It’s always something

17Jul07

“Well, Jane, it just goes to show you. It’s always something. If it’s not one thing, it’s another.” – Gilda Radner as Roseanne Rosannadanna

This illustrates the fact that market participants seem to carom from one perceived crisis to another. As soon as one fear subsides another seems to pop up on the horizon. We were reminded of this in a post by Bill Rempel who wondered if fears of the subprime mortgage meltdown are similar to last year’s fears of a full-blown avian flu outbreak?

That is not to say that the subprime mortgage mess could not have significant knock-on effects. What is often lost in these discussions is perspective. It is easy to focus on the immediate issue that is currently demanding our attention. This gets magnified in age of the blogosphere where issues get highlighted and debated at the speed of light (or at least a keyboard).

We have previously looked to natural phenomena to illuminate certain market truths. For example, we looked at how research into ‘rogue waves‘ can help illustrate how the stock market could crash without a single, significant, visible cause. Another scientific story helps put into perspective what happens when the market focuses on a crisis.

For several months now commercial beekeepers have been noticing a significant drop in the number of bees, and bee colonies. Bees are important to us humans in that they play an key role in pollinating any number of cash crops. There are fears are that a collapse in the number of bees could presage some broader ecological calamity.

Andrew C. Revkin in the New York Times reports on the newly official status of this phenomenon. Colony collapse disorder, or CCD, has got some people genuinely frightened. What is apparently lacking is some much needed historical perspective.

What some scientists say is missing from the debate is historical context. “Every time there are these disappearances, the ills of the moment tend to be held accountable,” said May Berenbaum, who heads the entomology department at the University of Illinois Urbana-Champaign…

Another quote illustrates how some clearer thinking may put the current situation into a broader framework.

Michael Burgett, a professor emeritus of entomology at Oregon State University, said the big honeybee losses in some regions could simply reflect unremarkable spikes above a common level of mortality of more than 20 percent in recent decades.

“In the late 1970s we had another scare similar to this,” Dr. Burgett said. “They called it ‘disappearing disease’ at the time. But we never found a specific cause for it, we continued to improve our bee management programs and ‘disappearing disease’ disappeared.”

Might CCD cause a real and lasting disruption to the agricultural economy? Absolutely.

Can avian flu mutate into a more transmissible and deadly form? Clearly.

Could the subprime mortgage mess spillover into the broader capital markets and cause a generalized sell-off? You bet.

The problem with history is that often only tells us what happened, not what might have happened. To provide some greater perspective we need to understand what other issues at the time were thought to be important. For every single event that happens, it is likely the case that people were worried about another dozen of so issues.

Only a fool would think that the markets could not face a major sell-off at any time. Stuff happens. Most of the time the things we fear never come to pass. Sometimes they do. Investors are best served by focusing on those things that they can control, and less time and energy on those things they cannot.

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