Volatility is a Wonderful Thing

Volatility is a wonderful thing.  It not only brings profits to some willing to take risk, it punishes the foolish and teaches them lessons that make them stronger.  Some days just aren’t that great in times of volatility, but we keep going because we believe that tomorrow will be better, that we will be wiser the next time, and it reminds us of the values and principles that ground us to reality. That is the natural optimist in each of us, but it also works for companies and countries too.

We are living through one of those funky periods where life seems out of control and surreal.  Just when we think things are getting better something completely unexpected like a ‘flash crash’ of 1000 points happens on Wall Street.  Just when we think our energy situation is improving because advanced technology has enabled domestic production to go up, BP blows it and mucks up the Gulf of Mexico.  Just when the global markets show signs of growth Greece bleeds red ink and threatens to take the rest of the PIIGs or even the Euro with it.

Volatility teaches us lessons the hard way so we remember them.

What are you talking about, you ask?

  • EURO RESPONSIBILITY. After months of finger pointing by European leaders that the world’s economic problems were caused by those nasty American bankers and shady credit default swaps and other instruments of financial torture, we learn that ancient Greece has been up to its ancient ways cooking its books to hide its budget deficit borrowing money like Wall Street speculators from European banks eager for the transaction fees.  As Bogart said best “I’m shocked to hear that gambling is going on here!” But this time it was the GERMAN sheriff stepping in to break up the mayhem and restore order.
  • GHOST OF CALIFORNIA’S CHRISTMAS FUTURE. For California, living near the edge is not something we learned from Greece but our fate could be similar to Athens when judgment day arrives.  Those Greeks rioting because their pensions, salaries and spending irresponsibility was purchased with borrowed money look a lot like the California state employees, CALPERS, and the feckless State Legislature.
  • ARIZONA, MEXICO, DRUGS AND CONTROL OF THE BORDER. Drug cartels fight for control of markets and supply routes leaving a trail of violence and lawlessness sweeping Mexico.  Now that violence spills over the US border but the Federal Government does little to stop it. Arizona’s Governor is appointed Secretary of Homeland Security and its expectations that the Feds will help are raised then dashed when nothing happens.  After years of writing letters to Republican Feds, Secretary Napolitano now ignores the same plaintive letters from her successor as Governor.  The parties switched places but the results are the same—NOTHING!  So Arizona ups the ante by adopting SB1070—a virtual mirror of Federal law except it prohibits racial profiling (something not prohibited in Federal law) in an effort to get the Feds to act.  President Obama then accuses Arizona of racial profiling intentions. President Calderon correctly points out that drugs are a problem because of US drug demand.  While he disses Arizona for SB1070 in a state visit Mexico’s own immigration law is much more onerous than the Arizona law.  Mexico depends upon the remittances from Mexicans working in the US to family back home to help prop up its failing economy. There are immigration issues which must be addressed, but this is political malfeasance where both Democrats and Republicans seek to use a divisive issue to score political points. Shame on both of them!
  • A POX ON BOTH PARTIES! Republicans hope for an election bloodletting as Americans recoil from the stunning overreach of Democrats misreading their mandate and misusing the recession and economic volatility to impose a program of deficits spending, vast intrusions into business and daily life, and a blitzkrieg of legislation with little transparency hoping to enact their agenda before midterm elections.  But as voters it seems like we just kicked out the Republicans for the same reasons—they forgot who they work for!  Now we are unsure that returning them to majorities will be much of an improvement.
  • CHANGE WE DON’T BELIEVE IN ANYMORE. The president’s popularity was born of Americans joy at his election as a symbol to the world of our redemption from discrimination past and our belief in the principles of the founders that “all men are created equal” for the future.  But the celebration has turned moody feeling deceived that this change is not really what we expected. Americans see little difference between the Democrats overreach in power today rewarding their friends and the Republicans overreach in power yesterday doing the same. Sometimes those friends are the same bankers, unions and lobbyists pouring money into the political accounts of politicians to gain favor.  The Tea Party movement is a powerful and terrifying symbol of American dedication to its Constitutional values for our political class and due notice that the revenge of the voters will be exacted on both parties before it runs its course.

So why am I optimistic?

The genius of America has always been our ability to adapt to change and reinvent ourselves to take advantage of opportunities presented.  The volatility and economic shock we have experienced combined with the political wake-up call we are experiencing now are the best evidence of that American renewal process at work today.

The midterm elections will punish incumbents in both parties.  But we hope it will bring in new blood with a deeper commitment to the values we seek to advance and less partisanship.  We have learned as voters that we get better results in Congress when both parties fear us.  Giving big majorities to either party rarely works out well for us so we need to keep them evenly balanced and have good “adult supervision” from our president to set a wise course.

So far Obama is not winning any ‘Rookie of the Year’ awards but we still hope he can turn things around. But as insurance we are likely to take away his majority in at least one house of Congress this November.  And if his performance does not improve we may not renew his contract in 2012.

Volatility separates those with a future from those with just a past.

The difference between America and Greece is while we both celebrate our past, America lives into its future.  Our manifest destiny was reinvented from a quest for control of our continent to a quest to project our values of liberty, competitive markets and the rule of law into a world that craves each.

We won the cold war and now are completing the circle of the end of that long struggle.  Had America as the sole superpower after the Cold War sought to preserve its hegemony we would not have seen the rise of China as a great economic power, the integration of Europe, the natural spread of democracy and thirst for freedom all celebrated as global progress.  But progress also brings problems we now share with a more integrated world including the struggle to deal with Islamic terrorism, bad boy countries in the continental neighborhoods that must be policed, and the unintended consequences of global markets and trade.  But that interdependence is also strength since the consequence of not working together is worse than the price of compromise.

The world still needs American leadership but what it wants is American resolve to live into its core values and act predictably to advance them.  The world worries when America’s President apologizes for America’s values or advancing America’s self interest. In a choice between having the world love us and having them respect us take the latter every time.

When we live into our American values we set the global compass to true north and enable others to act in their self interest in ways that are either deliberately in concert with our own or—if they feel daring opposed to them.  If America wimps out and lets such challenges pass we only invite more dangerous behaviors.  But when we stand up for our values—and for our friends and allies—we don’t need to apologize for our behavior.

Volatility is a wonderful thing because it separates the brave from the bullies.

The best way to deal with bullies has always been to confront them face to face and expose them for what they are.  Bravery is learned from experience and is born of self confidence and values that are stronger than the fears we face.

That is why I have faith in America’s future!  But I am still going to enjoy kicking both Democrat and Republican butts this election.  I am not a Libertarian like Rand Paul but he said it for all of us election night in Kentucky:

“We are coming to take back out country!”