Expecting the Unexpected

As a believer in ‘continuous revolution’, I find many people’s response to change rather bizarre. By which I mean that alterations in the financial markets happen all the time. But public reactions to them are often more extreme than we expect.
To put this into context, from my perspective a ‘revolutionary’ isn’t necessarily someone who’s trying to alter society – it’s a person who is aware that the natural world is constantly changing – or ‘revolving’ - and that attempting to prevent this is like trying to stop the tide from coming in. Although it’s true that the phrase ‘continuous revolution’ does have a political association – it was originally used by Mao Tse Tung in the late 1950s when he wrote an article criticising Stalinism for effectively suppressing dissent. Yeah, that comes as a bit of a surprise, doesn’t it? He also suggested that trying to control the economy from the top down was perverse because it was ‘following the capitalist road’ and that contradictions and continuous challenges were the only driving force towards a true socialist system.
Which isn’t to suggest that Mao was a nice, flexible liberal. His idea of continuous change wasn’t to do with empowering the masses and allowing them to develop their own requirements. Rather, the change he favoured was imposed from above and anyone who might have even considered dissenting was viscously crushed. Yes, the originator of continuous revolution was really a domineering reactionary who wouldn’t contemplate a difference of opinion. On the positive side (insofar as there was one) it may have been because he had a desired outcome and wanted to retain control so that he could make it happen. And if the peasants could just get out of the way, he’d be able to achieve this – which was all for their own good!
So - back to the financial markets where, by the time you read this, City fat cats are likely to have made a bomb by buying up Northern Rock at a huge discount caused by a media-driven loss of confidence. It’s a wonderful combination of a paradox and a parallel. The bank is almost certainly financially secure or it’s extremely unlikely that the Bank of England would have offered to support it. But because they have, the assumption at ground level is that Northern Rock must be in trouble. Duh. So people are withdrawing their deposits. And the more they do this, the more confidence falls and therefore the bank’s share price plunges. And the cheaper the shares are trading, the more money will be made by the people who are buying them at a discount.
The thing is, lots of people knew that Northern Rock was, if not over-exposed, then at least vulnerable to a change in the credit market. But did they sell their shares when the market was rising? Not as far as I can tell. Instead, on the basis that greed out-performs fear in the short term, many people bought more. Then when the market started to plunge, this polarised and they sold them, in some cases converting a notional loss into an actual one.
And what’s likely to happen in the market? Here’s a prediction. It will rise. Then fall. Then rise. The only thing we can’t predict is when and by how much this is likely to happen.
The problem is that a lot of people tend to act on a single hypothesis – that whatever is happening now is the norm and nothing will change. So when things do change – and they always do – we panic. People buy on a rising market when the price of shares can often exceeds the underlying value of the company. This is in the expectation that, because they have gone up in the past they will continue to go up in the future. But when the market starts to go down, rather than hanging on to them because of the previous assumption, we change to the hypothesis that whatever is currently happening will persist in the future – i.e. it’s going down now, so this will continue forever.
That’s rather like thinking that because the tide is coming in now, it won’t ever go out again.
But let me let you into a secret. We’re safe. Everything that I know suggests this. I don’t mean that we won’t die or that there aren’t going to be major changes in the world. There will. But we’re already safe. Things will work out. Just not in the way that we expect or therefore recognise. This isn’t a way of saying that we don’t need to take action to avert global warming. We do. Even though it probably won’t make any difference. Climate change is already happening and is extremely unlikely to be affected by our actions. The polar icecap is unlikely to exist in half a century. London and New York will be under water. There will be widespread drought and famine. Hurricanes and tornados. The weather across the globe will be incredibly volatile and unpredictable. Rather like the present equity markets. But we’re safe.
The thing is that the actions which we take need to be based on our personal truth, not on emotional reaction or attempting to impose our vision on a world. Something which Chairman Mao never understood. We’re safe. And if we keep taking appropriate actions for appropriate reasons, we may even get to a point where we expect (and welcome) the unexpected. Now that’d be a revolution.
Robin Currie is an Independent Financial Adviser specialising in green, ethically-screened and environmental-sensitive financial products. For an appointment call 01392-411630 or e-mail robin.currie@barchestergreen.co.uk. You can also log on to the website www.barchestergreen.co.uk. Robin also runs the highly acclaimed workshop Making Friends With Money which is being relaunched in October (details on www.makingfriendswithmoney.co.uk) or call 01392-346336.