I debated with myself about what to send as this week's Outside the Box. I have decided on a recent short but important post from my friend David Kotok, Chairman and Chief Investment Officer of Cumberland Advisors. He calls it "I'm Worried." There are some very thought-provoking ideas here, but what makes it particularly interesting is that I'm running into this sentiment more and more as I travel around the US; and when I'm abroad I also hear from people who are worried about the US. These are folks who rightly realize the world needs a strong US, both as an economic engine and as a leader – a chairman of the board, if you will – of a growing world. (Can the world grow and prosper without us? Of course, but not as easily, and the transition will not be pretty.)
So this "worried" theme is one I hear, read, and see firsthand more and more each passing week. It's that gnawing feeling that things are just not going right and that our leaders are simply not up to the task of setting the ship on a steady course, even as they almost universally acknowledge we are on the wrong course and assert that the deficit must be dealt with. As with David, this concern is most vivid for me at the close of the day as I review my own thoughts and think on the future of my family and friends.
This deficit of ours is the single most important political and economic question of our time. How we address it, or fail to address it, will set an economic course that can once again turn vibrant and hopeful, or one in which we find ourselves sideways to some monster waves, and capsize. We watch Greece and Spain and worry as we look askance at our own fiscal situation and wonder whether we will be able to kick the can around the deck for "just one more year," before our ship is on the rocks. There is a growing sense that the last one more year may be fast approaching, through the fog. Europe is already there. Can our own denouement lie very far ahead?
I have known Kotok for the better part of a decade now. Mostly, he is a quite bullish and optimistic fellow; and, as he notes, he is fully invested in his client accounts and has caught the latest ride. He organizes the annual Maine fishing trip that has become quite the gathering of economists and writers. There, he has often chided me in the wonderful Maine evenings for what he perceives as my bearish views, although last year with Nouriel Roubini there I was at least not the most bearish of the group.
My main view, say a 60% probability, is that we do in fact deal with the deficit here in the US in 2013. I will enjoy becoming bullish once again and telling my kids to look to the future with hope. But like David I am worried. What should be just a bump in the road for the US and the free-market world can become mountainous if we do not face the real problems before us, if we do not recognize that "We have met the enemy, and he is us."
I choose to remember that David, in his brighter moments, is not quite so brooding. A good night's sleep may help. And yet, he voices a concern that is moving from the backs of our minds to the forefront with increasing urgency, across the full political and social spectrum. The drumbeat is becoming insistent that something must be done, and soon.
(You can read more of David's commentaries at www.cumber.com.)
I was in New York last Wednesday, and Tom Keene of Bloomberg TV was kind enough to invite me on his show for an extended interview and thoughtful exchange, not the usual two-minute drill. You can see that interview on johnmauldin.com. The link is on the left side of the page.
Have a great week. I think I will write to my friend Louis Gave and tell him to send me something bullish for next week's Outside the Box. I can usually count on him to find the silver lining. And now if someone can just arrange for some sun in San Francisco this weekend, I am sure I will get more positive about the world. David, maybe we should invite Louis to Maine to perk us up?!
Your really believing we Muddle Through analyst,