Complexity theory is a great venue to study such things, but both Ramo’s premises and conclusions are shaky.

That’s hugely frustrating, and warrants some attention because complexity theory is the “hot new thing” in a lot of economic alcoves, and is threatening to hit the mainstream more readily in years to come. Thus, it’s good to know what works and what doesn’t when thinking along these lines. In terms of style and readability, this is a fine and entertaining read. Ramo is an excellent writer and journalist.

Let’s take a look under the hood.

The Problem Is the Premise

The real problem with this book is its premise: That today is the beginning of an age where culture, technology, government, economies—the whole world—are experiencing rapid and accelerating change that will have effects no one can anticipate or understand, and that vast upheavals will result.

This is both true and untrue. At best, we are in the middle of such an era. Starting at least with the Industrial Revolution, economies and governments of the world have undergone rapid and ever accelerating change—all of it unpredictable as it was happening. Those that were born about at the beginning of the 20th century saw bigger change than any generation before them—with a good bit of the world going from largely rural and agrarian to what we have today. That was the true beginning of accelerating change. There is nothing so special about the present moment in this regard, though many would like to think so tied to the financial and geopolitical chaos of the last decade.

Indeed, the foundational premise of this book is taken as given and without so much as a few pages to actually prove such a proposition. Ramo refers to a “hockey stick” graph, where the rate of change was constant for a long time, then suddenly—as in, now—the chart jerks upward and we see hyperbolic global change. Yet, there is no statistical evidence to support any of that. It may feel that way, yes, but it’s the tendency of folks to always feel the present era is getting beyond control. Again, if the hockey stick theory is right, it started well over a hundred years ago.

This book references a litany of thinkers and lauded studies—it’s intellectually dazzling in this sense—yet fails to reference the preeminent thinker on this topic: Ray Kurzweil. His book, The Singularity Is Near, shows in painstaking detail that accelerating change has been going on worldwide for a very long time and is not new.

What I believe this actually is, in disguise, is a fairly banal “new normal” argument. Ramo is saying that now is different, and so we have to think differently. Well, every era is different in its own way. There is nothing privileged about today’s difference. And the prevailing economic and capital markets recovery of the last year or more reflect that.

Complexity Theory, Misapplied

There’s an old philosopher’s joke, apt for this book. No matter how overmatched you might be, you can win any philosophical argument by simply saying, “Well, yes, but it’s actually more complex than that.” There’s no way a philosopher can surmount it! It’s always true!

Complexity theory, to my view, is one of the most exciting and important new theoretical fields in understanding economics. My own book, 20/20 Money, is based on its foundations. I was stunned when I read that Ramo co-chaired the Santa Fe Institute’s first working group on Complexity and International Affairs. The Santa Fe Institute is perhaps the world leader on complexity theory. I was stunned not because he held such a position, but that someone of that position could misapply complexity theory so greatly.

To tout complexity theory is a fine thing, to say that we can’t ever understand exactly how the world works because it’s too vast and complex to fathom, that there are interconnections in the global economy so deep no computer could ever suss them out fully—is righteous.

But that doesn’t mean there aren’t patterns to be discerned with real causality behind them. And even if the patterns of this world break down, they don’t do so “instantly”—they generally happen gradually and are replaced by new ones. For instance, correlations between stock market returns for countries can break down over time, but those trends can last for many decades. Complexity theory shouldn’t teach us that the world is unintelligible. The lesson is that we must exercise humility—we can’t know everything, we can often be wrong, and there can be anomalies to common patterns. Which makes forecasting across any complex system a matter of probability, not certainty.

Ramo’s principle example for complexity is the “sand pile.” I’ve heard a handful of economists and thinkers articulate this idea incorrectly. Essentially, that if you start a sand pile, adding one grain at a time, you get a structure that can become huge, but at some point one grain of sand will eventually topple the whole thing—each grain moving the others in ways no one can see, until the pile is decimated. And there’s no way to know which grain that will be, and how catastrophic the decimation will be because it’s too complex. This is sometimes referred to as the “fingers of instability.”

The sand pile is a wrong metaphor for thinking about human systems. One of the main, and vital, features of human systems is that self-directed volition (emotion, motivation, the ability to consciously affect an outcome, etc.) actually changes the whole game. It’s fine enough to use examples like sand piles and ant farms (as I do in my book) as starting points to understand complexity theory, but it’s not enough. Things change drastically when we layer on consciously directed systems, with self-aware participants to affect outcomes. This, for instance, is precisely what monetary policy is.

