Here is a bookend for you. On one side, you have “oil and vinegar;” namely, our odyssey into a war with Iraq that was launched on the premise of reversing the rising tide of Islamic fundamentalism, bringing democracy to the Arab states and (implicitly) protecting access to one of our most economically critical resources – oil.
Here, as Maureen Down of The New York Times eloquently captures in ‘Red, White and Blue Tag Sale,’ not only have we failed in our stated objectives, but, as she notes, “our addiction to oil has allowed our pushers in the Persian Gulf to go on a shopping spree to snap us up.” That's the vinegar.
Specifically, China and Arab countries now have a staggering amount of treasury securities…the oil-rich countries are sitting on so many petrodollars, in fact, that they are taking advantage of the fire sale dynamics to buy eye-popping stakes in our major financial institutions.
For example, Citigroup, which raised $7.5 billion from Abu Dhabi in November, raised another $12.5 billion, including from Singapore, Kuwait and Saudi Prince Walid bin Talal. Merrill Lynch gave $6.6 billion in preferred stock to Kuwait, South Korea, a Japanese bank and others.
The irony, she notes, is that if the president had spent the trillion he squandered on his Iraq adventure on energy research, we might have broken the oil addiction, and potentially changed the power dynamics in the Middle East.
Instead, we have an economy that is teetering on the brink of a recession, “fueled” by an expensive, unilateral war and crude oil prices that have shot up 4X since 9-11 (from the low $20 range to the $90+ range). Such is the bitter legacy of the twice-elected “mission accomplished” gang.
On the other side of this bookend is volatility, and specifically, the unpredictable, but truly staggering impact that seemingly random events can have in the larger scheme of things.
In ‘Black Swan: The Impact of the Highly Improbable,’ Nassim Nicholas Taleb offers up a potent graphic that provides some context for making sense of today's rocky stock market.
It spotlights how in the last fifty YEARS, the ten most extreme DAYS in the financial markets represent half the returns…and yet conventional finance sees these one-day jumps as mere anomalies.
I will defer to the reader to discern what one bookend has to do with the other, and how one should play their hand moving forward as citizen, voter and/or investor.
As alluded to in 'Financial Tsunamis,' and approached from a completely different angle in 'On Intellectual Honesty,' we live in an increasingly interconnected world where understanding the storylines and their respective arcs is not enough.
You need clear narratives about how the chicken parts coalesce to form a living, breathing chicken and scenario plans for navigating the (turbulent) road that lies ahead.
