"To trace something unknown back to something known is alleviating, soothing, gratifying and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown - the first instinct is to eliminate these distressing states. First principle: any explanation is better than none... The cause-creating drive is thus conditioned and excited by the feeling of fear..." Friedrich Nietzsche
"Any explanation is better than none." And the simpler, it seems in the investment game, the better. "The markets went up because oil went down," we are told, except when it went up there was another reason for the movement of the markets. We all intuitively know that things are far more complicated than that. But as Nietzsche noted, dealing with the unknown can be disturbing, so we look for the simple explanation.
"Ah," we tell ourselves, "I know why that happened." With an explanation firmly in hand, we now feel we know something. And the behavioral psychologists note that this state actually releases chemicals in our brains that make us feel good. We become literally addicted to the simple explanation. The fact that what we "know" (the explanation for the unknowable) is irrelevant or even wrong is not important to the chemical release. And thus we look for reasons.
How does an event like a problem in Greece (or elsewhere) affect you, gentle reader? And I mean, affect you down where the rubber hits your road. Not some formula or theory about the velocity of money or the effect of taxes on GDP. That is the question I was posed this week. "I want to understand why you think this is so important," said a friend of Tiffani. So that is what I will attempt to answer in this week's missive, as I write a letter to my kids trying to explain the nearly inexplicable.
But first, let me note to Conversations subscribers that we have posted a Conversation I recently did with Professors Ken Rogoff and Carmen Reinhart, authors of This Time It's Different, which has my vote for most important book of the last few years.
Last week we also posted a Conversation with two noted hedge-fund managers, Kyle Bass of Hayman Advisors (and his staff) here in Dallas and Hugh Hendry of the Eclectica Fund in London. Our discussion centered on what we all think has the potential to be the next Greece, but on a far more serious level.
That got a lot of positive response. Herb wrote, "Wow. What a great discussion. What smart guests, how little BS.…