These are scary times in the world of finance, and increasingly in our every day world too. The collapse of Bear Stearns shows the instability in the system. Housing prices have fallen, oil and gas are out of control and the dollar is weak. I am currently reading the Black Swan by Naseem Taleb (you should too) and his book seems incredibly relevant given the situation we are in.
Essentially he says the obvious: no one knows the future and the value of all predictions is next to meaningless. Statisticians and “experts” rule out massive outliers and thus their predictions are moot. They assume a nice, stable world where massive changes do not happen, when the reality of our time is that massive changes are more and more likely. No one predicted 9/11 of course, but it invalidated all financial models made up to the day before it. The current crisis in the financial sector is somewhat more predictable, but still, the collapse of Bear Stearns was not on the horizon. I read Tobias Levkovich weekly, and note that he assumes nice stable historical patterns, which mean that his predictions are as useless as mine. I am not doing justice to Taleb’s book or his ideas, but the main takeaway is that forecasting the future is almost utterly vain. What if the USA collapsed next month, or a new disease wiped out half the planet, or some other huge event? It would be unforeseen and disruptive. Also, in its wake we would see books and stories that tried to make sense of it in a narrative way, that would show us how we should have seen it coming and how it all made sense – but it wouldn’t.
So the financial situation can cause panic and fear. All I have to lean on are the word’s of the Messiah: “sufficient unto the day is the trouble thereof.”