Also, the human psyche has universal features to it. One of the amazing things about capital markets is—regardless of time, place, and circumstance—investor behavior doesn’t vary that much. Panics are panics, bubble euphoria is too, no matter where you go (or when). Love and hate may take many forms, but there they are, everywhere. These things transcend culture and time. Which makes their patterns at least tacitly recognizable, if not often gamable.

So when we think of complex systems like our global economy, the lesson is not unintelligibility, it’s that we must think in probabilities—patterns can tell us something about the future, even though sometimes they break down or are misunderstood (because, yes, the stock market is a complex, self-organizing system). But even chaos theory has patterns. Really!

The Fantasy of Cataclysm

Most importantly of all, though, the metaphor of the sand pile is far too pessimistic. I view capitalist economies as a Complex, Emergent,Adaptive, Systems (CEAS). Ramo discusses adaptability and emergence, but tends to focus too narrowly on the possibility of ruin within them. He says that in an increasingly complex, global world, more interconnected things brings the possibility of more ruin since all things are linked and often in weird ways. It’s a fair enough point, but equal or more time should be devoted to the notion that a complex system doesn’t have to be so fragile—it can strengthen and reinforce itself through interconnection too. That’s the real story of capitalism and democracy through time.

Ramo spends a great deal of time talking about the need for “resilience” in today’s rigid world, touting many notions and ideas—everything from natural weather systems to the philosophy of Chinese warfare to Hezbollah’s methods of political maneuvering. Yet, he fails to see or acknowledge the world’s biggest, most resilient system of them all: free market capitalism! That’s the greatest of all human complex systems—it’s dynamic, resilient, self-organizing, adaptive, and hugely complex. Again, this is a perspective issue. Ramo approaches the global economy today as a victim of complexity, whereas a more accurate view is that system itself has been resilient and stronger than most anyone believed despite a tremendous shock the last few years.

This view that increasing complexity is foremost potentially cataclysmic, that as the system gets bigger and less comprehensible it gets less stable, is more about the immediate anxiety of today’s times than reality. The world is in fact stronger, more durable, and resilient than ever before—and it can get more so. Does that mean upheaval is eradicated? Of course not. It means, when calamity does strike (as it did in 2008), the global economy can recover faster and stronger than most believe—as it has. But you can’t see that when you’re wrapped up in the fantasy of ruin.

If you took the fatalistic view, you could never be bullish—never participate in stocks’ (i.e. capitalism’s) tremendous long-term gains. That view has been wrong basically forever. Even passive investors, who just plunk their money in an index, gain over time, including successive big bears like in the last decade.

Analogies and Intellectualism

My boss Ken likes to say analogies are useful but always imperfect. Mr. Ramo is a hugely learned person and a fine writer, and he uses that acumen to heap on examples and ideas from all times and places to bolster his points—everything from modern art to meteorology.

I usually enjoy such an approach—to interconnect and reinforce ideas in ways strange and counterintuitive. Unfortunately, Ramo uses too many metaphors that not only obscure his points, they end up erroneous.

For instance, he argues we live in a world where many ideologies can prevail and multiple perspectives are key to a cogent view of reality. But he couches this idea in a series of misplaced examples. For instance, he says different-thinking artists often see “revolutions” in the world before others, then takes a multiple page jaunt into art and Modernism, using Picasso’s cubist period as an example of the “multiplicity” of thought we need to experience to set better public and geopolitical policy.

This is too treacherous an analogy. If we go one step further, it explodes. In the history of 20th century art and philosophy, the next move is to say with the recognition of multiple views it should be clear that all views have some claim to truth, and at the same time all views have essentially no claim to truth—they are all “perspectives,” that is, points of view. Thus, the greatest truth we can have is our fictions, our narratives. This is known as postmodernism. Perhaps Ramo is unaware of postmodernism, but I doubt that. More likely, it doesn’t fit the point he wants to make and therefore isn’t part of the grab bag of metaphors he dazzles us with. What all this art and philosophy does, instead, is reveal the shallowness of the idea he’s proposing.

As I warned, I’ve been quite harsh on this book. And I beg your forgiveness because complexity is such a dear topic to my own heart. The ideas and sheer breadth of intellectualism in this work will dazzle, but at core they rest upon a foundation of sand.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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