American Consequences - February 2019

LETTER FROM THE EDITOR

It’s an oldWall Street saying: “Markets are driven by greed and fear.” If so, markets are a sort of one-man full-court basketball game where you dribble EGUYMWMXMZIP]HS[RXLIǼSSVFSEVHWXSWMROER&ZEVMGIFEWOIXSRP]XSǻRHXLEXXLI Worry side is down by two points, and then, panic-stricken, you have to pass the ball to yourself back across the center line and make a Safe Haven layup. STARTING WITH 'GREED' AND 'FEAR'

This is a ridiculous metaphor for investing. Warren Buffett, in his 2004 Annual Shareholder Letter, famously said, “Be fearful when others are greedy and greedy only when others are fearful.” Good advice, if you can assume that everybody’s wrong all the time. John Maynard Keynes addressed greed and fear in his 1936 magnum opus (and damn dull read) The General Theory of Employment, Interest, and Money . ... the characteristic of human nature that a large portion of our positive activities depend on spontaneous optimism rather than mathematical expectation... [Greed] ... can only be taken as a result of animal spirits... [Emotions] Thus if the animal spirits are dimmed and the spontaneous optimism falters... [Fear] ... enterprise will fade and die. Note that the Wise Men of Wall Street, the Oracle of Omaha, and the Father of Modern Macroeconomics all seem to regard greed and fear as bad things.

We have no one to stick up for greed except Gordon Gekko, played by Michael Douglas in the 1987 Oliver Stone film Wall Street . ... greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary sprit. Greed, in all of its forms – greed for life, for money, for love, knowledge – has marked the upward surge of mankind. But, remember, Gekko is the movie’s villain . He’s named after a lizard. (More than a dozen years before GEICO made a lizard cute.) And there’s no one at all to stick up for fear. FDR (who, incidentally, had a terrible understanding of market economics) was full of baloney on the subject. “The only thing we have to fear is fear itself.” And death, famine, war, conquest, heart disease, cancer, plane crashes, car wrecks, accidents in the home, snakes, heights, public speaking, falling behind on our car payments, etc. In fact, greed and fear are the second and third most valuable emotions you possess.

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